|Project Rationale and Linkage to Country/Regional Strategy
The Project is in line with the Government's targets of the 6FYP to triple infrastructure development from 2% to 6% of GDP with substantial participation of the private sector through PPPs.
In recent years, road transport has become the dominant mode of surface transportation in Bangladesh, carrying more than 70% of passengers and 60% of freight. The Bangladesh Road Master Plan (2007) forecasts annual growth of 6.4% in both freight and passenger traffic during 2010-2015 and 6.0% over the master plan period (2005-2025).
Dhaka and Chittagong are the two major metropolitan areas of Bangladesh. Dhaka is the main commercial center and administrative capital of the country; Chittagong is the primary seaport, accounting for about 90% of imports and exports. About a quarter of Bangladesh's population lives along the Dhaka-Chittagong corridor. The government's Sixth Five-Year Plan, 2011-2015 assigns the highest priority to increasing the capacity of the existing Dhaka-Chittagong Highway, which is part of the Asian Highway network, by widening it to four lanes and building the Dhaka-Chittagong Expressway.
Road traffic between Dhaka and Chittagong is hampered by the lack of capacity of the existing 250-kilometer highway and load restrictions on bridges. In general, a fully loaded container cannot be transported by road to Dhaka. Road safety on the two-lane highway is poor because it is overcrowded with different types of vehicles, including rickshaws, bicycles, motorcycles, cars, buses, and trucks. The journey between Dhaka and Chittagong can take up to 10 hours because of congestion on the road.
Based on traffic counts in 2009, 20,000-25,000 motorized vehicles, up to 40% of them trucks, use the highway each day. The number of motorized vehicles is expected to grow to at least 35,000 in 2020, 66,000 in 2030, and more than 119,000 in 2040, depending on the section and selected scenario for the traffic forecast. The 2009 traffic count indicates that the capacity of the existing two-lane highway is already saturated; the capacity of the four-lane highway currently under construction will be saturated shortly after 2020 because of the mixed traffic and large number of intersections, villages, and towns passed by the highway. This demonstrates the need for the additional road transport capacity that will be provided by the Dhaka-Chittagong Expressway.
Dhaka and Chittagong are also linked by air, inland waterways, and railway, but road and railway links handle the bulk of passenger and high-value cargo traffic in this corridor. Both of these modes of transport are facing serious capacity bottlenecks. About half of the length of the 327-kilometer railway line between Dhaka and Chittagong is only a single-track line, which limits the number of daily trains. Passenger trains are frequently sold out and because passenger transportation is given preference over freight transportation, only four container trains operate between Dhaka and Chittagong daily, carrying about 10% of the containers to and from Chittagong Port.
To address the transport needs in this corridor, the government is (i) upgrading the existing Dhaka-Chittagong highway by widening of the remaining two-lane sections to four lanes, which is planned for completion by 2013; (ii) improving the capacity of the railway line by making the remaining single-track sections double-track, which is planned for completion in 3-5 years; and (iii) planning to build a new access-controlled expressway. This expressway will provide enough additional capacity in this important corridor to accommodate future traffic growth and will also meet the demand for a safer and more reliable road connection. This expressway is badly needed, particularly with recent high-level intergovernmental consultations and agreements that will allow better access for Bhutan, India, and Nepal to Chittagong Port. This additional traffic of goods and passengers will use the Dhaka-Chittagong corridor and has to be considered when planning the road capacity between Dhaka and Chittagong.
The congestion on the existing highway requires the government to progress rapidly with this core transport project. Because funds available for the follow-on investment project are limited and the financing needs are large, opportunities for private sector participation have to be identified to structure and implement the first PPP project in Bangladesh's transport sector. This is in line with ADB's long-term strategy to promote infrastructure projects with private sector participation. High-quality international consultants should be engaged in a timely manner to support streamlined and efficient preparation of the PPP project, which will allow the government to enter into a fair agreement with the private sector based on a detailed design with proper allocation of risks between the parties.
The TA loan benefits from the findings of a study financed by ADB and completed in 2008, which prepared a pre-feasibility study and conceptual design for an access-controlled Dhaka-Chittagong Expressway (footnote 4). The study concluded that the route alignment selected for the study of the expressway is technically, economical, and financially viable based on 2008 assumptions, costs, and revenue streams. The selected option was estimated to cost $2.75 billion equivalent in 2011 prices and the implementation period was assumed to be 5-6 years. However, the government failed to attract private investment for the project studied and is discussing different route alignment options that were not appraised in the earlier study. Earlier attempts to recruit a concessionaire on a PPP basis failed mainly because (i) a detailed route alignment design had not been agreed upon, creating uncertainty about the required land acquisition; (ii) an attractive legal framework and risk allocation between the partners was lacking; and (iii) the foreign currency exchange risk allocation was unclear. The cost and revenue streams have changed since the 2008 study and an understanding was reached that a successful PPP project needs detailed project preparation, especially as this project will be the first large PPP project implemented in Bangladesh's transport sector.
Preparing the Dhaka-Chittagong Expressway for financing under a PPP is in line with the government's target in the Sixth Five-Year Plan to triple investments in infrastructure development from 2% to 6% of gross domestic product through substantial private participation. This TA loan will benefit from the PPP unit established in the Prime Minister's Office with the support of capacity development TA from ADB. The capacity development TA also supported the government in proposing an institutional and legal framework for PPP projects, and in drafting a new PPP law and an environmental and social management system for PPP projects. Proposed future assistance to Bangladesh will support capacity development for the implementation of PPP projects.