The Asian Development Bank ( ADB ) on May 22 announced the signing of an agreement to provide US$750 million equivalent in Indian rupees in long-term financing to the state-owned Indian Railway Finance Corporation ( IRFC ) to fund the railways track electrification project. This is the largest single non-sovereign loan ever committed by ADB, which will fund the modernization programme that will help India’s railway sector transition to electric power and away from dependence on fossil fuels.

Concurrently with the signing of the loan agreement, risk participation agreements were concluded with private risk participants for the project. IRFC will use the proceeds from the loan to install electric traction equipment along about 3,378 km of existing railway lines, which will enable the migration of passenger and freight traffic from diesel to electric traction. The electrification assets will be leased to Indian Railways, the country’s national railway system, under a long-term lease agreement.

ADB vice-president for private sector operations and public–private partnerships Diwakar Gupta says the flagship project demonstrates ADB’s strategy of supporting key state-owned enterprises in strategic sectors. “It also reflects a major push by the private sector operations of ADB into transport infrastructure, and particularly railways, a sub-sector in which traditionally such operations have not contributed a great deal,” he adds.

As Michael Barrow, director-general of ADB’s private sector operations department explains, the bank is adding value in this transaction by providing and mobilizing long-term, non-recourse project financing for critical infrastructure development. “A significant value addition is the mobilization of private capital through risk participations with the private sector,” he adds. “As the aggregate funding requirement of Indian Railways is quite substantial, ADB is partnering with it to help tap into a diverse set of funding sources.”

The Indian government has placed significant emphasis on investing in infrastructure, and has developed a five-year, US$132 billion capital expenditure programme for the modernization of Indian Railways. The programme comprises network expansion and decongestion, enhancement of safety and passenger amenities, development of dedicated freight corridors, station redevelopment, and procurement of rolling stock and other related assets. The electrification of the railway tracks is part of this master plan, which is critical for the movement of goods and people within the country.

IRFC was set up in 1986 as the financing arm of Indian Railways for mobilizing funds from domestic and international capital markets. It is fully owned by the government and is registered as a non-banking finance company. Rated at par with the sovereign, IRFC’s principal business is to raise funds from the financial markets to finance the acquisition or creation of assets which are then leased out to Indian Railways.