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ADB to extend US$ 750-millon loan to push railways' electrification drive

Business Standard:  April 01, 2019

New Delhi:  The Indian Railways will raise a $750-million loan from the Asian Development Bank (ADB) through Indian Railway Finance Corporation (IRFC) to finance part of its electrification drive.

The national transporter has lined up an electrification drive covering 28,000 km in the next three financial years — 7,000 km in 2019-20 and 10,500 km each in 2020-21 and 2021-22, respectively.

This will entail an expenditure of $6-7 billion. The ADB loan will be used for electrifying around 3,378 km, involving at least 16 sub-projects in 13 states.

The national transporter has approached the Election Commission to get the clearance on this. “In a week we are expected to sign a final deal with the ADB for a non-sovereign project finance loan for the ongoing electrification process. Based on the ongoing talks, the interest rates are likely to be 1.25 basis points (bps) higher than the acquiring rate of the ADB,” said a government official.

IRFC is the wholly owned financial arm of the Indian Railways.

The government’s plan to opt for divesting its stake in IRFC failed to take off last year after the World Bank’s agency Multi-Lateral Investment Guarantee (MIGA) backed out of providing an investment guarantee for raising at least $500 million from international private sector investors and lenders. Following this, the listing plan was put on hold.

The ADB debt financing is likely to be structured as a standard secured project finance loan for a tenor of 20 years, comprising a four-year availability period and a 16-year repayment period.

In March last year the ADB and the Indian Railways signed a loan agreement for availing the third tranche of $120 million in a multi tranche financing facility of $500 million for developing five projects.

This included Daund-Gulbarga Doubling (224 km), Sambalpur-Titlagarh Doubling (182 km), Raipur-Titlagarh Doubling (203 km), Hospet-Tinaighat Doubling (201 km) and Pune-Wadi Guntakal Electrification (641 km).

“The current loan of $750 million will be used for new electrification projects only. We have written to the Election Commission for clearance,” the official added.

For electrification, the Ministry of Railways has entrusted its in-house agencies like Central Organisation for Railway Electrification (CORE), Rail Vikas Nigam Ltd, and railways zonal offices.

Following the launch of the Mission Electrification program in November 2016 with the intention to electrify 38,000 route km by FY22, the Indian Railway Construction Company Ltd, Rail India Techno Economic Service Ltd and the Power Grid Corporation of India were also roped in to speed up the process.

ADB-funded electrification works are expected to create around 4,500 additional jobs annually. Based on an estimate, at least 24,100 million passenger gross tonnage km (GTKM) and 32,200 million freight GTKM may be provided annually by electric traction on the newly electrified routes funded by the ADB.

The move for 100 per cent electrification of Indian tracks is expected to save at least Rs 13,000 crore on the national transporter's fuel bill.

Despite carrying 65 per cent of all freight and 51 per cent of the passenger load of the Indian Railways, electric traction accounts for only 36 per cent of the energy bill, with diesel accounting for the balance.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.