ADB extends $375 mn loan for India’s East Coast Economic Corridor

01 Mar 2017


The Asian Development Bank (ADB) has sanctioned $375 million in loans and grants to develop the 800-km Visakhapatnam-Chennai Industrial Corridor, which is the first phase of a planned 2,500–km-long East Coast Economic Corridor (ECEC).

The corridor is expected to spur development on India's eastern coast in line with the government of India's 'Make in India' policy to stimulate manufacturing, and 'Act East' policy to integrate the Indian economy with Asia's dynamic global production networks.

ADB and the Indian government had signed an agreement to this effect on 23 February after the ADB board approved $631 million in loans and grants in September 2016 to develop the Visakhapatnam-Chennai Industrial Corridor.

ADB's approved loans include a $500-million multi-tranche facility to build key infrastructure in the four main centers along the corridor – Visakhapatnam, Kakinada, Amaravati, and Yerpedu-Srikalahasti - in Andhra Pradesh. The first tranche of $245 million will finance sub-projects to develop high-quality internal infrastructure in 2 of the 4 nodes of the corridor – Visakhapatnam and Yerpedu-Srikalahasti.

The approved ADB funds include a $125 million policy-based loan that will be used for capacity development of institutions engaged in corridor management, provide support to enhance ease of doing business and for supporting industrial and sector policies to stimulate industrial development.

Along with the ADB loans, agreement was also signed for a $5-million grant from the multi-donor Urban Climate Change Resilience Trust Fund that is managed by ADB to build climate change resilient infrastructure.

The government of India will provide extra funding of $215 million to the $846 million project.

''ADB is supporting an industrial corridor development approach that involves creation of efficient transport, and reliable water and power supplies in the industrial clusters along with a skilled workforce, to be backed by industry-friendly policies that improve ease of doing business for integration of local economy with global production networks,'' said L B Sondjaja, deputy country director of ADB's India Resident Mission who signed the loan agreement on behalf of ADB. ''We estimate that by 2025, annual industrial output along the corridor will increase four fold to $64 billion from about $16 billion in 2015 if investment opportunities are maximised over the next few years,'' he added.

''The project is an important milestone in the process of developing the corridor and realising the objectives of `Make in India'. We sincerely hope that the project will complement the ongoing efforts of the government of Andhra Pradesh to enhance industrial growth and create high-quality jobs,'' said Raj Kumar, joint secretary in the finance ministry who signed the loan agreement for government of India.

The project agreement was signed by Hema Munivenkatappa, special secretary to government (finance) on behalf of the government of Andhra Pradesh.

Among the projects envisaged under the $245-million tranche 1 loan include strengthening and widening of a 29.6-km section of state highway to four lanes to improve connectivity from Kakinada Port to National Highway 16, investments in smart water management in Visakhapatnam to reduce non-revenue water and provide continuous water supply, upgrading 7 power substations to supply high-quality and reliable power supply to Visakhapatnam, Naidupeta, and Yerpedu-Srikalahasti industrial clusters, and effluent treatment facility in Atchutapuram and Naidupeta clusters.

The tranche 1 loan will have a 25-year term, including a grace period of 5 years, a 20-year straight line repayment method at an annual interest rate determined in accordance with ADB's LIBOR-based lending facility.

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