ISBN 978-92-9257-125-2 (Print)ISBN 978-92-9257-126-9 (e-ISBN)ISSN 2071-7202 (Print)ISSN 2218-2675 (e-ISSN) Publication Stock No. ABF157656

• The economies of South Asia and Southeast Asia are a bright spot in a fragile world economy. These economies are growing steadily and forging closer economic ties than ever before. However, regional integration between South and Southeast Asia is still relatively limited, hindered by various problems particularly bottlenecks in transport infrastructure.

• Road and rail links between Bangladesh, India, Myanmar, and Thailand—the key land connections between the two regions—are patchy, with below-standard sections and missing links. In the case of rail transport, these problems are compounded by differences in gauges and rolling stock. Furthermore, seaports in the Bay of Bengal suffer from deficiencies in draft, capacity, operational efficiency, and road and rail access.

• Improving the quality of regional transport infrastructure, and adding it where it does not exist, will lower unit transport costs, reduce shipment times, and increase throughput, all of which can lead to increased trade and greater benefits. The analysis of transport infrastructure in this brief focuses on two important areas: (i) road and rail connections between Cambodia, Bangladesh, India, Myanmar, Thailand, and Viet Nam; and (ii) ports in the Bay of Bengal, which typically have high costs but the potential to contribute to the development of supply chain networks connecting the two regions. The brief draws upon research undertaken for the ADB–ADBI flagship study entitled Connecting South Asia and Southeast Asia, which analyzed improvements in regional transport infrastructure, including highways, railroads, and seaports that can contribute to increased trade and investment between the two regions.

• Total costs of new regional transport projects (roads, railways, and ports) are estimated by the ADB–ADBI study at $62.6 billion, while the cost for priority transport projects is estimated at $8.4 billion. Meanwhile, the estimated potential benefits of reduced transportation costs (ranging from $89 billion to $358 billion) are larger than these costs.

IntroductIon

The economies of South Asia and Southeast Asia are growing and forging closer economic ties than ever before. Growth and regional integration have been fuelled by several factors including falling barriers in trade and investment, expanding production networks and supply chains, a commodity boom, and heighted demand from a rising middle class. However, integration of trade, investment, and financial flows between these two subregions, while making progress, has been relatively limited, hindered by various bottlenecks and gaps associated with transport infrastructure, among others.

The link between improved transport infrastructure and greater potential for trade and investment between South Asia and Southeast Asia is clear. In light of the slowdown in the advanced economies, and the moderation of growth in the People’s Republic of China (PRC), there is a greater need than ever to expand the size of regional markets through integration measures.

A flagship study of the Asian Development Bank (ADB) and the ADB Institute (ADBI) entitled Connecting South Asia and Southeast Asia qualitatively and quantitatively analyzes how improvements in cross-border transport infrastructure—including highways, railroads, and seaports—can contribute to increased trade and investment between the two regions.1 It focuses on countries in the two regions that

ADB BRIEFSno. 43

SEPTEMBER 2015

KEY PoIntS rEgIonal tranSPort InfraStructurE: MaPPIng ProjEctS to BrIdgE South aSIa and SouthEaSt aSIaPeter MorganSenior Consultant for ResearchADB Institute

Ganeshan WignarajaAdvisor, Economic Research and Regional Cooperation Department,Asian Development Bank

Michael PlummerDirector, SAIS Europe andEni Professor of International Economics

1 ADB and ADB Institute. 2015. Connecting South Asia and Southeast Asia. http://www.adb.org/sites/default/files/publication/159083/adbi-connecting-south-asia-southeast-asia.pdf

ADB BRIEFS NO. 43

2

are physically closest to the other region; in particular, it reflects new opportunities made available by the opening up of Myanmar in economic and political terms.2 The analysis of ports focuses on those in the Bay of Bengal, since they generally have high costs but the potential to contribute to the development of supply chain networks connecting the two regions.

The ADB–ADBI study estimates total costs of new transport-related regional connectivity projects at $62.6 billion, including $17.7 billion for highways, $33.7 billion for railroads, and $11.1 billion for ports. The total cost for priority transport projects is estimated at $8.4 billion. These estimates were based on a painstaking bottom-up analysis of critical infrastructure bottlenecks and the formulation of possible projects to alleviate them. The estimates cover projects directly related to creating new infrastructure between South Asia and Southeast Asia, or upgrading existing cross-border infrastructure which this brief covers. They do not include the cost of infrastructure projects not directly related to cross-regional connectivity. Modelling work for the study concludes that the potential benefits of reduced transportation costs resulting from such investments are significantly larger than these investment costs.

