The Asian Development Bank (ADB) will help improve the efficiency and capacity of Bangladesh’s rail transport through a US$430mn investment programme provided over five years through a multi-tranche financing facility.

The Railway Sector Investment Program has been developed jointly by ADB, Japan Bank for International Cooperation (JBIC), and the World Bank together with the Bangladesh government as a comprehensive package of support for reforms and investments in Bangladesh Railway.

The financing represents 46.5% of the total needed under the government’s US$924.5mn seven-year roadmap and investment plan for the railway sector. This seeks to make the railways more commercially focused, improve governance and accountability, and invest to upgrade infrastructure and rolling stock to overcome capacity bottlenecks.

Over the years, Bangladesh Railway has been losing market share and, consequently, losing money and relying more on government budgetary support.

“Efficient transport is essential to achieve higher levels of economic growth needed for sustainable poverty reduction in Bangladesh,” says Prodyut Dutt, an ADB senior transport specialist. “Greater use of railways will ease the pressure on land since Bangladesh has a very high population density, congested roads and land is scarce.”

To be implemented in five loans, the investment programme will undertake both capital investments and reforms to ensure that the investments lead to sustainable improvement of Bangladesh Railway’s financial and operational performance.

In 2007, a US$100mn loan will help double the capacity of the Tongi-Bhairab Bazar line.

Depending on the implementation of agreed reforms, in 2008, a US$150mn loan will finance subprojects in the Dhaka-Chittagong and Dhaka-Darsana-Khulna corridors, where demand for intercity train passenger and freight services is high.

Planned US$100mn and US$50mn loans for 2009 and 2011, respectively, for other sections of the railway’s main line will again be contingent on agreed reform actions being carried out.

The programme’s reform component, funded by a US$30mn loan, will focus on helping transform the government-owned Bangladesh Railway into a more commercially oriented organisation.

“The programme will help reduce costs for users and increase the country’s competitiveness for investment. For instance, the two project railway corridors cater to imports and exports and can support potential major investments,” adds Dutt. “At the same time, it will allow the release of government funds from budgetary support of the railways for other poverty reduction uses.”

A US$2mn advisory technical assistance grant will be provided to support the Bangladesh Railway’s implementation of reforms.

The investment component loans will come from ADB’s ordinary capital resources. Interest will be determined according to ADB’s Libor-based lending facility. The reform component loan will come from ADB’s concessional Asian Development Fund. It will carry a 32-year term, including an eight-year grace period, and an interest rate of 1% per year during the grace period, and 1.5% afterwards.

The government will contribute US$107.5mn towards the program’s total estimated cost of US$537.5mn. Bangladesh Railway is the executing agency for the programme.

The programme is the first to arise from ADB’s Country Strategy and Program, jointly developed with the UK’s Department for International Development (DFID), the government of Japan, and the World Bank, in support of the government’s national poverty reduction strategy.

ADB has been the lead development agency in the country’s railway sector, providing assistance to improve the Dhaka-Chittagong and Khulna-Parbatipur lines and for the Jamuna Bridge Railway Link approved in 1997. Earlier in 1994, ADB approved a programme loan for the railway sector designed to support the government’s macroeconomic stabilisation program.