Economy, Domestic Economy

Modi Tipped to Seal Chabahar Deal in Upcoming Visit

Modi Tipped to Seal Chabahar Deal in Upcoming Visit
Modi Tipped to Seal Chabahar Deal in Upcoming Visit

Indian Prime Minister Narendra Modi’s visit to Iran in the third week of May is expected to seal much-awaited commercial contracts with Iran.

The contracts pertain to India’s participation in Chabahar Port development, Indo-Iran-Afghan pact for the use of Chabahar Port and a possible deal on India’s participation in Farzad-B gas field where Indian multinational oil and gas company ONGC plans to invest $3 billion, reads an article published on the website of Indian newspaper The Economic Times on Saturday.

Chabahar, located in Sistan-Baluchistan Province on Iran’s southern coast, is a port of great strategic utility for India. It lies outside the Persian Gulf and is easily accessed from India’s western coast. The port gives India a sea-land access route into Afghanistan through Iran’s eastern borders.

From Chabahar Port, it is possible to link up the Iranian road network to Zaranj in Afghanistan, about 883 km from the port, and then using the Zaranj-Delaram Road constructed by India in 2009, Indian traders can access Afghanistan’s garland highway, thereby establishing road access to four of the major cities of Afghanistan—Herat, Kandahar, Kabul and Mazar-i-Sharif.

  Three Pillars of Indo-Iranian Partnership

Cultural and civilization linkages apart, three pillars of future Indo-Iranian partnership will rest on connectivity projects, energy partnership and trade and investments.

In this regard, the much delayed commercial contract for India’s participation in the expansion of Chabahar Port is likely to be inked during Modi’s upcoming visit.

According to the Indian newspaper The Hindu, the visit will likely take place during May 21-23.

In February, the Indian Cabinet approved a $150 million credit from EXIM Bank for developing Chabahar Port. India will install equipment and operate two berths in the first phase of Chabahar Port with an investment of $85.21 million and an annual expenditure of $22.95 million on a 10-year lease.

Ownership of equipment will be transferred to the Iranian side on the completion of 10 years or for an extended period, based on mutual agreement. The two berths will start operation within 18 months of the contract being signed, according to the Indian business newspaper Mint.

Iran had offered India stake at Chabahar in the early years of the past decade. However, negotiations only intensified after P5+1 and Iran reached the nuclear deal last year. But reaching the deal was far from smooth and differences cropped up over ownership, as Tehran’s Port Authority introduced the role of private player in the process. After several rounds of negotiations between the two countries, the contract is understood to be ready.

Simultaneously, India is in talks to build rail link between Chabahar Port and Zahedan that will link Delhi with the rest of Iran’s railroad network.

A team from New Delhi-based engineering and construction company IRCON was in Iran this week to discuss this project and other railroad connectivity projects in the country.

India will also supply $400 million of steel rails to Tehran. At the same time, both India and Iran are hoping to give momentum to the International North-South Transport Corridor, of which both are initial signatories along with Russia. Iran is the key gateway in this project.

  Securing Hydrocarbon Sources

Securing hydrocarbon sources is a priority for India, as Delhi and Tehran would look to expand the basket in the coming years.

Modi’s visit will expedite India’s participation through a document that will pave the way for commercial contract at a later stage.

An ONGC-led consortium had discovered Farzad-B offshore gas field in 2008 but was unable to proceed due to sanctions. Last year, ONGC submitted a proposal of $3 billion to Tehran for developing the field.

India has reportedly identified few other hydrocarbon exploration and production blocks in Iran where its companies might be interested to pursue. Delhi, along with Tehran and other regional partners like Oman and in Central Asia, could be keen to firm up cooperation to bring LNG to India from the region.

This is while Tehran is keen to increase its oil exports to India against the backdrop of increasing demand. Since February-March this year, India’s oil imports from Iran have increased and reached 350,000 barrels per day.

Iranian banks and Indian oil companies have reportedly reached an understanding over the payment of $6.5 billion due for oil purchased from Iran during the sanctions period. The payment will be made in euros and banking channels are being firmed up, as Iranian banks are gradually getting linked to the international system in the post-sanctions period.

Chabahar is not just aimed at getting access to Afghanistan, as India has plans to set up units in its special economic zone, including a fertilizer plant in the form of a joint venture with Iran on the lines of the plant in Oman. The pricing of gas is important for securing fertilizer and needs to be sorted out.

India also plans to invest $20 billion in Chabahar Port’s complex and special economic zone.