ADB lends $250m to help build metro rail system in Bangalore

The Asian Development Bank (ADB) is extending up to $250 million for a metro rail system in Bangalore that will bring substantial economic and environmental benefits to the fast-growing city.

The ADB Board of Directors approved the loan for the Bangalore Metro Rail Transit System Project which will partly fund a total 42.3 kilometers of track, rolling stock, stations, and equipment for two key routes across the Southern Indian city. The project, to cost an estimated $2.7 billion and to be completed in 2013, is being carried out by the Bangalore Metro Rail Corporation, a special purpose vehicle, jointly owned by the government of India and the state government of Karnataka.

“The project – ADB’s first metro rail project in South Asia – will provide Bangaloreans with multiple benefits including reduced road congestion and pollution, and a safer, faster, fuel-saving public transport system for the city. Its innovative financing model should lead to faster development of urban transport in India through catalyzing commercial debt and private finance,” said Anouj Mehta, Focal Point for Public-Private Partnerships (India) and Senior Infrastructure Finance Specialist in ADB’s South Asia Department.

Bangalore, the capital of Karnataka state and renowned for its information technology and biotechnology industries, is one of the fastest growing urban centers in the country, with a population now in excess of 6 million. However, an overloaded public bus system and soaring use of cars and motorbikes are undermining growth opportunities and degrading the environment.

“The project is pioneering, in using the non-sovereign public sector lending modality, with excellent replication potential for India and Asia. This is amongst the first major metro rail systems in India to use a leveraged finance model combining government funds with commercial loans. It is a critical model therefore for infrastructure development in other cities in India given the accelerating demand for timely infrastructure provision,” said Hayato Hoshi, Investment Specialist in ADB’s Private Sector Operations Department.

Metro rail systems are traditionally largely funded by the government, but with state resources increasingly limited and high initial capital costs, a new model is critical for the sector.

As well as ADB’s 18-year loan, the national and state governments have been providing subordinated debt and equity to the project. The project is also funded by an official development assistance loan from the Japan International Cooperation Agency via on-lending from the government of India alongside senior loans from commercial sources.