A new electric train line running into Egypt’s proposed Capital City project has been announced, according to a statement from state news agency MENA.

The statement added that the railway scheme, which will run for 68 kilometres through the two Cairo suburbs, will go from Al-Salam City in the east of Cairo to the proposed Capital City project.

The $255m project will be financed by a loan from the Chinese government, which will be paid back over a period of 20 years.

After it is complete, the project is expected to save the state $130m in fuel subsidies. It will also cut traffic by 30 percent on a highway connecting the capital to the Suez canal and the surrounding cities that serve the waterway, said the statement.

The train will accommodate 340,000 passengers daily.

The announcement comes a week after a fatal train collision near Alexandria killed 42 people following a signaling error.

A lack of financing has hampered Egypt’s long-overdue plan to modernise and restructure its mainline railway sector.

A key milestone is expected over the next few weeks, with the signing of three separate contracts with US-based GE for the supply of 100 new locomotives, maintenance of 81 old locomotives and a 15-year technical support agreement.

The terms for the first two contracts are understood to have been finalised, while the terms for technical support agreement are still being negotiated.

According to sources familiar with the transaction, the three contracts, which together are estimated to be worth up to $575m, could be awarded in August.

A $300m loan agreement with European Bank for Reconstruction & Development (EBRD), which will cover part of the deal, was signed on 19 June.

Upgrading the rail network’s signalling systems is another urgent priority for Egypt. Several fatal accidents have occurred in recent years, largely due to signalling failures. It is understood more than 80 per cent of signals are still mechanical, making the rail network highly susceptible to human error.

An accident in September 2016 claimed the lives of five people and injured more than 30, when three carriages of a train heading from Cairo to Aswan derailed before flipping over.