The 34-year loan, that features a grace period of 7.5 years and an annual interest rate of 1.9 percent, will be disbursed from now until 2014.

The total cost of the upgrade comes to US$160 million, including US$60 million from the Asian Development Bank (ADB), 32 million euros from the French Development Agency and 31 million euros from the French Government.

The project is expected be completed in 2012 and will upgrade 283 km of railway line linking Yen Vien on Hanoi's outskirts and the northern border province of Lao Cai. Bridges will be reinforced, stations built and new locomotives purchased in a bid to allow for higher passenger numbers on the line.

Speaking at the signing ceremony, French Ambassador to Vietnam, Jean Francois Blarel, said his government was pleased to help Vietnam develop its infrastructure and noted that since 1997, 142 million euros have been doled out by France for this purpose.

According to Deputy Minister of Planning and Investment Cao Viet Sinh, the Yen Vien-Lao Cai railway is one of 31 prioritised infrastructure projects in the country.