The India and Sri Lanka Governments on 10 March 2010 signed a Line of Credit agreement for $67.4 million (approx Rs 303.3 crore) to fund the Phase II upgradation of the Southern Railway Line from Colombo to Matara.

The Indian Government, through the Export-Import Bank of India, had earlier provided $100 million (approx Rs 450 crore) Line of Credit under an agreement signed in July 2008.

The implementation of Phase I of the upgradation is underway. The project includes supply of materials for rail track rehabilitation from Colombo to Matara and execution of work for rail track rehabilitation from Kalutara to Matara, which is being implemented by IRCON.

The Line of Credit is also being used for supply of 20 sets of diesel multiple units (DMU), three units of locomotives, spare parts for the existing M8 class locomotives, supply of plant and machinery for maintenance of existing DMUs and construction of maintenance sheds at Aluthgama, Galle and Colombo by RITES India.