Iran walks out of Chabahar rail project pact with India

The rail facility was part of a transit-transportation corridor, envisaged under a trilateral agreement among India, Iran and Afghanistan. (Representative image)

The now-de-escalated India-China border stand-off is continuing to have a ripple-effect in the economic and diplomatic arena. The Iran government has decided to go solo on the laying of the 628-km rail line connecting Chabahar port with Zahedan, forsaking the promised financial and technical support from India’s state-owned Indian Railways Construction (Ircon).

While Tehran has attributed the decision to delays from the Indian side, it seems to have been influenced by Beijing’s plan to have a massive strategic-cum-investment partnership with Iran.

While there hasn’t been any official word by New Delhi on the Iranian move, sources in the know confirmed it. According to a report in The Hindu, the entire project would now be completed by March 2022, using $400 million from the Iranian National Development Fund.

The MoU between Ircon and Iranian rail authorities pertained to constructing the 628-km Chabahar-Zahedan rail line along the Iran-Afghanistan border; it was signed during Prime Minister Narendra Modi’s May 2016 visit to the Western Asian country. The rail facility was part of a transit-transportation corridor, envisaged under a trilateral agreement among India, Iran and Afghanistan.

The deal with Iran was then cited by New Delhi as a strategic victory for India over China, which has been keen to have a major stake in Iranian infrastructure sector, to further its economic and strategic interests. Therefore, the Iranian move to proceed with the rail project sans Indian assistance has given further ammunition to the Opposition, which has been vocal about Modi’s alleged diplomatic failures. Congress spokesperson Abhishek Manu Singhvi tweeted: “India dropped from Chahbar Port deal. This is the diplomacy of the Modi Govt that won laurels even without getting the work done, China worked quietly but gave them a better deal. Big loss for India. But you can’t ask questions!”

The rail project is in consonance with New Delhi’s interest in developing an alternate trade route to Afghanistan and Central Asia bypassing a hostile Pakistan.

Under the MoU, Ircon, an arm of the Indian Railways, had promised to provide all services, superstructure work and financing for the project. The entire assistance was to be worth $1.6 billion.

The ministry of external affairs and Ircon declined to comment on the development. However, when asked if the MoU with Ircon has been cancelled, an official said India could still join the project at a “later date”, but refused to elaborate.

According to an Ircon source, the railway PSU conducted several due diligence surveys in 2018 and submitted a report to the Iranian authorities which was followed by a series of discussions on the project. “We kept on waiting but never got the order to start work on the project,” the source said. Though Ircon engineers have visited the project sites many times, work hasn’t commenced yet.

Iran is also one of the major oil suppliers for India. New Delhi has maintained that the US sanctions on Iran won’t have an impact on its sourcing of crude from that country. India’s oil imports from Iran has, however, fallen to less than 2 million tonne (MT) in FY20 from about 24 MT in FY19.

Even as its relations with Iran are strained, the US relented and accorded certain sanctions waiver for the Chabahar port and the rail line to Zahedan, but it is believed that key equipment suppliers have still feared their partnerships with Iran won’t find favour with Washington.

India entered into the tripartite agreement with an eye on Iran’s energy assets and the connectivity corridor via Chabahar Port, amid fast-changing geo-politics. Modi engaged proactively with Iranian President Hassan Rouhani in New York on the sidelines of the UN General Assembly, in September 2019.

In addition to its potential to link Iran to Afghanistan, Central Asia, Russia and eventually Europe, Chabahar also is the only Iranian port with direct access to the Indian Ocean. It is a gateway for opportunities for the three countries – India, Iran and Afghanistan – with central Asian countries. Using this gateway could enable India to save 20% logistical cost.

Anil Trigunayat, former ambassador to Libya, Jordan and Malta, and a region expert, agrees that India has delayed funding in the project. “There was a window of 1.5 to 2 years for India to provide the funding which, however, kept on prolonging. The US sanctions on Iran also played spoilsport. The project would have involved a lot of Indian companies who would have provided the wagons and expertise for the project. Despite India getting exemption for the development of the port from the sanctions imposed by the US on Iran last November, the suppliers who had won the bid to supply equipment for the port were reluctant to deliver, fearing adverse impact on their business with the US,” he said.

The development comes at a time China and India are locked in a bitter economic spat.

The proposed strategic agreement between Iran and China could concern India as it could potentially give China a foothold in the region. The Iran-China partnership would vastly expand Chinese presence in banking, telecommunications, ports, railways and dozens of other projects. In exchange, China would receive a regular — and, according to an Iranian official and an oil trader, heavily discounted supply of Iranian oil over the next 25 years.