Manila, Philippines – The Asian Development Bank (ADB) will help develop an efficient and affordable modern railway transport system connecting the provinces of Henan and Shaanxi in the People’s Republic of China (PRC), through a loan approved for US$400 million.

The project will construct 459 kilometers of railway line with nine railway stations from Zhengzhou in Henan to Xi’an in Shaanxi that will serve as the main corridor linking major cities and ports in the east to other major cities and ports in the west. It will also help link the PRC to Central Asia and Europe.

The railway line will be the first of eight passenger-dedicated railway lines to be developed in the PRC by 2020. It will connect with the Beijing-Guangzhou, Shanghai-Xuzhou, and Beijing-Wuhan main lines on the east, and the Xi’an-Baoji-Lanzhou, Xi’an-Baoji-Chengdu, Xi’an-Ankang, and Xi’an-Yan’an main lines on the west.

“Given the importance of railways in the PRC’s transport system, the project will help reduce the transport constraints and high logistics costs contributing to regional economic disparities and limiting economic growth in the western region,” says Manmohan Parkash, an ADB Transport Specialist for Railways.

The project will be a joint venture railway owned and operated by the Ministry of Railways and the Henan and Shaanxi Provincial Governments. A corporate entity will be set up to construct and operate the project and, as such, it will contribute to changing railway enterprises from cost centers in a planned economy to profit centers in an increasingly competitive transport market.

A key intervention of the project is to introduce the concept of separate corridors for passenger and freight for high-density routes, with a separate institutional structure handling passenger services. The project will also feature new safe and reliable technology, increased speeds, and a modern operating dispatch information system.

The project will serve to both increase the transport capacity of the Zhengzhou-Xi’an corridor and provide a cost-efficient transportation service that will benefit consumers and producers. As both Henan and Shaanxi are important tourist destinations, the project will also help to boost tourism development.

About 9.3 million people living in the project area stand to benefit from the project, with more than 90% of the beneficiaries living in rural areas. Six of the 17 counties in the project area are considered poor.

“Providing economic railway transportation in the unserved, less-developed, and poor areas will also help create conditions necessary for developing local resources and generating jobs and other income-generating opportunities to raise living standards,” adds Mr. Parkash.

ADB has provided 12 loans totaling about $2.2 billion to finance the construction of about 1,921 km of eight provincial railways operated by joint ventures with the Ministry of Railways, and 4,138 km of new lines under the four national railway projects.

The total cost of the project is estimated at $4.13 billion. The China Development Bank will provide a $1.67 billion loan, while the Ministry of Railways and Henan and Shaanxi Provincial Governments will contribute $2.06 billion toward the project’s total cost.

ADB’s loan comes from its ordinary capital resources and carries a 26-year term, including a grace period of six years. Interest rate will be determined in accordance with ADB’s LIBOR-based lending facility.

The Ministry of Railways is the executing agency for the project, which is due for completion around December 2011.