Iran, South Korea Sign €720m Deal to Build 450 Wagon Trains in Iran

EghtesadOnline: South Korean rolling stock manufacturer Hyundai Rotem signed a contract worth €720 million with the Islamic Republic of Iran Railways on Saturday to produce 450 suburban railbus wagons in Iran.

News ID: ۷۸۰۸۵۱

13 December 2017

As per an agreement, the Korean company will be forming a consortium with Iranian Rail Industries Development Co, the Ministry of Roads and Urban Development's news portal reported.

The South Korean side will be financing the project. Iran signed its biggest credit line deal in recent years with South Korea’s Eximbank in August. The deal envisages as much as €8 billion in loans provided by South Korean companies to finance various projects in Iran.

Hyundai Rotem Company manufactures and sells railway vehicles, defense systems, and plants and machinery in South Korea. The company produces railway vehicles, such as electric multiple units, high-speed trains, light rail vehicles, magnetically levitated vehicles, trams, diesel multiple units, locomotives, and passenger coaches. The company was founded in 1999 as Korea Rolling Stock Corporation, the result of a merger between the three major rolling stock divisions of Hanjin Heavy Industries, Daewoo Heavy Industries, and Hyundai Precision & Industries. Hyundai Rotem currently employs 3,800 and exported to 29 countries worldwide, Financial Tribune reported.

Minister of Roads and Urban Development Abbas Akhoundi who was present at the signing ceremony said when completed, the project will create jobs for 4,700 people in Iran and increase the capacity of Iran's suburban transportation to 70 million passengers per year.

“The project entails technology transfer to Iran and will generate 1,000 direct and 1,700 indirect jobs in the process and some 2,000 jobs after it comes on stream,” Akhoundi was quoted as saying.

According to the minister, it will take the South Korean side six and a half years to build the 450 wagons.

A further 150 wagons are to be built for Iran as per a previous contract between Iran and Hyundai Rotem, he explained.

“By the end of the contract period, we will have 600 self-propelled suburban railbuses.”

According to Saeed Mohammadzadeh, the chief executive of IRIR, the first batch of the wagons will be delivered within the next one and a half years.

He added that the owner of the railbus wagons will be the Iranian government.

Plans to Increase Share of Rail in Transport

The Iranian government has placed the expansion of Iran’s rail network on top of its agenda to facilitate transportation, conserve hydrocarbon fuel and reduce air pollution and road traffic.

Iran’s Sixth Five-Year Development Plan (2017-22) has tasked the government with increasing the share of rail in cargo and passenger transportation from the current 12% and 8% to a minimum of 30% and 20% respectively by the end of the plan.

To arrive at this goal, Akhoundi says, some $28 billion worth of investment is needed.

Cheap fuel prices in Iran, costing less than 10% of the global average, are the main reason for the popularity of road transportation in Iran.

Around 1.7 billion road trips are made in Iran annually, 700,000 of which pertain to suburban transportation.

Other JVs to Produce Rolling Stock

IRICO along with Industrial Development and Renovation Organization of Iran signed a similar agreement with French company Alstom back in July to manufacture 1,000 subway wagons in Iran over three years. An IDRO source told the Financial Tribune that about €1.3 billion will be invested in the JV whose main shareholder is Alstom with 60%, while the Iranian sides each will own 20% stakes. According to Iran's former Minister of Industries, Mining, and Trade Mohammad-Reza Nematzadeh, the agreement pertains to “investment partnership, transfer of knowhow, manufacturing, exports and maximum use of Iran’s domestic capabilities.”

Later in August, IDRO signed a €2.5 billion contract with Russia’s CJSC Transmashholding in Tehran for joint production of rolling stock in Iran. Based on this contract a joint venture will be formed between IDRO and the Russian company with the Russian side holding an 80% stake and the Iranian side a 20%. Transmashholding CEO Kirill V. Lipa told the Financial Tribune after the signing of the contract that the capacity of the joint venture will depend on the depth of localization. “For assembling, we’re thinking about 300-400 units per year.” Nematzadeh who was also present at the signing ceremony of this agreement referred to the contract as “a partnership agreement that will last for 30 years and is extendable for more.”