SASEC Railway Connectivity: Akhaura–Laksam Double Track Project (RRP BAN 46168) 1

SECTOR ASSESSMENT (SUMMARY): RAIL TRANSPORT

Sector Road Map

1. Sector Performance, Problems, and Opportunities

1. The transport system of consists of roads, railways, inland waterways, two seaports for maritime shipping, and civil aviation—catering to both domestic and international traffic. It has about 271,000 kilometers (km) of roads, including about 21,000 km of major roads; 2,835 route-km of railways; 3,800 km of perennial waterways (which increases to 6,000 km during the monsoon) and the ports of Mongla and Chittagong; three international airports (Dhaka, Chittagong, and Sylhet), and eight domestic airports. From 1975 to 2005, road transport’s modal share rose from 54% to 88% for passenger traffic and from 35% to 80% for freight. In the past 10 years, traffic has grown at an average annual rate of 8.2% while passenger transport traffic has grown at 8.4%. Motor vehicle registrations nearly doubled from 0.74 million in 2003 to 1.34 million in 2009—a 10.5% average annual increase. For trade between Bangladesh and India, the Benapole land port is the busiest crossing, providing transshipment services for about 80% of the annual trade between the countries, e.g., 450 trucks a day carrying an estimated 1.4 million tons valued at $4 billion passed through the Benapole land port in 2011.

2. The Ministry of Communication is responsible for major highways and bridges through the Roads and Highways Department and the Bangladesh Bridge Authority. The Ministry of Railways is responsible for railways through the . The Ministry of Local Government, Rural Development, and Cooperatives is responsible for rural roads through its Local Government Engineering Department (city corporations manage urban roads). The Ministry of Shipping is responsible for inland waterways, ports, and shipping. Within the Ministry of Shipping, the two major seaports are managed by the Chittagong Port Authority and the Mongla Port Authority; inland waterway ports are managed by the Bangladesh Inland Waters Transport Authority; and land ports are managed by the Land Port Authority. The Planning Commission is responsible for coordinating investment and main policies.

3. The public sector provides most rail and port services. Private sector involvement in road transport, inland water transport, and ocean shipping has increased considerably. The private sector is also gradually entering the domestic air transport and passenger rail markets, as well as the transport logistics market. Many rivers lack high-capacity bridges, requiring the use of ferries. As a result, both intra-urban and inter-urban distribution services must rely on small trucks. Limited network capacity and poor quality infrastructure also constrain rail and road services. Inadequate maintenance has led to severe deterioration of roads and railways.

4. Historically the railway enjoyed a monopoly as a carrier and used to carry most of the principal commodities in the country including cement, coal, fertilizer, raw jute, stone, food grain, sugar cane. With gradual emergence of road transport, railway started losing its market share and over time it declined from 30% in 1975 to a mere 4% in 2005 for both passenger and freight transport. However, railway still dominates in carrying stone, iron, steel and food grains. In addition, railway also carries about 10% of containers handled in Chittagong Port. It is found that the commodities carried by rail are mostly sea port and land port based.

5. Travelling by railway in Bangladesh is more safe, energy efficient, environment-friendly, and reliable than other modes of transport; railway transport is also considered more comfortable than long-distance buses. Intercity trains operated by Bangladesh Railway are very popular. 2

Thus, the occupancy of intercity trains is very high, especially in the east zone (98%); intercity trains in the Dhaka–Chittagong corridor are usually sold out. About 40% of Bangladesh Railway’s passengers travel by intercity trains, which accounts for more than 75% of passenger revenue. The high demand for intercity service in the Dhaka–Chittagong corridor cannot be met fully because of insufficient line capacity, thus, no additional trains can be scheduled to tap into these lucrative markets for Bangladesh Railway with high revenue potential. Because Bangladesh’s economy is growing by more than 6%, a rising demand for domestic and regional railway transport is expected, but it cannot be satisfied with the existing limited infrastructure.

