COMMERCIALISATION OF ROAD AGENCIES

Source: Based on, Heggie, Ian G. and H. Kerali, Chapter 3 in PricewaterhouseCoopers. 2000.
Sourcebook on Institutional Development for Utilities and Infrastructure. Consultant report prepared for
U.K. Department for International Development (DfID), London.

Introduction

Governments in several developed countries have restructured their road administrations by

creating autonomous or semi-autonomous road agencies that operate at arms length from
government (e.g. in New Zealand, Japan, United Kingdom, Sweden, Finland, Denmark). In recent
years, several developing countries have followed similar trends or are in the process of
restructuring their road administrations and creating commercialised road agencies (e.g. Ghana,
Malaysia, Malawi, Nepal, Pakistan, South Africa, Tanzania, Uganda, Zambia, Zimbabwe, etc.)

Commercialisation refers to the adoption of commercial or private sector practices in the

management of public sector assets and finances. Commercialisation can be considered as the
process of transforming the operations of a public sector organisation to work in a more business-like
manner, and become more effective and efficient. Commercialisation does not necessarily involve
‘privatisation’, and the two terms should not be confused. Terminology that is used in the context of
commercialisation is given in Box 3.5.

Box 3.5: Commercialisation terminology

Contracting-out or Out-sourcing: The procurement of goods and services, previously undertaken or

produced in-house, from external suppliers on the basis of competitive contracts.

Externalisation or Corporatisation: Converting an existing public sector organisation, or part of an

organisation, into a parastatal or joint stock company.

Privatisation: Converting a public sector, parastatal or joint stock company into an organisation wholly
within the private sector (that is with all stocks and shares being available for purchase by the general
public).

Commercialisation: The process of increasing the effectiveness and efficiency of a public sector
organisation by operating and managing the organisation like a commercial business. This normally
involves increasing the specificity of the organisation and subjecting it to competition. Commercialisation
may additionally involve contracting out or out-sourcing, externalisation, corporatisation or privatisation of
all or parts of the organisational functions.

Source: Robinson and others (1998)

Although a commercialised road agency ultimately remains within the control of government, it
operates at arms-length from government. By adopting a commercialised road management
structure, the road sector gains the efficiencies, accountability and transparency normally
attributed to private sector management. Commercialising a road agency will involve some or all
of the following;
• defining a new role for the agency,
• improving customer orientation,
• establishing performance targets
• simplification of staffing
• establishing accountability
• establishing autonomy

The first task when establishing a commercialised road agency is to define the role of the agency.
A vision or mission statement should be defined, from which the agency will derive their
principal operational or statutory objectives. Box 1 gives selected examples of such statements.

Box 1: Sample mission statements

Finnish National Road Administration (Finnra)

“Finnra is responsible for pubic roads and they make it possible for road users to travel safely and
conveniently.”

National Highway Authority of India

“To meet the Nation’s need for the provision and maintenance of the National Highways network to world
standards within the strategic policy framework set by the Government of India and thus promoted
economic wellbeing and the quality of life of the people.”

South Africa Roads Department

“To deliver and efficient, reliable and safe national road network; and to manage, maintain and improve the
national road network.”

United Kingdom Highways Agency

“To secure the delivery of an efficient, reliable, safe and environmentally acceptable trunk road network by
….. being respected for excellence and environmental sensitivity in managing and developing our national
road network.”

Source: Heggie and Vickers (1998)

Customer orientation

All mission statements will usually express a desire to serve the road user, the environment and
the taxpayer by making the road network safer, more reliable, more environmentally acceptable,
and more efficient. All of these amount to an encouragement to the road agency to become
customer-oriented.

Performance targets

In order to encourage the road agency to effectively deliver its mission statement, the parent
ministry should sets a specific series of performance targets (see examples in Box 3.7). These
should then be reported annually in any business or corporate plan and reviewed by the Board or
ministry. 1

Box 3.7. Examples of performance targets set for Finnra in 1994

• Maintenance activities will result in a reduction of 70 injury accidents and 7 fatal accidents (as
minimum targets). The total number of accidents on public roads will be less than 3,900.

• The current condition of the road network will be maintained. The ruts on the main roads will not
exceed 20 mm. The maximum length of defective pavements shall be less than 7,500 km and that of
structurally poor roads shall not exceed 1,200 km.

• The cost efficiency of Finnra shall improve by 10 percent.

• The maximum administrative overhead for Finnra will be less than $105 million.

• The return on investment will be at least 5 %, and the rotation speed of investment will exceed 1.1

Source: Heggie and Vickers (1998).

Simplified staffing

Restructuring of a government roads department into an agency must also include a simplification
of the staffing structure. This should be accompanied by new job descriptions (based on the
redefined functional needs), a new organisational structure, a reduction in the layers of
administrative reporting, introduction of new reward schemes and career systems, and a
review/revision of the disciplinary code. An accompanying regional structure for the road agency
is also important, particularly in large countries, in order to put services of the agency closer to its
customers. Some road agencies have achieved this through decentralisation of operations as well
as some of their client functions.

The road agency should have a chief executive officer with a small team of line managers (or
directors) responsible for the different functions. The commercialised road agency would
normally report to a government minister or committee of ministers (see Figure 1).

Accountability

The first step towards commercialisation is to strengthen managerial accountability by specifying

clear objectives and targets that be monitored. This is usually done in the form of a corporate plan
that could form the basis of a performance contract for management. The performance contracts
generally spell out the government’s goals for the road agency, strategies to achieve the goals,
and procedures for implementation, monitoring, and control.

1
The OECD Scientific Expert Group has defined a number of performance indicators that may be
useful in guiding ministries and Boards responsible for roads in defining performance targets for their road
agencies (OECD, 1990 & 1995).
Autonomy

The last issue regarding the process of commercialisation is that of autonomy. Greater autonomy
is normally one of the cornerstones of a more commercial approach to management. Road
managers cannot adopt commercial management practices within government civil service where
there is political interference in management decision-making. Similarly, managers cannot be
held accountable for their performance unless they have sufficient freedom to sign and award
contracts and they are offered reasonable terms and conditions of employment.

Figure 1: Road Agency lines of reporting

Parent
Ministry
(Permanent
Secretary)

Chairman &
Boad of Directors

Chief Executive

Public Internal
Relations Audit

Director of Director of Director of Director of Director of

Finance Development Maintenance Administration Safety &
Environment

Accounts Planning Regional Personnel, Road Safety

Costs Surveys Offices Information Environment
Road Fund Contracts systems, etc.