Economy, Domestic Economy

Debate Heats Up Over Ways to Expand Rail Fleet

Debate Heats Up Over Ways  to Expand Rail FleetDebate Heats Up Over Ways  to Expand Rail Fleet

Expansion of rail transport has been a top priority of President Hassan Rouhani’s administration, following the success of his nuclear policy. Rails are safe, reduce transit costs and fuel economic growth, but rail transport plans are bound to fail without proper fleet procurement policies.

It has become a dilemma for the government, whether to open the gates to wagons and locomotives manufactured abroad or let the domestic manufacturing sector have a shot at meeting the sector’s growing demand.

Our sister publication Donya-e-Eqtesad on Sunday put the issue up for debate among several executives of rail and transport companies.

The issue resurfaced after the General Inspectorate Organization of Iran, a watchdog affiliated to the judiciary branch, cancelled a contract for the import of 500 wagons.

Nasser Seraj, the head of the organization, told Tasnim News Agency that state companies are banned from importing products that are manufactured domestically, in line with a law ratified by the government.

The Islamic Republic of Iran Railways signed a contract back in January for purchasing 500 freight cars from a Russian private company.

There have also been talks of purchasing passenger railroad cars from foreign companies, though no plan has been finalized yet.

The move to cancel wagon imports comes, according to Vahid Baqeri, CEO of Rail Pardaz Sanat Transportation Company, as domestic manufacturers are unable to compete with international counterparts due to their limited capacities in both wagon and locomotive manufacturing.

Seyyed Hassan Mousavi-Nejad, who chairs the rail transportation company Raja, is of the same opinion. He believes policies regarding domestic manufacturing have never yielded the desired results.

“Iranian wagon makers have always intended to assemble the products, as opposed to manufacturing them. This cannot result in development of Iran’s wagon manufacturing industry,” he said.

In order to flourish, he notes that domestic firms should carry out the whole design and manufacturing processes.

However, that may not be economical due to their limited production capacity that has resulted from under-investment in the past few years.

Iranian rail industry is in immediate need of 1,500 wagons, according to Mousavi-Nejad, while merely 400 wagons have so far been produced domestically.

This comes against Iran’s ambitious rail expansion plans.

“The rail industry will be destroyed without fleet expansion,” he said, referring to Iran’s dilapidated fleet of 32 years.

He also believes domestic manufacturers of wagons will not be able to meet Iran’s future needs.

The head of Raja said the current fleet should be replaced with products designed and manufactured in line with the latest international technologies.

Part of the current demand, however, according to Mousavi-Nejad, could be met via domestic companies that should cooperate with international companies to boost their abilities.

Baqeri also suggests that the government should simultaneously support domestic producers while pursuing fleet expansion through imports.

He calls on the government to extend low-interest loans and provide discounts for transportation companies that procure their cars and locomotives through domestic manufacturers.

“Tax exemptions could also help reduce the cost of manufacturers,” Baqeri said.

Moreover, he believes that imports are inevitable, however the government could adopt tariff policies to protect the domestic industries.