This ADB brief highlights the critical role of transport infrastructure to bridge South Asia and Southeast Asia. It maps the details of economic corridors and highways, railroads, and seaports. It also attempts to identify priority transport investment projects to link the two subregions. Finally, it summarizes the key findings and discusses the potential benefits from investing in transport infrastructure to link the two subregions.3

hIghwaYS

The Asian Highway network, established by the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) in 1992, is foremost among the existing pan-Asian highway initiatives. The Asian Highway network follows frameworks for internationally agreed routes and infrastructure standards, and provides the basic template for subsequent land-based,

2 For South Asia, this means Bangladesh, Bhutan, India, Nepal, and Sri Lanka. For Southeast Asia, this includes the Greater Mekong Subregion (GMS) countries—Cambodia, the Lao PDR, Myanmar, Thailand, and Viet Nam. The People’s Republic of China (PRC) (specifically Yunnan Province and Guangxi Zhuang Autonomous Region) is also a member of the GMS, and is considered in this study to the extent that it contributes to connectivity between South Asia and Southeast Asia.

3 Trade and transport facilitation can also contribute substantially to interregional connectivity—indeed, without them, improvements in physical connectivity can have only limited effects. They are discussed at length in the main ADB–ADBI study. However, they are outside the scope of this brief, and will be treated separately.

4 Route numbers begin with “AH,” which stands for “Asian Highway,” followed by one or two or three digits. Economic and Social Commission for Asia and the Pacific. 2015. Intergovernmental Agreement on the Asian Highway Network. http://www.unescap.org/sites/default/files/Asian%20Highway%20Agreement-consolidated-10Feb2015-En.pdf

5 United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP). 2010. Asian Highway Database 2010: AH Network in Member Countries. New York: United Nations. http://www.unescap.org/ttdw/common/tis/ah/Member%20countries.asp (accessed 23 December 2012).

6 J. F. Gautrin. 2014. Connecting South Asia to Southeast Asia: Cross-Border Infrastructure Investments. ADBI Working Paper. No. 483. Tokyo: Asian Development Bank Institute.

7 Association of Southeast Asian Nations (ASEAN). 2010. Master Plan on ASEAN Connectivity. Jakarta: ASEAN Secretariat.

cross-regional integration plans, including the Master Plan for the Association of Southeast Asian Nations (ASEAN) Connectivity, the Greater Mekong Subregion (GMS) corridor network, the South Asian Association for Regional Cooperation multimodal transport strategy, and the India–Myanmar–Thailand Trilateral Highway project sponsored by the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC); including both routes and design standards. Four primary Asian Highway routes cross east to west connecting South Asia and Southeast Asia, and hence are most relevant for this study: AH1 and AH2 linking India and Bangladesh with Myanmar and the rest of Southeast Asia; and AH15 and AH16 linking the Lao People’s Democratic Republic (Lao PDR), Thailand, and Viet Nam.4 These routes pass through Myanmar, the only land bridge between the two regions.5

Background work for the ADB–ADBI study carried out an extensive analysis of the relative merits of alternative through routes linking the two regions.6 It used a two-stage approach to identify priority highway projects. First, it selected priority “port-to-port” corridors based on a set of scoring criteria. Second, the study identified candidate projects on each priority corridor from existing project pipelines and scored them on the basis of their connectivity rationale; traffic and trade intensity; project recognition, acceptance, and preparedness; socioenvironmental problems; and extent of benefit sharing among participating countries.

The three highest scoring corridors were (in order): the Kolkata–Ho Chi Minh City corridor through the Chicken’s Neck of Northeast India, the Chennai–Dawei–Ho Chi Minh City corridor, and the Chittagong–Ho Chi Minh City corridor. The Chennai–Dawei–Ho Chi Minh City corridor follows the Mekong–India economic corridor, which is also part of the Master Plan for the ASEAN Plan Connectivity.7 Map 1 shows these routes, plus a secondary route connecting Myanmar and Da Nang in Viet Nam (AH16).

