$12.5b in Rail Investment Under Rouhani Administration

EghtesadOnline: As much as 470 trillion rials ($12.5 billion) have been invested in the rail sector since August 2013 when President Hassan Rouhani took office, a deputy roads and urban development minister said.

News ID: ۷۷۷۲۹۱

30 June 2017

“There are 670 trillion rials ($17.8 billion) worth of incomplete projects in this sector,” minister was also quoted as saying by the ministry’s news portal.

Iran has 3,500 kilometers of railroads under construction.

Minister of Roads and Urban Development Abbas Akhoundi has said the government will operate 1,800 kilometers of railroads by the end of the current Iranian year (March 20, 2018), of which more than 900 km pertain to double-tracking, Financial Tribune reported.

The government has prioritized rail connections between five provincial capitals.

Back in May, a 267-km line between Tehran and Hamedan’s provincial capital came on stream. Four other provincial capitals have been planned to join Iran’s rail network by March 2018. These projects include Qazvin-Rasht, the so-called Gharb (West) project connecting the city of Arak in the central Markazi Province to Khosravi Border Crossing in the western Kermanshah Province bordering Iraq, Mahabad-Urmia and Mianeh-Bostanabad.

Most of these projects had little progress until recently, with some being stuck in the final stages due to shortage of capital and equipment.

The Qazvin-Rasht line, for example, was almost stopped for a long time despite a 91.5% progress.

According to Akhoundi, the 25-trillion-rial (over $650 million) project will be completed and come on stream by the end of summer.

The Gharb rail project includes two routes. 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 components are put in place.

Other major under-construction railroad projects include Tehran-Isfahan high-speed line (410 km), Shiraz-Bushehr (250 km), Gorgan-Bojnourd-Mashhad (570 km) and Mianeh-Ardabil (175 km) as well as the electrification of Garmsar-Incheh Borun and Tehran-Mashhad railroads.

Iran’s 20-Year Vision Plan (2005-25) stipulates that the number of passengers using rail transportation in the country will increase from the current 25 million to 65 million per year.

The Iranian government has placed expansion of Iran’s rail network on top of its agenda to facilitate transportation, preserve hydrocarbon fuels and reduce air pollution.

Iran’s sixth five-year development plan (2017-22) has tasked the government with increasing the share of rail in cargo and passenger transportation to at least 30% and 20% respectively by the end of the period.

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Amini did not elaborate as to how much of the $12.5 billion investment in the rail sector has been made by the private and public sectors.

However, he said the government has signed 15,000 contracts with private investors in road, rail, air and marine transportation sectors.

“As per the sixth five-year development plan, 5,000 kilometers of freeways and 1,000 kilometers of railroads will be constructed by the private sector [by 2022].”

According to Amini, private investment in Iran’s transportation infrastructures has grown 70% from the fiscal 2015-16 to reach 71 trillion rials ($1.9 billion) in the last Iranian year (ended March 20, 2017).

He said the figure stood at a low of 296 billion rials ($79.2 million) in the fiscal 2005-6. It followed a steady uptrend until March 2016, before the jump seen last year.

Akhoundi said in February that the Iranian private sector had invested 420 trillion rials ($11 billion) in Iran’s development projects under Rouhani.

“This is a record high in terms of private sector participation,” he said.

The increasing investment owes for the most part to economic stability that prevailed after Rouhani took office. It resulted from a series of measures taken by the government, mainly the signing of a landmark deal with world powers to limit the scope of Iran’s nuclear program in exchange for the removal of years of sanctions against the country.

The deal, which was signed in July 2015 and its implementation the following year, brought confidence to investors both inside Iran and abroad.

On the domestic front, the government worked hard to discipline its monetary policies, which resulted in a sharp fall in inflation rate. Moreover, the government managed to curtail fluctuations in the foreign exchange market.

The government has spent 360 trillion rials ($9.6 billion) from August 2013-Mach 2017 to develop domestic transport infrastructures, though it has yet to settle 105 trillion rials ($2.8 billion) in debt to contractors.

Akhoundi said the government is trying to “shift the paradigm” regarding the financing of projects by funding them through domestic and foreign private investment alongside Iran’s sovereign wealth fund, instead of relying on the state budget.

Statistics show the government only met 58%, 68% and 39% of its projected development spending during 2015-16, 2014-15 and 2013-14 respectively amid a sharp fall in government revenues obtained mostly through oil export, Iran’s main source of income.

The country has been facing a gap between income and spending since the price of crude fell sharply in 2014 from over $100 per barrel to a record low of under $30 in 2016.