ADB finances $490m in India to Upgrade Madhya Pradesh Roads
The Asian Development Bank (ADB) has approved a $490 million loan as part of a $904 million public–private partnership (PPP) project to improve about 1,600 kilometres (km) of state highways and major district roads in Madhya Pradesh, India.
“State highways and major district roads are key links between the extensive web of rural roads and national highways,” said ADB Transport Specialist for South Asia Mr. Kai Wei Yeo. “Increasing the capacity of the Madhya Pradesh road network will not only improve road conditions and safety but raise living standards by enabling better access to markets and better services. This project also introduces PPP arrangements through the hybrid-annuity model in Madhya Pradesh to bring private sector efficiencies for sustainable asset creation and maintenance.”
Madhya Pradesh is the second largest state in the country and fifth most populous. Despite recent economic growth, the state is still among the poorer states in the country with per capita income at about 63% of the national average, while about a third of the population lives below the poverty line. The state’s large size, dependence on agriculture, and spread out industrial centers make roads a critical necessity.
The current road system is subject to increasing vehicular traffic, at a growth rate of over 10% in the past decade; flooding during monsoons; and increased axle loads, which accelerate the deterioration of road surfaces, limits access to goods and services, and compromises road safety. The state government envisions connecting all regional and district headquarters by well-designed two-lane roads, and all villages by all-weather roads. This is aligned with the Government of India’s agenda to develop states’ road networks to enhance connectivity, road safety, and quality.
Since 2002, ADB has provided the state government with five loans to develop its road network, improving about 7,300 km of roads or about 11% of the total network.
The Public–Private Partnership in Madhya Pradesh Road Sector Project will upgrade at least 750 km of state highways and 850 km of major district roads to two-lane and all-weather standards with road safety features. It will also develop an e-maintenance system, which can record defects or required maintenance, along with a training program to develop capacity on contract implementation and project finance in the Madhya Pradesh Road Development Corporation.
The hybrid-annuity model is a mix of engineering, procurement, construction, and build-operate-transfer. This passes design, implementation, and operation and maintenance obligations to the private sector, while attracting some private sector financing. Under this model, the government will release 60% of the total project cost during construction, to be paid to the concessionaire in tranches linked to completion milestones. The remaining 40% is arranged by the concessionaire in the form of equity and commercial debt. Once the project is completed, the government will repay the concessionaire’s financial investment and operation and maintenance costs over 10 years.
The private sector contribution will amount to $286 million and the government will provide $128 million toward the total $904 million cost of the project, which is due for completion in May 2024.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. In 2018, it made commitments of new loans and grants amounting to $21.6 billion. Established in 1966, it is owned by 68 members—49 from the region.