Road Pricing in OIC Countries

Date: 2019 - 2020

Client: COMCEC

An efficient and effective road transport system is vital to the socio-economic functioning of any society. Whilst global demand for road space has increased exponentially over the years, funding has reduced in relative terms. Governments have increasingly struggled to fund roads from taxation and have, amongst other actions, sought partnerships from the private sector to invest in, manage, and maintain road space more effectively and intelligently.

The Standing Committee for Economic and Commercial Cooperation of the Organization of Islamic Cooperation/OIC (COMCEC) has clearly recognized the importance of this issue. It has entrusted Fimotions to conduct an analytical study on “Pricing of Transport Infrastructure in the OIC Member Countries” to explore the concept and its applicability to the Member States. Desktop research was undertaken on three non-OIC countries – Singapore, the UK, and South Africa – that represent best practices in road pricing. Furthermore, three OIC countries – Indonesia, Nigeria, and Tunisia, representing Asia, Africa, and the Middle East respectively – were visited to gain deeper first-hand knowledge of their road pricing practices from stakeholders.

Many countries apply road pricing in various forms, but generally they can be classified into two types: indirect and direct charges. Indirect charges are mainly imposed through:

  • vehicle taxes: imposed at the time of purchase and/or periodic vehicle examinations or licensing of the vehicle for road use
  • fuel duties: taxes applied to fuel products consumed by the vehicle.

Direct charges are sometimes imposed directly on road users through:

  • Tolls: payments made by user to a toll operator who mostly builds, operates, and maintains toll roads in the framework of a public-private partnership. Road tolls can be levied according to distance or time travelled, or as point-to-point charges. Time-based charges (vignettes) are common in several European countries.
  • Congestion charges: imposed on users within a certain area to manage travel demand. This scheme has been applied in cities like Singapore, Stockholm, and London.

It is worth noting that cities that impose congestion charges have good mass rapid transit systems. Providing transport alternatives is a precondition to introducing a congestion charge. It is a case of building a reliable metro first, then imposing a congestion charge.

Experience has shown that political factors have the greatest influence over the modality and extent of pricing road infrastructure. Generally, in developing countries that are still focusing on expanding their transport infrastructure, roads are considered to be a common good and should be funded directly through taxation. In developed countries, the paradigm has been shifted to the “User Pay Principle”. As such, the policy objective is to manage transport demand rather than raise revenue in order to better utilise urban and road space.

Another interesting finding is that the Equity Principle does not apply to transport infrastructure pricing in many OIC countries. Vehicle and fuel taxes are mostly channeled to the general public budget, and road toll revenue is used for investment returns and the maintenance and development of toll roads. Public transport improvement tends to be funded from the general public budget. However, this should be funded from revenue sourced from road users, since these revenues should contribute to services that result in less road congestion than would otherwise occur (and benefit road users). Very few OIC countries regulate earmarking of (indirect) road charges to be allocated to public transport and road construction and maintenance. Indonesia is a good example: it earmarks at least 10% of the revenue from motor vehicle taxes for these purposes.

 

Finally, OIC countries should promote a new transport-planning paradigm that puts more emphasis on improving accessibility rather than maximizing mobility. Road pricing can help in this regard and should aim to reduce demand and decouple transport resource consumption from an economic growth point of view. Policy should also internalise the external costs of congestion, accidents, and air pollution, and apply carbon taxation to mitigate climate change. OIC countries should be made aware that fuel duties will be less useful as fossils fuels are replaced as the leading source of transport energy.

We presented this study at the 15th meeting of the COMCEC Transport and Communication Working Group held virtually on July 7th, 2020. More information on the meeting and the link to download the full report can be found here.

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