India agrees $1 bln loan for post-war Sri Lanka - official

Treasury Secretary P.B. Jayasundera speaks during an interview with Reuters in Colombo April 28, 2010.

COLOMBO (Reuters) - India has agreed to lend $1 billion to fund Sri Lanka's infrastructure projects, mainly in former war zones in the country's north and east, the island nation's treasury secretary said on Thursday.

"India assured us $800 million for the reconstruction of railway and a further $200 million for a power plant," P.B. Jayasundera, the secretary to the treasury and the ministry of finance, told Reuters in a mobile phone text message from India.

"It is a 20-year credit at an absolutely low interest rate. About $250 million in a grant will also be available in support of housing development in the north and east."

A Sri Lankan delegation headed by President Mahinda Rajapaksa is now in India on a four-day official visit and both countries have focused on economic and cultural ties, officials of both countries have said.

The railway reconstruction will mainly cover Sri Lanka's north, now slowly being rebuilt after the end of a 25-year war in May last year, while the power plant has been planned in its eastern province.

India has also agreed to build 50,000 houses for people displaced by the war in both northern and eastern provinces, the high commissions, or embassies, of both countries said in a statement on Wednesday.

India and China, which provided Sri Lanka with military assistance, including ammunition, in the final phase of the war, have been increasingly competing for lucrative and strategic investments there since the end of the war.

China in March agreed to lend $290 million to Sri Lanka to build a new airport and revive its railway network.

China was the largest foreign funding source for Sri Lanka in 2009 with $1.2 billion followed by the Asian Development Bank with $424 million.

(Reporting by Shihar Aneez; Editing by Clarence Fernandez)