Economy, Business And Markets

3 Funding Schemes for Developing Chabahar Port

The development of Shahid Beheshti Port in Chabahar, located on the southernmost tip in Iran in the Gulf of Oman, started in 2007.
The development of Shahid Beheshti Port in Chabahar, located on the southernmost tip in Iran in the Gulf of Oman, started in 2007.

Three types of investment are currently under way for the development of Chabahar port which collectively amount to $565 million, said the managing director of Ports and Maritime Organization of Iran.

“The three-tier investment plan for the development of Chabahar port includes $330 million investment from the National Development Fund of Iran, a $150 million finance by India and a $85 million Build-Operate-Transfer (BOT) scheme from that country,” Mohammad Saeednejad was quoted as saying by the official website of the Ministry of Roads and Urban Development.

“The development of Shahid Beheshti Port in Chabahar started in 2007 and made nearly 36% progress during the previous administration. The three aforementioned investment schemes were added by the current government.”

BOT is a form of project financing, wherein a private entity receives a concession from the private or public sector to finance, design, construct, and operate a facility stated in the concession contract. This enables the project proponent to recover its investment, operating and maintenance expenses in the project.

The port of Chabahar is located on the southernmost tip in Iran in the Gulf of Oman. It lies off the border of the Indian Ocean and the Sea of Oman and is the only Iranian port with direct access to the ocean. Located 72 kilometers west of Pakistan’s Gwadar Port, Chabahar holds immense strategic and economic significance for India. Once completed, the port would enable India to send its goods from Chabahar to Central Asia and Afghanistan in particular, without passing through its arch-rival Pakistan or the disputed territory of Kashmir.

Noting that all of the $330 million promised by the NDFI has been officially approved, Saeednejad said a part of the money has already been allocated by the sovereign fund. He did not specify the amount.  

On the $150 million India will provide, the official hoped that the process of fund allocation will be completed soon.

In May last year, India signed a memorandum of understanding with Iran to invest in development of the port. The agreement was reached following comprehensive talks between visiting Indian Minister of Road Transport, Highways and Shipping Nitin Gadkari and Iran’s Minister of Roads and Urban Development Abbas Ahmad Akhundi.

Iran plans to link the port to the national railway by establishing a 600 kilometer rail line from Chabahar to Zahedan (the capital of Sistan and Baluchestan Province). According to Akhundi, a 300km stretch of the railroad is currently under construction. He has invited Indian firms to participate in the development of the railroad.

Once completed, the railroad will link Chabahar Port to the North-South Transport Corridor, which in turn will facilitate trade between India and the Commonwealth of Independent States north of Iran.

  Funding for Equipment  

Regarding the $85 million investment by India that is to take place on a BOT basis, Saeednejad said the deal has been officially signed, communicated and has entered the operational phase. “The Indian government needs to import equipment to the port. Ordering the equipment will take between 18-20 months.”

Of the total $235 million that will be spent by India, “$150 million will be used to purchase maritime and port equipment, namely cranes and dredgers.”

India and Iran agreed in 2003 to develop the port, but the venture made little progress because of international sanctions over Tehran’s nuclear energy program.

India, which is currently Iran’s second largest oil importer after China, is reportedly planning to increase Iran crude imports in 2016. In the fiscal year that ended in March, Indian refiners shipped in 14.4 % more oil from Iran at about 251,100 bpd. The rise was the largest annual growth since the 2007/08 fiscal.

There is speculation that India is competing with another geopolitical rival, China, for influence over Central Asia. China has signed energy and infrastructure agreements worth $46 billion with Pakistan and has funded Pakistan’s Gwadar Port.

Iran has also proposed a trilateral transit agreement with India and Afghanistan to facilitate transit of goods via Chabahar.