$2.3b Chinese Deal Finalized for Iranian Rail Project

EghtesadOnline: The finance and construction contract for Gorgan-Bojnord-Mashhad Railroad worth 100 trillion rials ($2.38 billion) was finalized between Iran’s Ghods Razavi Housing and Construction Company and a Chinese company last week.

News ID: ۷۸۲۷۲۰

27 May 2018

Deputy Roads and Urban Development Minister Kheirollah Khademi, however, did not reveal the name of the Chinese company, ISNA reported on Friday.

“The Chinese side has agreed to finance the project, which is 550 kilometers long and passes through Gorgan, Shirvan, Qouchan and Mashhad to name a few, connecting these cities in northeast Iran to one another and to the national railroad network,” said Khademi, who also serves as the CEO of Iran’s Transportation Infrastructure Construction and Development Company.

The official noted that if the financial commitments are fulfilled, the project will come on stream within five years, Financial Tribune reported.

> Chinese Cooperation in Iran's Rail Sector

China has been a major player in Iran's rail sector. In July 2017, China signed a contract with Iran to finance the electrification of a 926-km railroad from Tehran to the eastern city of Mashhad in Khorasan Razavi Province with a $1.5 billion loan. A letter of credit for this purpose was opened five months later.

The Tehran-Mashhad route is part of China's New Silk Road initiative named "One Belt, One Road", proposed by He Huawu, the chief engineer of China Railway Corporation, in late 2015. The idea came just before the sanctions imposed on Iran over its nuclear program were lifted in January 2016, as part a deal Tehran clinched with world powers months earlier.

The proposed 3,200-kilometer New Silk Road rail link would begin in Urumqi, the capital of China's western Xinjiang Province and end in the Iranian capital. It will connect Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, according to China’s state-owned newspaper China Daily.

From there, it would join Iran’s east-west network leading to Turkey and eastern Europe. It could also open a way to Europe via a developing rail route from southern Iranian ports to Azerbaijan and Europe.

The "One Belt, One Road" initiative, put forward in October 2013 by Chinese President Xi Jinping, includes several corridors through land and sea, including the New Silk Road rail route.

The route would become a tailwind for transport of goods and energy between Iran and China, which have set a long-term bilateral trade target of $600 billion per year.

For millenniums, Iran has prospered as a trading hub linking East and West. Now, that role is set to expand in coming years, as the Chinese initiative promises more than $1 trillion in infrastructure investment—bridges, rails, ports and energy—in over 60 countries across Europe, Asia and Africa.

Iran, historically a crossroads, is strategically at the center of those plans, reads a New York Times article published last year.

More recently, a contract was signed on March 7 between Iran’s Construction and Development of Transportation Infrastructures Company and China Machinery Industry Construction Group Inc, also known as Sinoconst, for the construction of Section-1 of the 446-km Shiraz-Bushehr Railroad, which covers 250 km of the whole route.

“This was an engineering, procurement, construction and finance contract worth CNY5 billion ($790 million). Jahanpars Group is the Iranian contractor of the project,” Deputy for Construction and Expansion of Railroads, Ports and Airports of the Construction and Development of Transportation Infrastructures Company affiliated to the Ministry of Roads and Urban Development, Jabbar-Ali Zakeri, told Financial Tribune.

Another contract was signed the same day between the Industrial Development and Renovation Organization of Iran and CRRC Nanjing Puzhen Company, a Chinese railroad rolling stock manufacturer, for the design, procurement, supply, manufacture and delivery of 450 subway wagons to the Iranian cities of Ahvaz, Shiraz and Tabriz.

“The project is worth €500 million and will be financed by the Chinese side. The contract was signed by Naqi Manafi, IDRO’s manager for financial and economic affairs, and Wang Tao, general manager of Puzhen,” Ali Araqchi, IDRO’s director for international affairs, who negotiated the contract, said.

Stipulated in the contract, he explained, is that the Chinese company will transfer the know-how so there is a need to set up the production line and the infrastructure.

“Puzhen has agreed to invest €25 million for this to come about,” he said.

The project will take 55 months to complete. The wagons currently used in the country are made of carbon steel. Puzhen will be delivering wagons with an aluminum body.

Also in March, China Railway Rolling Stock Corporation Changchun Railway Company [CRRC CRC] and Tehran Wagon Company won the tender to build and supply 630 cars for Tehran’s Subway.

"The project is worth €782.66 million and will be financed by the Chinese side," the director general of Urban Rail Transportation Bureau of Iran’s Urban and Rural Municipalities Organization affiliated to the Interior Ministry, Hossein Rajab Salahi, said.

“The Chinese side is to deliver 56 wagons in the form of completely built-up units. An additional 70 wagons will be assembled in Iran [complete knock-down] and the remaining 504 will be manufactured in Iran. CRRC CRC will transfer the know-how for the construction of the bogie, engine and the aluminum body to the Iranian manufacturer,” he concluded.