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The Asian Development Bank (ADB) is helping the government of India to upgrade its national highway system through a loan approved for US$320mn.

  • India’s national highway sub-sector has long suffered from inadequate resource allocation both for development and maintenance. This has resulted in a huge backlog of road rehabilitation works.

    The inadequacy of the national highway system has become a major constraint for achieving higher sustainable economic growth.

    Faced with these problems, the government has launched a major upgrading programme of the 13,000km national highway system. The programme will take 10 years to complete and will cost the nation US$13bn.

    Implementation of such an ambitious programme requires a fundamental change in programme management and financing. The government of India has already taken several important actions. These include establishing the National Highway Authority of India (NHAI), streamlining century-old land acquisition procedures, and developing a model contract for build-operate-transfer (BOT) schemes.

    The long-term nature of institutional issues requires repeated interactions between the government, NHAI and the ADB. Accordingly, the ADB is pursuing a programmatic approach.

    The project is the second in a series of loans to be extended to NHAI using this approach.

    It is primarily designed to rehabilitate and widen 504km of the national highways at the western end of the East-West Corridor, which runs 3,300km from Gujarat to Assam. A part of the upgraded section will be developed under a BOT scheme.

    The project is also intended to advance institutional reforms through several policy initiatives aimed at:

    • Strengthening financing capability.

    • Establishing an arm’s length relationship between line ministries and NHAI.

    • Building capacity for dealing with emerging social issues such as HIV/Aids and road safety.

    “An improved road network will increase economic opportunities of rural communities,” says Shunso Tsukada, ADB senior transport specialist. “It will provide better access to services such as health and education, greater job mobility, and enable villagers to shift from subsistence farming to more commercial agricultural production.”

    Total project cost is estimated to be US$576mn equivalent, of which US$211mn will come from the government and US$45mn from the private sector.

    The ADB’s loan is from ordinary capital resources with a 25-year term, including a grace period of five years. Interest is determined in accordance with the ADB’s Libor-based lending facility. There is a commitment charge of 0.75% per annum and a front-end fee of 1%.

    The executing agency for the project, which is due for completion at end-June 2006, is the National Highway Authority of India.