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s a starting point that such a model be able to put the roads into the market place by influencing the demand for travel (whether and how to make the journey), as well as the supply of road services. In this regard, we address two critical questions:

Which instruments can be used to charge road users?

Which principles should guide the pricing and cost recovery policies that are applied to roads?

2.1 Selecting appropriate charging instruments
Currently, the main instruments used to charge road users are levies/taxes on transport fuels, international transit fees and tolls. Parking charges are common in urban areas of Kenya, and weight distance fees are used in the main trunk roads. Instruments best suited to Kenya are vehicle license fees, which have since been abolished, fuel levies and international transit fees. Parking charges as presently collected are not best suited because they are difficult to administer, and therefore suffer from high levels of avoidance and leakage. But if collected under contract they are an important source of revenue and can be used to manage urban traffic. Few roads in Kenya carry sufficient traffic to make widespread tolling economic, while weight distance fees are difficult to administer.

2.2 Ensuring efficiency pricing of roads
In order to maximize net economic benefits, road user charges should be set equal to the cost of resources consumed when the road network is used. Two costs must be considered in this regard:

The cost of damage done to the road surface by the passage of vehicles (i.e. the variable cost of operating and maintaining the road network)

The additional cost that each road user imposes on the other road users and on the rest of society (i.e. the cost of congestion)

Congestion is the classic negative externality in the road sector and is the one that should ideally be taken into account when estimating the optimal user charge. The basic principle behind efficiency pricing is that additional road capacity should be financed through congestion charges. Capacity should therefore be expanded only when the annual costs of road congestion are equal to the annualized costs of expanding capacity.

Attempting to set up efficiency pricing is important because it is consistent with the desire to link revenues and expenditures. In such a case, it is absolutely necessary, that no costs are financed through subsidies or other transfer payments, because this will then have the effect of weakening market discipline. With efficiency pricing, the road tariff (pricing) should therefore reflect the costs of operating and maintaining the road network and increased road spending should automatically result into a rise in the road tariff (even though this will also reduce VOCs).

This leads to three basic pricing and cost-recovery policies;

Road tariff (ideally the variable element of it) should not be set lower than the variable cost of operating and maintaining the road network.

The road tariff and the taxes and charges used to support local access roads should be set such that collectively, they cover all road costs.

Whenever there is significant road congestion, the road tariff should also include congestion costs.

In order to operationalize the above outlined policies, three practical problems are boun