Iranian Gov't Earmarks $462m for Rail Expansion

EghtesadOnline: The government has earmarked 18.5 trillion rials (over $462 million at market exchange rate) to complete a set of ongoing rail projects, the Construction and Development of Transportation Infrastructure Company's board member said.

News ID: ۷۳۹۲۷۸

18 January 2017

“This includes 4.7 trillion rials ($117 million) for land-ownership and procurement of equipment, as well as 13.8 trillion rials ($345 million) worth of participation bonds,” Jabbar Ali Zakeri was quoted as saying by IRNA.

According to the official, the resources will help Iran push ahead with the construction of five rail projects, including Tehran-Saveh-Hamedan, Mianeh-Bostanabad, Maragheh-Urmia, Qazvin-Rasht and the so-called Gharb (west) rail projects.

Rail expansion is a top priority in Iran’s sixth five-year development plan (2016-21), which is currently being reviewed in the parliament. Earlier this month, MPs approved a bill to allocate 1% of oil revenues to the rail sector as part of the Sixth Plan, according to Financial Tribune.

The development plans outline government strategies in its budget planning for the next five years. The approval of the plan has already been delayed.

The legislation requires the government to use the fixed share of oil-driven financial sources to implement new rail projects and develop existing ones, including double-tracking, electrification and construction of high-speed railroads.

Despite a plunge in oil revenues, which account for the lion’s share of the government’s income, allocating a fixed share of petrodollars to the rail industry shows the government’s firm determination to expand the domestic rail sector.

Iran has a long list of under-construction rail projects, as the country seeks to increase revenues from transit by becoming a transportation hub in the region.

Deputy minister of roads and urban development, Kheirollah Khademi, earlier said the government is planning to “do away with the oil-dependent economy and turn to transit-driven economy”.

Connectivity projects are preparing the grounds for a hike in rail freight transport.

The Gharb rail project includes two routes, which will ultimately connect the city of Arak in central Markazi Province to Khosravi Border Crossing in the western Kermanshah Province, bordering Iraq.

The first section of the route, from Arak to Kermanshah, has made 95% progress. Officials anticipate the inauguration as soon as rail tracks and other final components are supplied.

As for Qazvin-Rasht project, despite the remarkable progress, the completion has been delayed by financial constraints. Its extension, from Rasht to Astara Port, close to Azerbaijan’s border, requires $500 million in investment by Azerbaijan. The railroad is part of a grand global transit project called International North-South Transport Corridor, which is aimed at connecting India to Europe via Iran, Azerbaijan and Russia.

According to Islamic Republic of Iran Railways, Iran plans to add 1,000 kilometers of new railroads to its network in the near future. This indicates a significant rise in rail construction, compared to an average of 200 kilometers constructed annually over the past few years.

Based on the Sixth Plan, the existing railroads are to be electrified and double-tracked, while 1,500 km of new lines need to be constructed.

The parliamentarians have also tasked the government with increasing the share of rail in cargo and passenger transportation to a minimum of 30% and 20% respectively by the end of the Sixth Plan (2021).

> FDI Integral to Expansion Plans

The state-provided capital will complement a larger amount of capital supplied by foreign investors to help the government realize its ambitions in the rail sector.

Iranian railroads have seen little development in the past decade, due largely to sanctions imposed over Iran’s nuclear program.

With the embargoes having been lifted early last year as part of a deal signed in 2015 between Tehran and world powers, the administration hopes to be able to cash in on FDIs to compensate for years of underdevelopment.

Director general of IRIR’s International Affairs Office, Abbas Nazari, said the government has defined $10 billion worth of FDI projects following the implementation of the nuclear deal.

These include high-speed rail routes of Qom-Arak and Tehran-Isfahan, and electrification of Garmsar-Incheh Borun and Tehran-Mashhad lines.

Iran has been in talks with Italy, Russia, China, India, France, Turkey and Germany to attract the needed foreign capital, according to the official.

Italy has reportedly agreed to invest an aggregate of $4 billion; Russia will provide €1.2 billion for the Garmsar-Incheh Borun route and India is supplying rails worth $175 million for a route from southern port and special economic zone of Chabahar to the city of Zahedan, both in Sistan-Baluchestan Province.

Germany has also signed several agreements to invest in the manufacture of equipment in Iran.

Early October, Siemens signed a contract to supply components for 50 diesel-electric locomotives to Iran.

Under the contract, signed with Iranian power and infrastructure group MAPNA during an official visit of German Economy Minister Sigmar Gabriel to Iran, Siemens agreed to deliver the components, which will be assembled in Karaj, Iran's fourth-largest city.

Another agreement was also signed between the two companies to jointly manufacture 70 electric locomotives to be used in the 926-km Tehran-Mashhad railroad.

Siemens has not disclosed the value of the contract. Based on comparable deals, the order could be worth a low triple-digit million euro, according to Reuters.

The details of those deals were also discussed in a Monday meeting between Minister of Roads and Urban Development Abbas Akhoundi and Germany’s Federal Minister of Transport and Digital Infrastructure Alexander Dobrindt.

Both sides signed a memorandum of understanding to expand cooperation in rail, air and marine transport.