ADB $500 Million Loan to Boost Indian Railways

News Release | 1 September 2011

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending loans of up to $500 million to help India improve rail services along some of its busiest freight and passenger transport routes.

The ADB Board of Directors has approved a multitranche financing facility for the Railway Sector Investment Program. It will finance additional lines and the electrification of hundreds of kilometers of existing track, along with installing new signaling. ADB will also support accounting reforms to improve operational efficiency at Indian Railways.

"This program will help deliver more energy efficient, safe, reliable, and environmentally friendly rail services along key high density routes," said Hiroaki Yamaguchi, ADB Principal Transport Specialist. "This in turn will result in direct and indirect economic opportunities for about 21 million people in program areas who will benefit from faster travel times, lower costs and improved links to markets, production centers and social service facilities."

Railways are at the heart of India's transport sector, carrying over 7 billion passengers and more than 800 million tons of freight in the fiscal year to March 2010. However, a lack of investment in new infrastructure and institutional constraints have seen services struggling to keep up with the rise in traffic.

"A further important hallmark of the program is its support for climate change mitigation by providing support for monitoring carbon emission reductions generated from the expected shift of bulk goods from road to rail," said Sultan Hafeez Rahman, Director General of ADB's South Asia Department.

The investment program will target busy freight and passenger routes in the states of Chhattisgarh, Orissa, Maharashtra, Karnataka and Andhra Pradesh, including the critical 'Golden Quadrilateral' corridor that connects Chennai, Kolkata, Mumbai and New Delhi. Many of the lines carry large number of passengers and large quantities of minerals and other economically important freight. They also traverse rural areas where large numbers of people live below the official poverty line.

Funds will be released in several tranches, with an initial loan of $150 million from ADB's ordinary capital resources. It has a 25-year term, with a grace period of 5 years, and annual interest set in accordance with ADB's LIBOR-based lending facility. The Government of India will provide counterpart finance of over $644 million to cover the balance of the costs of the total program which is estimated at over $1.1 billion.

The Ministry of Railways will carry out the program which is due for completion by December 2018.