While tolling to pay for construction of roads is as old as Roman Empire (and possibly older in India), the concept of tolls is not very well developed. In this part, we explore the details of tolling. It is the most critical piece of puzzle and should be one of the first issue to be fixed.
Need for tolling
Ideally, developing roads is the responsibility of the government. Government collects taxes out of which it is supposed to fund the development of roads.
However, developing countries like India, have low tax collections constraining infrastructure development. Therefore, to tide over the lack of availability of resources, build-operate-transfer (BOT) type projects were conceptualised. Here the private player assumes the risks for recovering the costs and making a return for creating a road. To get the return, BOT contractors get a right to collect toll from users of their road.
In general, infrastructures such as railways, pipelines, power grids, water, broadcasting and broadband networks, by design, charge for the benefit they provide. This is the “user-pay” principle. Tolls are simply a mechanism to deploy that principle to roads.
Tolls can be ONE of two things
At present the tolls are sold to public as a means to ensure a return on the road project investments. This principle of tolling, called toll for expected return, is consistent with BOT-type projects or for projects divested using toll-operate-transfer (TOT) projects. Here, toll is a specific, time-limited mechanism to provide return on a particular road project. In this case, the amount of toll depends upon the traffic, the cost of the project and promised return to the contractor. Once these criteria are met the tolls should STOP. The World Bank PPP Legal Resource Centre document, titled ‘Tolling Principles’, identifies three methods for determining total amount of toll-revenue-maximisation, welfare maximisation and operational and maintenance cost recovery.
Alternative principle is, tolls as a pay-per-use tax for the population. In this case, the rate of tolling can be standardised across the country. The toll rates are lower, and they are applied in perpetuity. The toll collection goes to a central or state government kitty and from there it is allocated to fund new projects or pay off old projects. The new National Highways Authority of India (NHAI) contracting methods like BOT-Annuity, engineering, procurement and construction (EPC), hybrid annuity model (HAM) type models, are more suitable for this method of tolling. However, if we accept this principle of tolling then we must subsume into this, all other taxes like fuel surcharge, road tax, etc.
Indian toll system is unnecessarily complicated
There is lot of confusion as to principle of tolling at centre and state level. Across the country the principle of application is different.
At the moment, the stated policy use the first principle of tolling i.e. toll for expected return, and tolls are used to recover investments in road projects.
However, if the tolls computed based on this principle is too high then there is political intervention and tolls are reduced arbitrarily. This was one reason why contractors are reluctant to bid for BOT projects, where toll collection is their responsibility.
Conversely, governments, once they get used to the toll revenue are reluctant to close the revenue stream. Maharashtra, for example, started with first system at Mumbai toll plazas. The idea was to recover the costs of Mumbai infrastructure using the toll at a certain return. This implies that once the cost of the infrastructure was recovered the toll will cease. However, it was later moved to second system.
It is not clear why the toll is being levied at present. Therefore, there is no way to determine if we are being tolled at proper rate or less or more.
The wide-spread anti-toll protest arise because of the change of the principle of tolling without informing the public. In effect, toll is being collected for project that has paid itself over. Further, the toll collected is not utilised to improve the quality of roads tolled. Hence the tolled road is ridden with potholes. Here people are forced to pay for a service that has not been provided.
We need absolute clarity on the principle of tolling at a national level. Indians must resign to the fact that tolls are not going to go away. What we can insist is the transparency in determining the level of tolls but more importantly in collection of tolls.
Transparency in Toll collection is a BIG issue
The lack of transparency with respect to toll collections relates to the levy of tolls, collection and deployment of the collected proceeds.
As mentioned earlier, we are constrained to admit that toll is here to stay. It is never going to go away. However, we should now ensure that the metrics used to decide the amount of toll is just and fair. So fairer norms and mechanisms need to be developed as to how levels of toll will be decided, when they will be revised etc. All other taxes including fuel surcharge, road taxes must be subsumed into the tolls. These decisions depend on transparency in collection of tolling.
We need metrics of number and types of vehicles and tolls collected in real time.
The screens and information kiosks are already set up at certain tolling stations.
However, that information must be publicly available on the internet.
Toll collection transparency issue can be completely solved by enforcing 100% electronic tolling. The cost benefit for creating the 100% fully electronic, open road tolling makes it a no-brainer. In fact, in this series we have repeatedly urged that 100% electronic open road tolling should be the first project to be undertaken by NHAI and all state tolling agencies.
The final aspect of transparency in tolling relates to deployment of proceeds. There needs to be a systemic, real time mechanism to understand as to how much tolls were collected and where these funds were applied. At present the government makes the citizens need to jump through various hoops to get this information. This mindset must change. This information must be available in real time and transparently. It requires that we evolve a government financial reporting standard. (It is a separate issue by itself which may be subject of a separate article). Suffice to say we need transparency in application of proceeds collected from tolls.
The 100% electronic open road tolling system
In this method, the toll is charged when the vehicle moves from under a gantry with electronic sensors. Every vehicle needs to have one sensor inside. The toll amount is deducted from your account in real time. Modern technology allows this to be implemented using number plate identification too. The benefit of this system is that vehicles do not have to stop or slow-down while toll is collected.
The data on traffic and toll collection is tallied by computers and uploaded to the central server. In this technology it is possible to introduce variable pricing methods to help manage traffic better. Thus, when congestion on one road increases, the toll rates can increase based on program (and advanced information given to drivers on road signs). The drivers can be directed to alternate routes where tolls can be reduced to ease the congestions.
The system is integrated nationally and supplemented with satellites (which India already has). Just using the software and additional technology we will be able to create toll system that is flexible, fair and transparent.
It is absolutely critical that first a logical, national level metrics are established on level of tolls to be collected. Second, NHAI and all state bodies must complete 100% electronic, open road tolling across the country on war-basis. Third, all the information should be available in public domain as to traffic data, tolls collected, toll deployed etc.
Transparency in tolling will solve 50% of NHAI problems. In out next and final article in this series we will detail how to solve other 50% of NHAI’s problems.
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(Rahul Prakash Deodhar is a private investor and Advocate, Bombay High Court. He can be reached at [email protected], on twitter at @rahuldeodhar or at his website www.rahuldeodhar.com