6. Bangladesh has the potential to become a transport and transshipment center for the subregion. It borders India and Myanmar and is close to the landlocked countries of Bhutan and Nepal. The South Asian Association for Regional Cooperation (SAARC) Regional Multimodal Transport Study1 determined priority corridors in Bangladesh that include six out of 10 road corridors, two out of five rail corridors, and two principal ports (Chittagong and Mongla). The Bay of Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Transport Infrastructure and Logistics Study (BTILS)2 identified the issues, and provided the policy framework and strategies for governments to jointly pursue the development of subregional transport projects. A major constraint in subregional rail connectivity is the lack of connectivity between the rail networks, and key issues are the differences between the rail gauges in the member states, the potential incompatibilities in rolling stock, and the overall condition of the rail network, especially in northeastern India and Bangladesh. The BTILS also highlighted issues and constrains particularly in Bangladesh. These included the generally poor condition of the infrastructure and priority given to passenger trains that caused delays to freight trains and reduced their competitiveness, especially where lines are single track.

7. The market share of the railway in the subregional transport is low; only 11.9% or 876,855 tons of Bangladesh’s imports from India and only 1.1% or 17,832 tons of exports from Bangladesh to India were transported by rail in 2011. Only one passenger train operating two times a week links Dhaka—the capital of Bangladesh—with in India, and on average only one freight train per day crosses the border. In comparison, Bangladesh Railway was operating 289 passenger and 48 freight trains per day in FY2011/12 for the domestic market. The main reasons for the limited cross-border rail traffic are missing links and congestion in main domestic railway corridors, which do not allow operating additional trains for domestic and international traffic. Together with the Bhangabandhu Bridge over River Jamuna (the Jamuna Multipurpose Bridge) and the provision of access to Chittagong Port, the Dhaka–Chittagong corridor can facilitate trade between Bangladesh and with the northeastern states of India, the Indian state of West Bengal, Bhutan, and Nepal, creating the potential to attract more foreign and domestic investments to the country.

2. Government’s Sector Strategy

8. The sixth Five-Year Plan (2011–2015)3 includes the improvement of railways as energy efficient multimodal transport systems to reduce carbon emissions. It also refers to the establishment of proper rail connectivity to provide Bhutan, India, and Nepal access to the Chittagong and Mongla ports as a major investment priority. The government’s strategy in the sixth Five-Year Plan intends to increase Bangladesh Railway’s market share from 4% to 15% in

1 SAARC Secretariat. 2007. Regional Multimodal Transport Study. Kathmandu. Prepared under ADB. 2004 Technical Assistance for Promoting South Asian Regional Economic Cooperation. Manila (TA 6187-REG). 2 ADB. 2008. BIMSTEC Transport Infrastructure and Logistics Study. Consultant’s report. Manila (TA 6335-REG). 3 Government of Bangladesh, Planning Commission, Ministry of Planning. 2011. Sixth Five-Year Plan: 2011–2015. Dhaka. 3

freight transport, 10% to 15% in container transport between Dhaka and Chittagong Port and 4% to 10% in passenger transport. The railway shall focus on lucrative market segments and provide long-distance passenger traffic in intercity trains as well as long-haul freight traffic along selected corridors and container traffic mainly between Dhaka and Chittagong Port. To achieve this, the government intends to (i) augment line capacity along main subregional corridors, (ii) procure modern locomotives, passenger carriages and freight wagons, and (iii) implement the reform of Bangladesh Railway along with the introduction of a modern financial management system, improve operation and maintenance and establish a human resource management system.

9. The subsector policies for railway are set out in the Integrated Multimodal Transport Policy, which was also approved in 2013. The policy pointed out that railway infrastructure in Bangladesh is characterized by a lack of maintenance with many speed restrictions and safety concerns, and the railway operates on two gauges, which obviously hampers seamless travel. It also states that the railway can help to avoid the construction of roads by attracting current and future road users with various measures including the following: (i) improving intercity service quality, timetabling, and capacity; (ii) increasing container movement efficiency and capacity; (iii) reorganizing Bangladesh Railway into lines-of-business with a focus on operations in consideration of multimodal transport needs; and (iv) corporatizing Bangladesh Railway in order to bring in efficient and modern business practices.

