Strategic Gateway: Phase I of Iran’s Chabahar port inaugurated

Phase I of Iran’s Chabahar port inaugurated

In a landmark move, Phase I of Chabahar port in Iran, also known as Shahid Beheshti port, was inaugurated on December 3, 2017.

The port has opened a new strategic route connecting Iran, India and Afghanistan bypassing Pakistan, and reflects the growing convergence of interests among the three countries.

Chabahar port is being considered a gateway to golden opportunities for trade by India, Iran and Afghanistan with Central Asian countries. Located in the Sistan-Balochistan province on the energy-rich country’s southern coast, the port is easily accessible from India’s west coast and is increasingly being seen as a “counter” to Pakistan’s Gwadar port, which is being developed with Chinese investment and is located at a distance of around 80 km from Chabahar.

The beginning: Signing of bilateral agreement between India and Iran

India and Iran first agreed to develop Chabahar port in 2003. However, the agreement did not progress much because of Western sanctions tied to Tehran’s disputed atomic programme.

Subsequently, on May 6, 2015, an MoU was signed between India and Iran formalising India’s partnership in the port’s development plan. Following this, on May 23, 2016, a commercial contract for the development and operations of the port was signed between India Ports Global Private Limited (IPGPL) (an Indian joint venture of the Jawaharlal Nehru Port Trust and the Deendayal Port Trust [the erstwhile Kandla Port Trust]) and Aria Bandaer Iranian Port and Marine Services Company, for the first phase development of Chabahar port. In addition, a trilateral agreement was signed between India, Iran and Afghanistan to build a transport and trade corridor through Afghanistan.

The development of Chabahar port will be according to the specifications agreed under the intergovernmental MoU signed between India and Iran in May 2015.

As per the bilateral agreement between India and Iran, India has to equip and operate a multi-purpose terminal (600 metre length) and a container terminal (640 metre length) in the first phase of development of Chabahar port, with a capital investment of $85.21 million and an annual revenue expenditure of $22.95 million. The contract is for a period of 10 years and can be extended when the second phase is developed. Port conservancy and marine operations will be undertaken by Iran and cargo revenues collected will be shared as per an agreed formula.

Further, India will make a $150 million line of credit available through the Export-Import Bank of India (Exim Bank), which will be used by the Iranians for port development. The bank has already extended credit lines worth Rs 30 billion (under the Export Development Fund) to seven Iranian banks for importing steel rails from India and for other development works.

Executing the agreement: Contracts awarded

The bilateral agreement between India and Iran came into effect with the arrival of the first donated wheat consignment with 640 containers from Deendayal port (India) to Afghanistan via Chabahar port on November 1, 2017. The wheat shipment was flagged off from India on October 29, 2017. It is a part of the six consignments of 1.1 million tonnes of wheat committed by India to Afghanistan.

The second consignment of wheat arrived at Chabahar port on Shiba carrying 655 containers, on November 6, 2017. Following this, the third consignment of wheat on Alwan arrived with 650 containers on board.

With regard to the management, operations and maintenance of the container and multipurpose terminals, IPGPL invited bids to manage, operate and maintain the terminals at Chabahar port in March 2017. As of December 2017, Adani Ports and Special Economic Zone Limited, the JM Baxi Group and JSW Infrastructure Limited have been shortlisted to manage, operate and maintain the terminals. IPGPL will select a strategic private partner to manage, operate and maintain the two terminals for a period of 10 years. As per the contract, the selected contractor will have to incorporate a special purpose vehicle (SPV) in Iran with a local private partner. The SPV will take a 10 per cent stake in a separate SPV floated by IPGPL in Iran to run the port. The “manage, operate and maintain” partner is expected to be finalised by March 31, 2018.

Meanwhile, IPGPL has already placed orders with China’s Shanghai Zhenhua Heavy Industries Company Limited for four new post-Panamax rail-mounted quay cranes for the container terminal. In August 2016, it also invited bids for two mobile harbour cranes (MHCs) (14 tonnes), four MHCs (100 tonnes) and 32 tractor trailers.

To conclude, the engagement in the development of Chabahar port is expected to provide India an alternative and a reliable access route to Afghanistan and a direct sea-road route to the Central Asian region. Besides port development, India has also shown interest in developing various industries in the Chabahar special economic zone, including an aluminium smelter and a urea making facility. To this end, an MoU was signed in May 2016 between India’s National Aluminium Company Limited and the Iranian Mining Industries Development and Renovation Organisation to explore the possibility of setting up a smelter-cum-gas-based power plant. Going forward, India intends to gain a foothold in the Chabahar free trade zone through the development of other industries as well.