Table 1 shows priority highway projects (total cost of $986 million) while Table 2 summarizes the costs for all connectivity-related highway projects ($17.7 billion). These projects and the priority highway corridors identified in this brief are also shown in Map 1. All the priority projects (except those related to Thilawa port in

Regional Transport Infrastructure: Mapping Projects to Bridge South Asia and Southeast Asia

3

Map

1: P

riorit

y Hig

hway

Cor

ridor

s and

Pro

ject

s

HA

NO

I

BA

NG

KO

K

PH

NO

M P

EN

H

VIE

NT

IAN

E

DH

AK

A

TH

IMP

HU

KA

TH

MA

ND

U

Guw

ahati

Bago

Yangon

Sava

nnakh

et

Thato

n

Kaw

kare

ikTak

Phitsanulo

k Khon K

aen

Daw

ei

Kanch

anaburi

Poip

et

Dong H

a

Dansa

vanh

Da N

ang

Ho C

hi M

inh C

ity

Ara

nya

pra

thet

Moc

Bai

Bave

t

Sili

guri

Myaw

addy

Mae S

ot

More

h

Nagaon

Kale

wa

Yagyi

Ein

du

Ban P

hu-

Nam

Ron

Silc

har

Ag

art

ala

Imphal

Kolk

ata

Monyw

aM

andala

y

Tam

u

NA

Y P

YI

TA

W

NE

PA

L

BH

UTA

N

BA

NG

LA

DE

SH

IND

IA

MY

AN

MA

R TH

AIL

AN

D

LA

O P

DR

VIE

T N

AM

PE

OP

LE

’S R

EP

UB

LIC

OF

CH

INA

CA

MB

OD

IA

IND

IA

Thi

s m

ap w

as p

rodu

ced

by th

e ca

rtog

raph

y un

it of

the

Asi

an D

evel

opm

ent B

ank.

T

he b

ound

arie

s, c

olor

s, d

enom

inat

ions

, and

any

oth

er in

form

atio

n sh

own

on th

is

map

do

not i

mpl

y, o

n th

e pa

rt o

f the

Asi

an D

evel

opm

ent B

ank,

any

judg

men

t on

the

lega

l sta

tus

of a

ny te

rrito

ry, o

r any

end

orse

men

t or a

ccep

tanc

e of

suc

h bo

unda

ries,

co

lors

, den

omin

atio

ns, o

r inf

orm

atio

n.

050

100

200

Kilo

met

ers

N

Co

nn

ec

tin

g S

ou

th A

sia

an

d S

ou

the

as

t A

sia

R

oa

d M

ap

Tonl

e Sa

p

Mekong R.

B a

y

o f

B e

n g

a l

f M

o f la

u

r

G

taban

Gan

ges

R.

Bra

hmap

utra

R.

Mek

ong

R.

Natio

nal C

apita

l

City

/Tow

n

Road

Impro

vem

ent

Riv

er

105

00'

Eo

92 0

0'E

o

15 0

0'N

o

21 0

0'N

o

105

00'

Eo

15 0

0'N

o

21 0

0'N

o

92 0

0'E

o

Regional 14-2224A ABV

Sour

ce: C

ompi

led

by th

e A

sian

Dev

elop

men

t Ban

k.

ADB BRIEFS NO. 43

4

table 1: Priority Road, Rail, and Port Projects

    Length(km)

Cost($ million)Project

Road ProjectsIndia Imphal–Moreh 95 160India Chennai Port Elevated Expressway N/A N/AMyanmar Endu–Kawkareik 70 150Myanmar Kawkareik–Myawaddy 46 37Myanmar Yagyi–Kalewa 186 110Myanmar Kalewa–Tamu 160 245Myanmar Thilawa–East Dagon 33 41Myanmar East Dagon–NR1 Road 31 58Thailand Myawaddy–Mae Sot 17 55Thailand Mae Sot–Tak 78 90Cambodia Aranyaprathet–Poipet 10 40Subtotal 726 986Railway ProjectsIndia Jiribam–Imphal 125 520India Imphal–Moreh 95 400Myanmar Tamu–Kalay 127 98Myanmar Kalay–Mandalay 539 162Myanmar Three Pagodas Pass (Myanmar) 110 250Myanmar Lashio–Ruili (Yunnan Province) 142 480Myanmar Dawei–BCP Myanmar 130 325Thailand Three Pagodas Pass (Thailand) 153 490Thailand Bangkok–Aranyaprathet 260 15Thailand BCP–Nam Tok 30 75Cambodia Poipet–Phnom Penh 386 175Cambodia Phnom Penh Loc Ninh 254 1,100Viet Nam Loc Ninh–Ho Chi Minh City 129 900Viet Nam Ha Noi–Lao Cai (BCP) 260 149Subtotal 2,740 5,139Port ProjectsBangladesh New Sonadia Deepwater Port – 1,000India Sagar Island Deepwater Port (Kolkata) – 1,300Subtotal 2,300Country TotalsBangladesh 1,000Cambodia 1,315India 2,380Myanmar 1,956Thailand 725Viet Nam 1,049Grand Total     8,425

– = not applicable.BCP = border crossing point, km = kilometer.Sources: ADB and ADB Institute. 2015. Connecting South Asia and Southeast Asia. http://www.adb.org/sites/default/files/publication/159083/adbi-connecting-south-asia-southeast-asia.pdf based on J. F. Gautrin. 2014. Connecting South Asia to Southeast Asia: Cross-Border Infrastructure Investments. ADBI Working Paper. No. 483. Tokyo: Asian Development Bank Institute.