10. The Railway Sector Master Plan toward 20304, approved in 2013, pointed out that the railway sector must significantly improve its efficiency and service quality, and establish better connectivity in order to survive as a viable mode of transport. To be more specific, the plan referred to the needs in the following areas: (i) further investment in track, signalling, rolling stock, and maintenance; (ii) development of prospective lines with standards compatible with neighbouring countries and the Trans Aisa Railway network’s design standards; (iii) focus on multimodal integration with road and inland water transport system on major corridors as well as improvement of railway infrastructure facilities for traffic efficiency; (iv) better management of continuing traffic growth that will exceed the capacity of some corridors in the next 20 years; (v) focus on containers, and commuter and inter-city services, in view of potentials of local passenger services; (vi) rehabilitation of the large number of old bridges which requires double tracking; and (vii) regaining full capacity of workshops by modernisation and rehabilitation. ADB plans to update the master plan under the ongoing project preparatory TA.5

3. ADB Sector Experience and Assistance Program

11. Since 1973, ADB has been active in four transport subsectors: road, rail, port, and urban transport. Bangladesh Railway has implemented 22 ADB loans since 1974, totaling over $720 million. The project completion report prepared on the Jamuna Bridge Rail Link loan6 assessed Bangladesh Railway’s performance partly satisfactory, but it also referred to Bangladesh Railway’s strength in relation to “the preparatory work relating to the Project, which included meeting the covenants for loan effectiveness, acquiring land in a timely fashion, and managing project implementation efficiently.”

12. In 2006 ADB approved the Railway Sector Investment Program Multitranche Financing Facility (MFF)7 which will improve the performance of the railway sector by implementing (i) a

4 Ministry of Railway, Bangladesh. 2013, Railway Sector Master Plan (to June 2030). Dhaka 5 ADB. 2013. SASEC Railway Connectivity Investment Program Project Preparatory Technical Assistance Report. Manila. 6 ADB. 2005. Project Completion Report for Bangladesh: Jamuna Bridge Railway Link Project. Manila. 7 ADB. 2006. Railway Sector Investment Program Multitranche Financing Facility. Manila (MFF-0004-BAN). 4 reform project of sector policy, organizational, and capacity building reforms to make Bangladesh Railway more commercially focused, and improve governance and accountability; and (ii) an investment project of infrastructure and rolling stock capacity improvement investments to overcome capacity bottlenecks in sectors where such investments are both economically and financially viable, e.g., the Dhaka–Chittagong and the Dhaka–Darsana– corridors.

13. The investment project under the MFF finances (i) the construction of 64 kilometers of double-track in the Tongi–Bhairab Bazaar section of the Dhaka-Chittagong main line including signaling and implementation consulting services, (ii) the extension of loop-lines and modernization of signaling in the Dhaka-Darsana-Indian border section, and (iii) the procurement of 150 passenger carriages to be used to increase the number of passenger trains on the network of Bangladesh Railway and replace old rolling stock. The MFF was initially facing delays in the implementation; the performance has however improved and the project is now on-track. It is expected that the total disbursement for the MFF will reach almost $75 million in 2014.

14. The Bangladesh Railway Reform Project under the MFF supports implementation of sector reform and institutional strengthening actions agreed with the Government and Bangladesh Railway. It encompasses (i) restructuring Bangladesh Railway into an lines of business structure; (ii) preparing an asset register for Bangladesh Railway; (iii) improving financial governance, management, and accounting systems; (iv) improving human resource governance and utilization; and (v) transforming BR ultimately into a government-owned corporate entity, while enhancing the rail safety regulatory framework. The sector reform matrix gives the detailed time-bound policy actions and reform measures to be undertaken by the Government and their linkages to loan approvals of subsequent tranches under the MFF. The reform project is on track and the government and Bangladesh Railway remains committed to its implementation; a report on the railway reform progress is in linked document 14.

15. Future ADB assistance in the transport sector will contribute to improved transport infrastructure to reduce high transport and logistical costs, which leave large parts of the country economically isolated from national and regional markets. Encouraging more environmentally benign transport modes such as railways will be given priority. Future ADB interventions in the rail transport sector will focus on improving the main railway corridors, particularly those that facilitate subregional trade. ADB will also continue to support government initiatives to reform Bangladesh Railway into a more modernized and efficient organization. The ongoing TA loan8 is preparing future road and railway projects in Bangladesh with subregional impact to improve project readiness and expedite project implementation.

