The Asian Development Bank (ADB) is active in supporting projects on transport infrastructure and supply of services in member states encouraging the development of a sustainable, accessible, safe and performing transport system that would also reduce the environmental impact. Transportation is one of the main sectors which receive ADB financing. In the last four decades, operations in this segment represented 32% of ADB’s total loans and investments worth USD 35.6 Billion were allocated in 1996.
The Sustainable Transport Initiative – Operational Plan aligns ADB’s objectives to the Strategy 2020 that sets three strategic objectives which determine economic growth, a sustainable environment and regional integration. According to the studies elaborated by the ADB Institute, despite considerable investments, transport improvements have not kept up with the increase of demand and therefore, transport has remained a critical obstacle for development. There are deficiencies in every subsector of transports, at each level of the transport network as regards accessibility, the geographic coverage and interconnectivity between transport modes, especially in poorly developed regions. “Over the next years, freight and passenger transport will continue to increase faster than the GDP, and Asia has to invest USD 8 Trillion in infrastructure and an additional USD 290 Billion in regional infrastructure projects; overall, the annual average for infrastructure investments (generally) amounts to USD 750 Billion. This requires assistance from the Asian infrastructure fund to mobilize Asian and international funds and to prioritize, prepare and finance regional infrastructure projects using the banks”, shows the report Infrastructure for a Seamless Asia elaborated by the ADB Institute.
At the request of developing (member) countries, ADB has gradually changed its focus in the transport segment to extend the loan for urban and railway projects.
The STI plan identifies several key crediting areas in order to intensify the support granted to sustainable infrastructure; these key crediting areas include urban transport investments, support in the development of a transport with reduced carbon dioxide emissions, as well as investments in the cross-border transport and logistics.
Regarding the railway transport segment, in contrast with the universal development of road transport, railway transport, especially in the Asian developing countries, has seen its market share fall, except for China, which has constantly extended its railway infrastructure and has reformed its railway institutions. It included a 60% growth (since 1980) of the network length, with a high-speed network of around 17,000 km in construction. At a smaller scale, India invested in the extension of the network and launch of reforms. Other developing countries have also invested in the construction of new lines, but a large part of the railway network in the region has known a mo-dest development. China’s experience has shown that, depending on traffic, geography and other factors, modern railway transport can play an important role in economic growth and can have positive effects in poor regions. Also, the experience of developing member states indicates the fact that many railway companies have struggled to adapt to market conditions and considered that the modernisation and application of reforms are difficult processes which determined the limitation of the crediting scale.
The implementation of Sustainable Transport Initiative includes several phases until 2015 and includes the complete application of new and improved operations in sustainable transport. Progressive changes in ADB’s transport portfolio will take place over the next period including the significant extension of urban and railway projects. By 2020, this segment will exceed loans granted to road projects.
Mr. Balabhaskara Reddy Bathula, Senior Transport Specialist Central and West Asia Department, Asian Development Bank has agreed to discuss with us about the impact of the economic crisis on infrastructure projects, the financing criteria of infrastructure projects and the funds available for these projects.
Railway PRO: The Asian Development Bank gets more and more involved in the financing of railway infrastructure projects in the countries of Central Asia. What are the criteria in selecting a railway project for financing?
Reddy Bathula: In selecting a railway project for financing the proposed railway project should be included in the government’s priority program for development, the railway sector should be included as an ADB strategic intervention in the country reflected in the ADB’s country partnership strategy and listed in the ADB business plan for the country, and of course, it has to be technically and economically feasible, financially sustainable and socially and environmentally sustainable.
Railway PRO: Are there differences of criteria in the financing of a railway (domestic) project and of a (local) rail public transport?
Reddy Bathula: No, there are no major differences.
Railway PRO: What is the maximum percentage in the cost of a project which can be covered by ADB? What does “an eligible project” mean in the financing criteria of ADB?
Reddy Bathula: The maximum percentage in the project cost ADB can finance varies. For example, ADB can finance 80% of the project cost for loans and 98% for grants to Afghanistan. In Azerbaijan, ADB may provide 80% of the project cost. As for an eligible project, it must meet the above criteria.
Railway PRO: When an already financed project is not completed according to the criteria (established by the bank and the beneficiary) what is the method for negotiation and revision of financing between the parties?
Reddy Bathula: A project may be incomplete for various reasons. If a project cannot be completed due to cost overrun, the solutions may be providing additional loan or reduced project scope. If a project cannot be completed on schedule because of the unforeseen technical problems during
execution, ADB may consider time extension. In any case, the borrower should justify the proposed solutions and should keep the project remains technically, economically, financially, socially, and environmentally viable.
Railway PRO: For the 45 ADB member states under development, the most recent analysis of the bank downgrades the increase estimates (in April, the bank estimated a 6.7% growth for 2014 and in July, the Bank reviewed the prognosis to 6.4%). What is the impact of slowing down the economic growth on allocating financing to transport infrastructure projects? To this end, what is the prognosis method in establishing the budget?
Reddy Bathula: The economic slowing down will likely reduce the government spending including the development budget. Depending on the country’s develo-pment strategy, it may attract external funding (borrowing) or invite private sector to finance infrastructure projects. The Bank’s maximum allocation for lending to its developing member countries (DMCs) does not depend on the country’s economic growth. Every year, the Bank sets maximum allocation for financial assistance based on the country’s economic level. The actual allocation however is to be agreed individually between the Bank and the DMCs on yearly basis.
Railway PRO: In the allocated finances, does the ADB consider regional impact projects in establishing performing and efficient network in Asia? Or any eligible project can be financed irrespective of its regional impact?
Reddy Bathula: ADB may finance any viable project with strong development impact and included in both government priorities, and ADB’s strategic direction and business plan.
Regional impact projects will have priority in both financing as well as implementing on ground. However, any eligible project can also be taken up if that project is identified in the country operations business plan (COBP) agreed.
Railway PRO: What is the total amount allocated by ADB to the railway sector in Central Asia in the past 5 years? Is there a maximum threshold for 2014-2020?
Reddy Bathula: About 5-10% of total transport lending for Central Asia – for last 5 years and about 20% of total transport lending – for 2014-2020. However, there is no maximum threshold.
Transport sector lending would be $1- 2 billion per year.
Railway PRO: How does ADB support the rail infrastructure development strategies in Central Asia? In your opinion, what are the countries with the most comprising strategies, where ADB is involved, and how can the other states be stimulated to improve their rail transport network and to help increase economic growth in the region?
Reddy Bathula: ADB’s support to deve-lopment projects in its developing member countries starts from policy dialogue which is eventually to agree on the ADB’s strategic direction, assistance modality, and priority projects for ADB financing.
ADB support starts with providing technical assistance (TA) for project develo-pment, capacity/institutional development, and to facilitate enabling environment/regulations/business plans etc., so that project development options will be generated and prioritized.The countries having strategies, where ADB involved are Afghanistan, Pakistan, Uzbekistan, Turkmenistan, and ADB is trying to support railway infrastructure development in Tajikistan, Azerbaijan through initiation of TA’s.
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