Regional Transport Infrastructure: Mapping Projects to Bridge South Asia and Southeast Asia

5

Myanmar) are either roads connecting to the border crossing points (BCPs) or improvements at the BCP itself, and all are on the Kolkata–Ho Chi Minh City corridor. The rationale for implementing such projects is simple. Roads leading to BCPs have been neglected and are not maintained properly. In India, the Imphal–Moreh road is below standard and in poor condition. The same applies to the roads in Myanmar. For example, on the Tamu–Kalewa road, financed and built by India in 2006, bridges were not included in the contract. The road has deteriorated and full rehabilitation is now needed but security concerns could delay implementation. Another set of projects relate to improving the link between Myanmar and Thailand, which will be done by ADB and Thailand’s Neighboring Countries Economic Development Cooperation Agency. In Myanmar, poor maintenance and bridge reconstruction

make improvements necessary. In Thailand, road projects along the corridor are intended to ensure a seamless four-lane road network.8

raIlroadSThe situation for rail corridors is different from that for roads. Whereas road links mostly exist and mainly need upgrading, many rail links are missing altogether. Moreover, as noted above, this is compounded by differences in gauges and rolling stock, among others. There is currently no rail connectivity between South Asia and Southeast Asia and there is no adequate connectivity within the GMS or within South Asia for that matter. There are, however, plans to construct the missing links within the GMS and South Asia (South Asia Subregional

8 The priority projects in Table 1 may be compared with the priority projects identified in the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) Transport Infrastructure and Logistics Study Update (see Table 1 in ADB. 2014. Updating and Enhancement of the BIMSTEC Transport Infrastructure and Logistics Study: Draft Final Report. Manila: ADB). All of the road projects in Table 1 for India, Myanmar, and Thailand are included in the BIMSTEC list. The BIMSTEC list contains a number of additional road projects for India, including four-laning of the route from Siliguri to Shillong in northeastern India, but these were judged to be far from the border to be relevant for the ADB–ADBI study, which focused on cross-border connectivity. Cambodia is not a member of BIMSTEC, so the BIMSTEC list does not include the Aranyaprathet–Poipet segment. Road projects for Bangladesh were not included in Table 1 because of the lack of transit agreements with India and Myanmar.

table 2: Summary of Road, Rail, and Port Projects

CountriesRoad Projects

(km)Road Projects

($ million)Rail Projects

(km)Rail Projectsa

($ million)Port Projects

($ million)Total

($ million)South Asia 2,271 12,634 772 3,700 5,318 21,652

Bangladesh 648 11,064 261 1,604 1,100 13,768India 1,623 1,570 511 2,096 2,210 5,876Sri Lanka 0 0 0 0 2,008 2,008

Southeast Asia 3,429 5,112 7,021 30,040 5,809 40,961Cambodia 45 85 696 1,276 90 1,451Lao PDR 1,042 780 1,125 11,465b 0 12,245Myanmar 1,593 1,587 4,247 7,860 5,660 15,107Thailand 569 2,250 824 1,539 59 3,848Viet Nam 180 410 129 7,900 0 8,310

Grand Total 5,700 17,746 7,793 33,740 11,127 62,613

km = kilometer, Lao PDR = Lao People’s Democratic Republic.a Only new rail projects.b Rail costs in the Lao PDR include $4,200 million for the Savannakhet–Lao Bao build-own-operate-transfer project.Source: ADB and ADB Institute. 2015. Connecting South Asia and Southeast Asia. http://www.adb.org/sites/default/files/publication/159083/adbi-connecting-south-asia-southeast-asia.pdf

