Over the past decades, Bangladesh's transport sector received the biggest share in government investment, accounting for about 20% of the total annual expenditures from 1999 to 2017. Three-fourths of these investments went to road transport, which expanded significantly at the expense of rail transport. Consequently, the market share of railways declined steadily from 30% in 1973 to 4% in 2005. A vicious cycle set in ─ limited investments led to declining quality and efficiency, which in turn resulted in poor traffic and high operating ratios. The situation was aggravated by the Bangladesh Railway's poor financial performance and increasing dependence on government budget support. The ability of rail transport, which is environment-friendly and requires less land per unit of operation, to contribute to the country’s development was consequently eroded.
To help ameliorate the situation, the Asian Development Bank (ADB) approved a $430 million multitranche financing facility (MFF) for the Railway Sector Investment Program in October 2006. The program comprised a comprehensive set of far-ranging sector reform interventions and priority investments in key rail corridors. The reform and investment components were integrated: approval of the investment subprojects depended on the implementation of specific reform actions.
The program’s anticipated impact was promotion of sustainable economic growth and poverty reduction. Its intended outcome was improved performance of the railway sector, indicated by increased train frequency, freight traffic, and share in container traffic and better Bangladesh Railway operating ratios. Financed by 5 loans provided in 4 tranches, the program was expected to result in the restructuring of the Bangladesh Railway into a market-oriented business organization with improved financial governance, human resource, and operational systems, along with improvements in rail infrastructure and transport capacity.
At appraisal, the program was designed to include 8 investment subprojects, the first of which involved the meter gauge double tracking and signaling modernization of the Tongi–Bhairab Bazar railway, a part of the Dhaka–Chattogram (formerly Chittagong) and Dhaka–Darshana–Khulna rail corridors that cater to Bangladesh’s imports and exports and are among its busiest routes. Subproject 1 was financed by a $100 million loan. The subproject 1 loan, along with another $30 million loan for the reform component and installation of an integrated information technology system for the Bangladesh Railway comprised tranche 1 of the MFF, approved in February 2007.
However, because of a 146% cost overrun in subproject 1, a portion of tranche 2 and eventually tranche 4 were allocated to additionally finance and complete subproject 1. Tranche 2, approved for $150 million in December 2011, also financed two other subprojects: (i) subproject 2, which involved yard improvements and extension of loops in 8 stations between Dhaka and Darsana and at Sirajganj Bazar; and (iii) subproject 3, involving signaling upgrade in 11 stations between Dhaka and Darsana. Subproject 3 was not yet completed at program completion and was taken up by another ongoing project. Tranche 4, approved for $50 million in March 2016, the last year of MFF availability, met the financing shortfalls under tranche 2.
The intended rail infrastructure outputs for subprojects 1 and 2 were largely delivered. However, the design choice of meter gauge for the Tongi–Bhairab Bazar, instead of the broad gauge planned at appraisal, prevented capacity expansion and running of higher speed trains on the main Dhaka–Chattogram corridor. Though progress was slow, the Bangladesh Railway ultimately met tranche 1, 2, and 4 policy conditions. Among other policy actions, it adopted a line of business organization structure, prepared 5-year business plans, adopted key performance indicators, and outsourced identified non-core services. All these reform actions supported improved governance. Railway safety increased with the adoption of improved operational and maintenance standards, maintenance of track and permanent way, enhanced signaling, and infusion of new rolling stock.
Tranches 1, 2, and 4 thus overall succeeded in improving rail sector performance, despite delays and design deficiencies. They have provided people with affordable, faster, and safer transport services. Passenger rail travel time from Dhaka to Chattogram decreased by at least 1 hour to an average of about 6–7 hours, while the same journey by road takes at least 7–8 hours. Container trains on the same route have a time saving of 4.5–5 hours on average. Container freight traffic handled by Bangladesh Railway grew, more remarkably in 2018 as new locomotives were procured and deployed, with total freight doubled between 2012 and 2018. Access to improved railway facilities and rail transport services also contributed to the growth of private sector services, particularly for train operations and catering. Reforms supported by the 3 tranches created the basic framework for ongoing policy, legal, and institutional reforms. Rail safety increased dramatically, with derailment declining from 790 in 2006 to 64 in 2018 even with the increased ridership.
As with the entire MFF program, the tranche projects had the Bangladesh Railway as executing agency. The Bangladesh Railway established two units to take charge of day-to-day implementation ─ the reform implementation unit and the project implementation unit.
