How to make road maintenance more cost-efficient? Lessons from Slovakia

The funds allocated for roads are spent 2-2.5 times less efficiently in Ukraine compared to Slovakia [1].  We came to this conclusion based on the cost-effectiveness index:

I = D road quality (annual) ÷ euro spent per 1 km of road where:

I – cost-effectiveness index, D road quality –  the annual change in road quality index. The cost-effectiveness index is calculated at 1 Euro of the costs per 1 km of the roads.

The main reason for less efficient use of funds is the lack of targets that we aim to achieve by spending the money, as well as the mismatch of allocation of funds for public roads with objective criteria. In 2007-2017, there was a political allocation of funds for maintenance and construction of roads.

In addition, the proportion of major maintenance in road costs is low. There are several reasons for this. Firstly, the funds allocated by international organisations are not fully used. Secondly, while the long-term planning horizon in Slovakia is 20 years, in Ukraine it’s only 5. In addition, competition in public procurement auctions for maintenance and construction of roads in Ukraine is extremely low: an average of 2 bidders. At the same time, there are 4-5 bidders in Slovakia.

Road funding through the Road Fund has increased in Ukraine over the past 3 years. The question is how to use this funding effectively.

In our opinion, Ukraine should:

  1. Introduce measurable target criteria for tracking cost-effectiveness. In particular, World Bank’s IRI (International roughness index) should be used. Other indicators may include track gauge or longitudinal roughness in the Slovak Road Databank.
  2. Introduce automated traffic data collection. Collect the data on traffic intensity, gauge, longitudinal roughness and other road indicators and publish it online as a single public database (similar to the Slovak Road Databank). Make a comprehensive decision on the allocation of funds for roads based on this data.
  3. Take into account the intensity of traffic when allocating the funds from the road subvention. As of now, only the length of the roads is taken into account, which is not a fully comprehensive indicator.
  4. Increase the long-term planning horizon to 10 years instead of 5. Ensure timely preparation of road project documentation to make sure that all funds granted by international organizations are used. It will also allow saving the money on debt service to international organisations.
  5. Introduce tools for planning transport corridors. The Slovak motorways form a transport corridor between major cities (Bratislava, Kosice, etc.), with the exception of a small section in the mountains. These corridors accelerate the movement between them. In the years when such motorways or highways in such corridors were built the road quality index of the World Economic Forum increased the most.
  6. Create conditions for increasing competition among contractors performing design, maintenance and construction, and other works on Ukrainian roads. In particular, the barriers to participation in bidding should be removed as much as possible, and the state-owned enterprises controlled by Ukravtodor, except for Ukrdorinvest, should be privatized. (some enterprises should be liquidated)

We carried out an analysis of actual and expected road expenditures in Ukraine and Slovakia, looking at how different components of road costs are correlated with the quality of roads, explored what influences the cost allocation on roads using regression analysis and expert interviews. We also used expert interviews for more in-depth analysis of the road industry in Ukraine and Slovakia.

This policy paper is structured as follows. In the first section, we describe our methodology and define the main terms that will be used. The second section describes how the road industry of Ukraine and Slovakia are organized. In the third section, we focus on the discretionary budgeting in terms of planning and spending. In the fourth section, we propose an integral indicator for measuring the cost-effectiveness of the road expenditures, and discuss how expenditures influence the quality of the roads. In the fifth section, we review the issue of limiting (distorting) competition and its impact on road expenditures. Finally, we summarize and recommend the ways of improving the efficiency of road expenditures.

The part of the study on the Slovak experience was carried out with the support of the Prague Civil Society Centre in collaboration with the MESA 10 think tank.

[1] The median value of the Slovak Republic effectiveness index is equal to  1.84 times the Ukrainian value and 2.62 times the average.