ADB BRIEFS NO. 43

6

Map

2: P

riorit

y Rai

lroad

Cor

ridor

s and

Pro

ject

s

Mandala

y

Yangon

Daw

ei

Poip

et

Ara

nya

pra

thet

Sili

gu

ri

More

hTa

mu

Ko

kra

jha

r

Lum

din

g

Katig

ara

Jiripam

Kale

Lash

io

Muse

Ruili

Dali

Kunm

ing

Lao C

ai

Maw

lam

yine

Thanbyu

zaya

t

Nam

Tok

Loc

Nin

h

Hai P

hong

BC

P

Dis

pur

Bago

Yangon

Ho C

hi M

inh C

ity

Imphal

Kolk

ata

PH

NO

M P

EN

H

DH

AK

A

HA

NO

I

BA

NG

KO

K

VIE

NT

IAN

E

TH

IMP

HU

KA

TH

MA

ND

U

NA

Y P

YI TA

W

NE

PA

L

BH

UTA

N

BA

NG

LA

DE

SH

IND

IA

IND

IA

MY

AN

MA

R TH

AIL

AN

D

LA

O P

DRVIE

T N

AM

PE

OP

LE

’S R

EP

UB

LIC

OF

CH

INA

CA

MB

OD

IA

Thi

s m

ap w

as p

rodu

ced

by th

e ca

rtog

raph

y un

it of

the

Asi

an D

evel

opm

ent B

ank.

T

he b

ound

arie

s, c

olor

s, d

enom

inat

ions

, and

any

oth

er in

form

atio

n sh

own

on th

is

map

do

not i

mpl

y, o

n th

e pa

rt o

f the

Asi

an D

evel

opm

ent B

ank,

any

judg

men

t on

the

lega

l sta

tus

of a

ny te

rrito

ry, o

r any

end

orse

men

t or a

ccep

tanc

e of

suc

h bo

unda

ries,

co

lors

, den

omin

atio

ns, o

r inf

orm

atio

n.

050

100

200

Kilo

met

ers

N

Co

nn

ecti

ng

So

uth

Asia

an

d S

ou

theast

Asia

R

ailr

oa

d M

ap

Tonl

e Sa

p

Mekong R.

B a

y

o f

B e

n g

a l

f M

o f la

u

r

G

taban

Gan

ges

R.

Bra

hmap

utra

R.

Mek

ong

R.

Natio

nal C

apita

l

City

/Tow

n

Railr

oad

New

Rehab

Riv

er

Bord

er

Cro

ssin

g P

oin

tB

CP

105

00'

Eo

92 0

0'E

o

15 0

0'N

o

21 0

0'N

o

105

00'

Eo

15 0

0'N

o

21 0

0'N

o

92 0

0'E

o

14-2224B ABV Sour

ce: C

ompi

led

by th

e A

sian

Dev

elop

men

t Ban

k.

Regional Transport Infrastructure: Mapping Projects to Bridge South Asia and Southeast Asia

7

Economic Cooperation) and also to connect the two regions. The rail corridors described below are based on these plans.

The Trans-Asian Railway (TAR) is UNESCAP’s counterpart to the Asian Highway in the rail transport subsector. The main routes of significance for connectivity between South Asia and Southeast Asia are TAR-S1 and TAR-S2. Similar to the Asian Highway network, it provides the template for subsequent regional integration efforts for railroad networks, including the ASEAN flagship railway transport infrastructure project—the Singapore–Kunming Rail Link—and the South Asian Association for Regional Cooperation multimodal framework.

Similar to that for roads, the approach adopted in the study was to identify through “port-to-port” railroad corridors that connect the two regions. Based on an analysis similar to that for highways, the two most attractive corridors are Kolkata–Ho Chi Minh City through the Chicken’s Neck and Dawei–Ho Chi Minh City with branching to Laem Chabang.9 However, the total cost of projects for the Kolkata–Ho Chi Minh City route is $4.1 billion, much higher than the amount required for roads. There are too many missing links to make the Kolkata–Hai Phong through the Lao PDR economically justifiable. The best way to reach Hai Phong from South Asia is through Yunnan Province since rail connections are under construction in the PRC (Map 2). Total connectivity-related rail project costs are estimated at $33.7 billion (Table 2), and costs of priority projects are estimated at $5.1 billion (Table 1).10 The Kolkata–Ho Chi Minh City and Kolkata–Hai Phong corridors meet the wish of the Government of India to connect Delhi to Viet Nam by rail. By the same token they would also complete the western branch of the Kunming to Singapore route (Singapore–Kunming Rail Line), a key element of the ASEAN Master Plan on connectivity.11

Doubts have been expressed on the viability of building a rail line through the Three Pagodas Pass, but an alternative exists. A rail line from Nam Tok in Thailand to Dawei in Myanmar may be technically and economically more feasible. Nevertheless, if feasibility studies were carried out now, all projects would likely fail to be economically justifiable because of the poor performance of the different national railways, among other reasons. It is only when the national railways become profitable and have increased their share of freight transport that constructing missing links for regional purposes could be seriously envisaged.

