Dhaka: The European Investment Bank (EIB), the European Union’s long-term financing institution, is lending EUR 135 million to the government of Bangladesh to further improve the country’s railways.

The EUR 135 million loan will serve to finance the construction of a second track and upgrading of the existing track along with the installation of modern signaling equipment on the 72 km section between Laksam and Akhaura in eastern central Bangladesh, according to EIB.

The project is part of a broader programme to upgrade, by 2020, the whole 321 km rail corridor between the capital Dhaka and Chittagong, the second city and main seaport, and will also facilitate the rail connection of landlocked Bhutan, Nepal and the north-east states of India with Chittagong port.

The total project cost is approximately EUR 555 million.

The Asian Development Bank (ADB) will co-finance the project to the tune of EUR 332 million while the government of Bangladesh will provide EUR 88 million.

The project work will be executed by Bangladesh Railways and is expected to be completed by 2022.

The operation will contribute to the EIB’s climate action as it will serve to reduce fuel consumption and therefore greenhouse gas emission.

It will also have positive impact on the health and environment of the local population.

Also, and in line with the European Union mandate guiding EIB lending in Asia, the project will promote the development of social and economic infrastructure as it will improve the efficiency of public transport and help the national economy and boost sub-regional trade.

EIB Vice-President Jonathan Taylor, responsible for the bank’s operations in Asia, emphasised that the project will contribute to the two main objectives of the EIB’s external mandate: on the one hand, the mitigation of climate change, by promoting a modal shift from road to rail; and on the other, the development of social and economic infrastructure, by making a key contribution to a major transportation axis.

This is the EIB’s third financing operation in the country’s public sector, the first being the EUR 82 million loan in support of more efficient power generation signed in November 2013, followed in 2014 by a EUR 100 million loan for improvements to Dhaka’s water supply.

EIB lending in Asia and Latin America (ALA) started in 1993 and is governed by mandates from the European Union (EU).

During this period the EU bank has signed contracts in the region totalling EUR 5.8 billion.

The current ALA mandate covers the period 2014-2020 and sets a lending ceiling of EUR 1 billion for Asia.

The EIB is granting this loan under this new 2014-2020 mandate, which enables it to support investments designed to foster the growth of the local private sector, develop economic and social infrastructure and mitigate the effects of climate change.