8 ADB. 2010. Subregional Transport Project Preparatory Facility. Manila (Loan 2688-BAN). 5

PROBLEM TREE

Limited access to Low regional trade Limited access to economic and inefficient social services High logistics cost EFFECTS opportunities subregional transport

Poor railway transport system in Bangladesh limits domestic and CORE PROBLEM subregional trade flow and passenger movement

CAUSES

Poor railway infrastructure with Poor status of rolling stock: Railway reform Limited capacity for Lack of regional 1. Missing links 1. Lack of not yet 1. Development of trade enhancing 2. Different gauges modern completed projects environment 3. Lack of line rolling 2. Project management capacity stock Low passenger 3. Safeguard Limitations in 4. Infrastructure 2. Poor and freight tariff implementation and international rail not suitable for workshop monitoring agreements TAR s requirements 3. Backlog of Interventions5. Operational 1. Financing supportmaintenan for double-tracking of Akhaura-Laksam Other projects and limitations section ce initiatives supporting 2. Capacity development technical assistance SASEC trade facilitation 3. Railway Sector Investment Program (Loans and regional connectivity 2316/2845/3097-BAN) 4. Railway Reform Project (Loan 2317-BAN); 6

Sector Results Framework (Transport, 2011–2015) Country Sector Outcomes Country Sector Outputs ADB Sector Operations Outcomes with Indicators with Targets Outputs with ADB Indicators with Planned and Ongoing ADB Main Outputs Expected ADB Contribution and Baselines Contribution Incremental Targets Interventions from ADB Interventions Increased, more Rail passenger traffic Road transport Roads newly (i) Planned key activity areas Improvement to RHD efficient, and safer increased from 7.3 billion systems expanded, constructed (5,416 National roads (95% of funds) operations efficiency movement of people passenger-km in 2010 to improved, and km) and rehabilitated Road transport policies and and goods 15 billion passenger-km maintained (7,809 km) by 2015 reforms (5% of funds) Periodic road maintenance in 2015 for about 840 km and Bridges constructed (ii) Projects in the pipeline performance-based Rail freight traffic and rehabilitated SASEC Road Connectivity maintenance contracts for increased from 710 million (51.3 km) by 2015 MFF ($800 million) about 155 km ton-km in 2010 to 1,238 million ton-km in 2015 (iii) Ongoing projects Design for 2,400 km of SASEC Road Connectivity roads with regional impact Annual average daily ($198 million) traffic (motorized) on TA Loan for Dhaka–Chittagong Design for 215 km of national and regional Expressway PPP ($10 million) expressway between highways increased from Dhaka and Chittagong 3,085 in 2010 to 4,532 in 2015 Rail transport Tongi–Bairab Bazar (i) Planned key activity areas Improvement of systems expanded, line with double track Double tracking, track Bangladesh Railway’s improved, and by 2015 rehabilitation, and signaling; operational efficiency maintained; Sector reform Bangladesh Length of railway in Double tracking for 64 km; Railway usable conditions to (ii) Projects in the pipeline Line capacity improvement restructured be increased from Railway Sector Investment by signaling upgrades for 2,835 km in 2010 to Program (PFR 4, $50 million); 11 stations 4,237 km in 2015 SASEC Railway Connectivity: Akhaura–Laksam Double Feasibility studies and Bangladesh Railway Track Project ($475 million) detailed design for 340 km reorganized by line of of new railway line with business, and with (iii) Ongoing projects regional impact accounting and Railway Sector Investment operating systems Program MFF (PFR 1, $130 Feasibility studies for three million; PFR 2, $150 million; major railway bridges and and PFR 3, $100 million) upgrading of signaling in 40 stations in the west zone of Bangladesh Railway ADB = Asian Development Bank, km = kilometer, MFF = multitranche financing facility, PFR = periodic financing request, PPP = public–private partnership, RHD = Roads and Highways Department, SASEC = South Asia Subregional Economic Cooperation, TA = technical assistance. Source: Asian Development Bank.