Sommai Phasee, Thailand's Finance Minister, and Shiro Sadoshima, Ambassador of Japan to Thailand, have jointly signed the exchange of notes between Thailand and Japan for the Red Line of the Mass Rapid Transit (MRT) system Bangsue-Rangsit Phase II project. Japan has also pledged a loan worth ¥38.2 billion (€276 million; $308.8 million) to the project last week with Mr Shuichi Ikeda, Chief Representative of the Japan International Cooperation Agency (JICA), signing a related agreement at Thailand's Ministry of Finance on Friday.
The MRT is deemed by the ruling junta as the country's most important infrastructure project currently under development. “I've signed so many projects, but this is the most important project for Thailand at this time,” Finance Minister Sommai Phasee told reporters at the loan signing ceremony. “Public transportation is a crucial part of the country for the economic and social development.”
The 26.3-kilometre Red Line, managed by the State Railway of Thailand, connects the northern part of Bangkok to suburban areas of the Pathum Thani province. It is part of the country's plan to improve connectivity that was approved by the cabinet in May 2007 with a budget of ?59.88 billion (€1.58 billion; $1.78 billion).
A spokesperson from Thailand's Ministry of Finance said in a phone conversation today that the loan had a tenure of 22 years with a six-year grace period. The lending interest rate during the consultation period is at 0.01 percent, and the interest rate during the procurement and construction periods is at 0.4 percent. The front-end fee stands at 0.2 percent.
In 2009, JICA lent Thailand ?22 billion to finance the Red Line route, expected to be completed by May 2018, according to local press reports.
Japan has offered financial aid for Thailand worth ¥2.2 trillion since 1968, mostly for infrastructure and social development projects, the Finance Ministry's said in a statement.
Japan has however found itself fighting against growing competition from China for the financing of the multibillion-dollar renovation and construction programme being pushed by the new government.
Among plans in the making, a rail network of six double tracks to cover more than 900 kilometres, with an investment cost of more than $4 billion, is currently being negotiated between Bangkok and Beijing.
Whereas Japan had signed a memorandum of understanding (MoU) with Thailand's previous government for the funding of the rail development programme, the agreement was shelved and replaced by a new MoU signed by the Xi Jinping administration and the Thai Junta which seized power in May last year.
The routes are in line long-standing plans to link China and Southeast Asia.
Japan remains the leading source of foreign direct investment in the 10-members Association of South East Asian Nations (ASEAN) and increasingly relies on the region as a manufacturing base. Experts however wonder how the China-led Asian Infrastructure Investment Bank, coupled with China's rising use of official development assistance (ODA) loans in the region, will alter the relationship between Bangkok and Tokyo.