9 Footnote 6.10 The rail projects in Table 1 generally do not correspond with those in the BIMSTEC list (see footnote 8), since the latter are not directly related to interregional

connectivity, and are mostly in Bangladesh, which was excluded because of the above-mentioned lack of transit agreements. Railroad projects are only a “priority” in a relative sense since, for reasons described in the text, interregional rail connectivity at this stage looks less attractive than road or port connectivity.

11 Footnote 7.12 Globally, maritime trade accounts for about 70% of total trade in value terms and 80% in volume terms. United Nations. 2012. World Economic Situation and

Prospects. New York.13 ADB. 2012. Initial Assessments of Road Transport Infrastructure and Transport and Logistic Services for Trade Facilitation in the GMS Countries. Draft final report

of the 18th GMS Ministerial Conference, Nanning, People’s Republic of China. http://www.adb.org/sites/default/files/progress-report-GMS-RIF-transport.pdf14 D. Wignall and M. Wignall. 2014. Seaborne Trade between South Asia and Southeast Asia. ADBI Working Paper. No. 508. Tokyo: Asian Development Bank

Institute.

SEaPortS

Improving ports and port access has the greatest potential to improve connectivity between South Asia and Southeast Asia. First, sea trade makes up the bulk of international trade in the two regions in value terms, and the share in volume terms is even higher, since items with lower value-added tend to move by sea.12 Second, transport corridors are normally anchored by ports at each end, and it is likely that the greatest benefits of increased connectivity will accrue to the catchment areas of those ports. To be sure, such improvements will benefit all trade in and out of a given port, and cannot easily be associated with growth of trade between South Asia and Southeast Asia specifically. In general one can only assume that port improvements will result in a proportionate increase in trade with all regions. Still, reducing transport costs and increasing regional welfare should be the key economic objective. Third, sea trade, especially container trade, is closely associated with manufacturing supply chain networks, a key driver of growth in the region. In comparison, the benefits from increased land connectivity via remote border crossings are likely to be much smaller.

ADB argues that, in relation to the concept of corridor development and international trade, it is desirable to focus on ports as gateways to such corridors.13 For example, many GMS corridors have a port at one end and, more importantly, the amount of trade moving along those corridors invariably increases on those sections closest to such gateway ports. The study focuses mainly on ports in the Bay of Bengal, including Colombo, Chennai–Ennore, Kolkata–Haldi, Chittagong, Sittwe, Kyaukpyu, Yangon–Thilawa, and Dawei (see Map 3). This is because these ports are most directly connected with South Asian–Southeast Asian trade, but many of them suffer from numerous bottlenecks, including shallow depth, antiquated facilities, inadequate road and/or rail access, and low operational efficiency.

In view of the strategic importance of container trade for economic development, the research on ports focuses on issues related to container trade. Background work for the ADB–ADBI study examined container trade port call data for Bay of Bengal ports and identified several issues, many of which reflect the problems cited above in those ports.14

ADB BRIEFS NO. 43

8

Map

3: B

ay o

f Ben

gal P

orts

Sour

ce: C

ompi

led

by th

e A

sian

Dev

elop

men

t Ban

k.

Regional Transport Infrastructure: Mapping Projects to Bridge South Asia and Southeast Asia

9

(i) All of the containers from Yangon, Chittagong, and Kolkata are transshipped. From Chennai, at least 70% of the containers handled are carried on feeder ships to transshipment terminals, mainly to Colombo. All transshipped containers from these ports are subject to additional costs relative to direct calls by large container ships.

(ii) With the exception of Chennai, there are no direct ship calls from any of the top 20 international shipping lines to ports in the Bay of Bengal. Rather, for cost and efficiency reasons, these lines have slot charters with common feeder operators. This represents a major reduction in competition for one element of container transit that pushes up costs. To understand the scale of Regional Container Lines and Sea Consortium with respect to these routes, it is noteworthy that these two companies control 90% of container shipping capacity into Chittagong.

(iii) Although the ports in the ASEAN member states have a greater range of container services and trade route options, this cannot be fully explained by higher volumes. Penang is smaller than Chittagong and Chennai but has a far greater range of services that call at the port. Location is also a factor.

(iv) The size of container ships calling at ports around the Bay of Bengal is small, with ship sizes rarely exceeding 3,000 twenty-foot equivalent unit (TEU) compared to 6,500–12,000 TEU in comparable ASEAN ports; this increases costs for containers handled at ports in the Bay of Bengal compared with direct port calls by large container ships.

