New DelhI (PTI): Multilateral lending agency Asian Development Bank (ADB) has approved a USD 71 million (Rs 341 crore) supplementary loan for an urban water supply project in Madhya Pradesh.

"The project aims to improve the water supply services, sewerage and sanitation services, storm-water drainage, and solid waste management in the cities of Madhya Pradesh," ADB said in a statement.

ADB and India had signed a USD 181 million loan agreement in March 2005 to support the project. However, the progress of project was hampered due to delays in awarding of contracts, which eventually led to a huge cost overrun due to the rupee appreciation and price increases since the project appraisal in 2003, it added.

Without the additional funding, the project in its original scope cannot be completed, and the integrity of the urban infrastructure system for water supply, sewerage, and waste disposal will be severely undermined, Urban Economist at ADB's South Asia Department Hiroyuki Ikemoto said.

The steep appreciation of the rupee against the US dollar last year reduced the initial value of the loan in rupee terms by about Rs two billion or USD 50.6 million equivalent.

The strong demand for construction material and a rise in oil prices have driven up the cost by about USD 31 million.

The Madhya Pradesh government and the municipal corporations will invest an additional USD 37 million in the project, while UN-Habitat will co-finance a USD 500,000 grant through its water for Asian cities programme.

The loan is payable in 20 years with interest rate determined in accordance with ADB's London Interbank Offered Rate (LIBOR)-based lending facility.