The new, second generation, road funds are not simply loosely managed off-budget accounts. They are based on a set of important design principles and this is what distinguishes them from first generation road funds and makes them more acceptable to the IMF and ministry of finance. One of the first decisions to be taken, when setting up a road fund relates to the kind of road fund the country feels it needs. Will it only finance main (national) roads? Will it finance main roads and also channel some funds to support urban (municipal), regional (provincial) and rural (district) roads? Or will it finance all roads, including parts the unclassified (community) road network?
Second, it is important to ensure that the road fund has a firm legal basis. If it is set up under existing legislation (like the Finance Act), or using simple decrees, there should be a sunset clause to determine when it should be closed down, or regularized by passing basic legislation. The legislative instrument opening the road fund should be supported by published financial regulations or procedures. These may either be published as legal regulations in the government Gazette, or published by the road fund administration itself. Examples of legislation and other legal instruments used to set up a road fund, together with other documents associated with setting up a road fund?
If the road fund is only going to finance main roads, it could be managed through a separate division in the main road agency (as in South Africa). On the other hand, if it is going to finance a number of different road agencies, it should be managed through a separate road fund administration (to avoid any conflict of interest). The organization should be managed by an Executive Secretary appointed by the board who should, in turn, appoint the administration's staff. The road fund need not employ more than about 3-5 staff (or 10-30 if it is a large road fund) trained in planning, procurement and finance. Read more on the various options for managing a road fund?
So where do we have commercially managed road funds? At present, there is New Zealand (where the road fund was recently restructured to create an independent road fund administration¾
previously the road fund had been managed by the main road agency), while both Japan and USA have national road funds which include some attractive features (the road improvement special account in Japan even has an oversight board). The oldest road fund is in South Africa which was established in 1935. It has had its ups and downs. The fuel levy was suspended in 1988, but was re-instated in March 1998. Ghana has had a road fund for 14 years (restructured in 1996), Mozambique has had one for 10 years (currently being restructured), and Zambia has had one for 6 years (managed by the national Roads Board for four). In addition, several new road funds have been set up during the past 2 to 5 years in Lesotho, Malawi, Guatemala, Nicaragua, Jordan and Yemen. A number of countries are also well advanced in preparing to set up a commercially managed road fund, including, India, Laos and Pakistan, or are restructuring their first generation road funds along commercial lines, including Nepal and Romania. See summaries of existing road funds in Ghana, Zambia, and Yemen and the road fund in Malawi?