(v) The distance between significant container terminals around the Bay of Bengal is far greater than, for example, along the coast of the PRC. This observation takes into account the “gaps” in relative population density along the northern coast of Myanmar. Also, the distance from the major container trade lanes may be a factor. The average distance from the major trade lanes for ports on the Bay of Bengal is about 1,250 kilometers, compared with about 500 kilometers for the major ports of ASEAN.

In a nutshell, it is not economical for efficient large-scale container ships to call on most Bay of Bengal ports. Instead, cargo from those ports must be loaded onto smaller and less efficient container ships, and then transshipped at hub ports, adding another round of costs.

The strategy for selecting port-related projects was based primarily on the desirability of increasing the efficiency of container trade in the region. Ports and container terminals around the Bay of Bengal need to attract direct calls from major container shipping lines that offer the potential to either avoid transshipment or promote a switch to in-line transshipment, and thus achieve a significant reduction in costs. In-line transshipment is where containers are moved from one very large container ship to another at some port of call along their mutual routes. This form of transshipment is different from hub-and-spoke feeder transshipment, and in effect provides the benefit of a much broader range of direct port-to-port container shipments to shippers with the cost being absorbed by the shipping line to improve their competitive position over other shipping lines. Direct calls can, over time, achieve cost savings from $100 to $500 per TEU, which equate to between 20% and 50% of total container shipping costs into ports around the Bay of Bengal.15 In line with this, many ports around the Bay of Bengal need to develop or expand deepwater container terminals. At a minimum, 6,500 TEU ships should be accommodated. Deeper and more capable terminals should be considered.16

Specific project suggestions come in three primary types: (i) major port developments with substantial supporting infrastructure requirements, (ii) container terminal development, and (iii) supporting infrastructure development. With respect to the last category of projects, only illustrative projects are identified, not a comprehensive list of potential projects. Total project costs are estimated at $11.2 billion (see Table 2). Of these, priority projects are the new Sonadia deepwater port in Bangladesh, the Sagar Island deepwater port in India, and Thilawa port road connections in Myanmar (see Table 1).17

15 Footnote 12.16 This should be based on detailed cost–benefit analysis. Such analysis was beyond the scope of the ADB–ADBI study.17 The port projects in Table 1 are also different than those in the BIMSTEC list (see footnote 8), since they focus on developing “deepwater” ports on the Bay

of Bengal to accommodate large-size container ships, while the BIMSTEC study argues that demand for such ships was unlikely to be met in the foreseeable future, and hence focused on “deeper water” ports to accommodate larger feeder vessels (see ADB 2014, 9). However, container traffic in the Bay of Bengal area appears to be growing significantly faster than assumed in the BIMSTEC study.

ADB BRIEFS NO. 43

10

BEnEfItS froM tranSPort InvEStMEnt

What are the potential benefits? Using a computable general equilibrium model, the ADB–ADBI study found that the increase in real income from a 5% reduction in transport costs (a very conservative estimate) between the two regions through 2030 could be 1.4% of gross domestic product (GDP) for South Asia (roughly $59 billion) and 1.0% of GDP for Southeast Asia (roughly $30 billion), or a total of $89 billion, higher than the estimated costs in Table 2. If transport costs were reduced by 15%, which still seems feasible, net benefits would increase dramatically to 5.7% of GDP for South Asia (roughly $240 billion) and 3.9% of GDP for Southeast Asia (roughly $118 billion), or a total of $358 billion, much higher than the estimated costs.

Linking trade and transport is one of the main elements behind the design of transport corridors. However, the social benefits associated with greater connectivity are often overlooked. One of the first impacts of improved corridors is the increase in passenger and tourist movements across borders. Evaluation of the GMS transport corridors has revealed that one of the immediate benefits of cross-border road improvements was the significant increase in passenger and/or tourist movements, some by car but mostly by bus. Increased cross-border passenger movements have positive effects on economic growth but they also contribute to developing social bonding among populations. However, significant potential negative externalities such as human trafficking, smuggling, and disease transmission must also be considered.

SuMMarY

Critical gaps in land transportation connectivity between South Asia and Southeast Asia exist mainly in Myanmar. Some additional gaps have been identified in Bangladesh, Cambodia, India, the Lao PDR, and Thailand. In some cases, there are no links of any sort, particularly in the rail sector. For the road sector, gaps are usually poor quality roads that cannot accommodate reliable all-weather travel. The main cross-subregional highway links are the Asian

Highway 1 and 2 connecting India and Bangladesh with Myanmar and the rest of Southeast Asia. Three other significant gaps have been identified in crossings to Myanmar.

