Iran, Swiss Group Sign €1.1b Subway Car JV

EghtesadOnline: Iran's drive to bolster the role of railroads in domestic transportation made fresh headway, as the Industrial Development and Renovation Organization of Iran and the Swiss company Stadler Rail Group signed a contract worth €1.1 billion on Wednesday for the construction of 960 subway wagons for the cities of Tehran and Karaj.

News ID: ۷۸۲۰۶۵

14 March 2018

The Swiss company will finance the project that has a 14-year payback period and is guaranteed by Swiss Export Risk Insurance, IRNA reported.

The contract was signed by IDRO’s Director General for International Affairs Ali Araqchi and Stadler Rail’s top negotiator, Mohammad Rahmani, in the presence of the Swiss Ambassador to Iran Markus Leitner and Deputy Minister of Industries, Mining and Trade Mansour Moazzami who also doubles as the IDRO chief.

As per the agreement, the Swiss side is to transfer the required technical know-how to Kerman Province’s Polour Sabz Industrial Group, which will be jointly carried out with Stadler, according to Financial Tribune.

Tehran and Karaj will have 728 and 232 of the wagons produced under this agreement respectively.

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, Minister of Roads and Urban Development Abbas Akhoundi said $28 billion worth of investment are 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.

Headquartered in Bussnang, Switzerland, Stadler Rail Group is a Swiss manufacturer of railroad rolling stock, with an emphasis on regional train multiple units and trams. Focused on niche products, it is one of the last European manufacturers of rack railroad rolling stock.  The holding company consists of eight subsidiaries with locations in Algeria, Germany, Italy, the Netherlands, Austria, Poland, Switzerland, Spain, Czech Republic, Hungary and Belarus. It had 7,000 employees as of 2017.

> IDRO at the Forefront or Railroad Renewal

IDRO has been at the forefront of efforts to renew and modernize Iran's railroad fleet.

Established in 1967, IDRO has evolved into one of the largest conglomerates of Asia. The organization’s objective is to develop Iran’s industrial sector, accelerate the industrialization process and export Iranian products. It owns more than 100 subsidiaries and affiliated companies both domestically and internationally.

IDRO signed a €2.5 billion contract with Russia’s CJSC Transmashholding in Tehran on July 31, 2017. Based on the contract, a joint venture was formed between IDRO and the Russian company, with the Russian side holding an 80% stake and the Iranian side 20%.

Transmashholding CEO Kirill V. Lipa told 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,” he said.

The largest manufacturer of locomotives and rail equipment in Russia with Dutch firm Breakers Investments BV and French engineering group as its stakeholders, Transmashholding agreed to take over Iran’s Wagon Pars Company to start manufacturing.

The Russian firm has major customers in Bulgaria, Belarus, Kazakhstan, Ukraine and Serbia. It manufactures and sells subway cars, passenger diesel locomotives, diesel engines, freight cars, flat cars and diesel trains.

"We’re here not to bring, let’s say, products just from Russia. We are here to develop local production. Because we really believe that it is absolutely impossible to produce the rolling stock from outside of the country. It is very important to produce the most significant spare parts locally,” Lipa told us.

Former industries minister, Mohammad Reza Nematzadeh, who was present at the signing ceremony referred to the contract as “a partnership agreement that will last for 30 years and is extendable”.

French company Alstom has also entered a joint venture with two Iranian companies to manufacture 1,000 subway wagons in three years.

The French multinational company signed a trilateral "shareholders agreement" with IDRO and Iranian Rail Industries Development Company in Tehran on July 23 last year to manufacture the wagons in IRICO facilities.

An IDRO source, who declined to be identified, told Financial Tribune that about €1.3 billion would be invested in the JV whose main shareholder is Alstom with 60%, while the Iranian companies each own 20% stakes.

Alstom is a French multinational company operating worldwide in rail transport markets, active in the fields of passenger transportation, signaling and locomotives, with products including the AGV, TGV, Eurostar and Pendolino high-speed trains, in addition to suburban, regional and metro trains, and Citadis trams.

According to Nematzadeh, the agreement pertains to “investment partnership, transfer of know-how, manufacturing, exports and the maximum use of Iran’s domestic capabilities”.

Alstom said in January 2016 that it signed a preliminary deal with the Iranian government to start talks on the development of railroads in the country.

The company said it would start discussing ways to address Iran’s needs for mainland and urban transportation, as well as the production of trains in the country.

Two Indian firms signed an agreement with IDRO to finance the construction of a rolling stock manufacturing company in September in the presence of Moazzami and Indian Ambassador to Iran Saurabh Kumar who was accompanied by an Indian business delegation.

> Hyundai Rotem's €720m Deal With IRIR

South Korean rolling stock manufacturer Hyundai Rotem signed a contract worth €720 million with the Islamic Republic of Iran Railways on December 2 to produce 450 suburban railbus wagons in Iran.

As per the agreement, the Korean company was to form a consortium with Iranian Rail Industries Development Company. The South Korean side agreed to finance 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 rail vehicles, defense systems, and plants and machinery in South Korea. The company produces electric multiple units, high-speed trains, light rail vehicles, magnetically levitated vehicles, trams, diesel multiple units, locomotives and passenger coaches. It currently employs 3,800 and exports to 29 countries.

Akhoundi who was present at the signing ceremony said after the project is completed, it would 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. By the end of the contract period, we will have 600 self-propelled suburban railbuses,” he said.

According to Saeed Mohammadzadeh, the chief executive of IRIR, the first batch of the wagons is to be delivered within the next one and a half years from the date of signing the agreement.

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