$1.7b Chinese LOC for Iranian Rail Project

China has opened a $1.7 billion line of credit for the electrification of the 926-km railroad from Tehran to the eastern city of Mashhad in Khorasan Razavi Province, five months after a contract was signed for the project in Tehran.

According to the Persian daily Donya-e-Eqtesad, this is the first and the largest LOC to have opened for Iran after international nuclear-related sanctions against the country were lifted in January 2016, following the signing of a landmark agreement between Tehran and world powers a year earlier.

The initial contract entails the allocation of $1.5 billion in loan by Exim Bank of China to the project. The guarantee for the loan is to be provided by Iran’s Bank of Industry and Mine.

The electrification project will be carried out by China National Machinery Import and Export Corporation, otherwise known as CMC. The project is expected to take up to 48 months and raise the speed of the line from the current 160 kph to 200 kph, cut down pollution and increase the railroad’s transportation capacity. The route is already double-tracked and both tracks will be electrified.

According to CEO of Islamic Republic of Iran Railways Saeed Mohammadzadeh, the railroad will have the capacity to transport 25 million passengers and 10 million tons of cargo per year as soon as it is electrified.

A subsidiary of China General Technology Group, CMC is an international engineering contractor in transportation infrastructure, industrial facilities and power plants. In 2014, the company constructed the Ankara-Istanbul high-speed railroad, together with China Railway Construction Corporation Limited and Turkish companies.

Iran’s deputy minister of roads and urban development, Asghar Fakhrieh-Kashan, has said the entire project was worth €2.2 billion ($2.56 billion) and that two-thirds of the cost would be financed by the Chinese government at a very low interest rate.

The remaining one-third, he added, would be covered by Chinese insurer Sinosure (China Export and Credit Insurance Corporation).

An agreement was signed between China’s CITIC Trust and five Iranian banks in Beijing in October for the company to extend a credit line worth $10 billion for supporting projects in Iran.

“The Exim Bank of China has financed 26 projects in Iran to date,” Sun Ping, vice president of the bank, was quoted as saying on the sidelines of the signing ceremony for the financing deal in Tehran, adding that $8.5 billion worth of loans have so far been granted by the bank to fund Iranian projects.

For Iran, the electrification of Tehran-Mashhad line is part of its wider rail development plan to electrify all railroads by 2025.

The railroad is a strand of the so-called New Silk Road–a 2,300-kilometer Chinese railroad project that ultimately links Urumqi, the capital of China’s western Xinjiang Province, to the Iranian capital Tehran, connecting Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, according to China’s state-owned paper China Daily.

From Tehran, the grand project will join Iran’s east-west network leading to Turkey and eastern Europe. It could also open a way to Europe via a developing rail route from southern Iranian ports to Azerbaijan and Europe.