Some of the major ports closest to connecting the two subregions—Kolkata, Chittagong, and Yangon—suffer from capacity limitations, including shallow channels, operational inefficiencies, and restrictions on road and rail access. In contrast, Chennai and Ennore ports are in good condition. However, the Bay of Bengal ports collectively face a systemic problem in that they are largely shackled to the hub-and-spoke feeder system that significantly raises transport costs. If major port investments can substantially increase direct calls or in-line transshipment of large-scale container ships, this could dramatically lower costs, which could significantly increase the attractiveness of manufacturing activity in the region, especially that related to supply chains.

This brief evaluated road corridor options to connect South Asia to Southeast Asia; the best option being the Kolkata–Ho Chi Minh City Port corridor through the Chicken’s Neck. The brief also evaluated rail connectivity between South Asia and Southeast Asia, with the Kolkata–Ho Chi Minh City corridor and connections through Yunnan Province being the preferred options. However, the attractiveness of connecting national rail systems at this stage is less than for highways in view of gaps and incompatibilities between systems, among other factors. Therefore, implementation should come after the national railways have realized substantial modernization reforms. Regarding ports, the brief identified investments that could contribute most to reducing transport costs at major ports on the Bay of Bengal, including Chennai–Ennore, Kolkata–Haldia, Chittagong, and Yangon–Thilawa.

This brief finds that the priority projects will incur total costs of $8.4 billion, of which $986 million are for roads, $5.14 billion for railroads, and $2.40 billion for ports. The contrast between the costs for road and rail projects is stark, and suggests that road projects should be given priority in the early phase, given their much lower costs and locations near borders. Port costs are high, but should receive priority attention, particularly in light of the fact that the bulk of trade still goes by sea. The largest investment figures are for Bangladesh, India, and Myanmar.

18 B. Bhattacharyay. 2012. Estimating Demand for Infrastructure. In B. Bhattacharyay, M. Kawai, and R. Nag, eds. Infrastructure for Asian Connectivity. Cheltenham: Edward Elgar Publishing Limited. pp. 19–79. The reason for the discrepancy is that Bhattacharyay includes all projects related to cross-border connectivity, either within regions or across regions, while this brief focuses only on projects relevant for cross-regional connectivity. Also, some of the projects included in Bhattacharyay extend outside the region, including the Asian Highway and Trans-Asian Railway. The figures herein are total, and should not be regarded as representing all priority projects.

Regional Transport Infrastructure: Mapping Projects to Bridge South Asia and Southeast Asia

11

Table 2 gives cost estimates of all road, rail, and port-related projects relevant to connecting South Asia and Southeast Asia. The total is $62.6 billion, including $17.7 billion for roads, $33.7 billion for railways, and $11.1 billion for ports. The total represents about one-quarter of the estimated total costs of $214 billion for cross-border infrastructure costs related to programs covering the two regions given in Bhattacharyay (2012).18

The increase in real income from a 5% reduction in transport costs (a very conservative estimate) between the two regions through 2030 could be 1.4% of GDP for South Asia (roughly $59 billion) and 1.0% of GDP for Southeast Asia (roughly $30 billion), or a total of $89 billion, higher than the estimated costs in Table 2. If transport costs were reduced by 15%, which still seems feasible, net benefits would increase dramatically to 5.7% of GDP for South Asia (roughly $240 billion) and 3.9% of GDP for Southeast Asia (roughly $118

billion), or a total of $358 billion, much higher than the estimated costs.

There is a historic opportunity to link South Asia and Southeast Asia through transport infrastructure. Moderating growth in the PRC has shifted attention to the rest of Asia. An ASEAN Economic Community—with an integrated market and production base among its 10 members—is expected by the end of 2015. A pro-business Indian government provides an impetus for deepening domestic reforms and implementing a new Act East Policy with cross-border infrastructure investments and trade agreements. The opening up of Myanmar—the key land bridge between the two subregions—makes possible closer infrastructure-led connectivity. With national and regional policy action, the integration of South Asia and Southeast Asia can become a reality.

About the Asian Development BankADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to the majority of the world’s poor. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration.

Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

ADB Briefs are based on papers or notes prepared by ADB staff and their resource persons. The series is designed to provide concise, nontechnical accounts of policy issues of topical interest, with a view to facilitating informed debate. The Department of External Relations administers the series.

The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of ADB or its Board of Governors or the governments they represent. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgment of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB.Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel +63 2 632 4444 Fax +63 2 636 2444

www.adb.org/publications/series/adb-briefs

In this publication, “$” refers to US dollars.

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO)© 2015 ADB. The CC license does not apply to non-ADB copyright materials in this publication.