Manila, Philippines – An ADB loan of US$60 million will help restore an efficient and safe rail link between the northern suburbs of the Vietnamese capital of Hanoi and the border with the People’s Republic of China (PRC).

The project will promote sustainable growth and greater trade links between the two countries by increasing rail traffic through a portion of national rail line that provides a vital subregional link.

The line – stretching 285 km between Yen Vien, outside Hanoi, and the border at Lao Cai – carries substantial domestic and regional traffic between Viet Nam’s Hai Phong port and the PRC’s Yunnan Province. With most of the line built before 1910, minimal investment in maintenance has led to deterioration of the system.

Old and worn rail, tight curves, steep gradients, passing loops that are too short to accommodate full length trains and damaged bridges have left the line falling well short of its potential and also raised safety issues.

The project will rehabilitate the system to ensure that it can operate safely and efficiently, boosting capacity at stations and main terminal points to permit the use of heavier and longer trains and increasing the number of trains that can use the line.

It will replace worn track, construct six bridges, rehabilitate 13 damaged ones, and strengthen a further 60, provide one new station, and introduce a full range of features to improve safety for road users and the public living near the line. The project will also undertake institutional reforms to improve financial governance and cross-border procedures at Lao Cai.

“The restored line is expected to help boost bilateral trade between Viet Nam and the PRC and also international trade from the PRC via the container port at Hai Phong,” says Ray Cahoon, ADB team leader for the project. “It will also eventually form an integral part of the Singapore-Kunming link, which may be completed by about 2015 with the construction of a final link between Phnom Penh and Ho Chi Minh City.”

Some 200,000 local people along the line should benefit. Consultations with them have indicated strong support for the project, which is also expected to generate direct and indirect jobs, as well lower transport costs and traveling time.

Besides expanding trade, the project will open up important tourist destinations in Viet Nam, including the World Heritage Site at Halong Bay and the Sa Pa mountain resort.

ADB’s loan, from its concessional Asian Development Fund, covers almost 38% of the project cost of $160 million. The loan has a 32-year term, including a grace period of eight years. Interest is charged at 1% per annum during the grace period and 1.5% per year for the rest of the term.

Agence Francaise de Developpement will provide a loan of Euro32 million (to be administered by ADB) and the French Ministry of Finance will provide a loan of Euro30 million. The Viet Nam Government will cover the remaining cost of $22.5 million.

Vietnam Railways is the executing agency for the project, which is due for completion around the end of 2012.