By bne Tehran bureau
Iran will sign a 10-year contract with an Indian state operator to develop Chabahar port after a three-year hiatus, according to the state-controlled Iran Labour News Agency on May 13.
Chabahar Free Zone, Iran's sole oceanic port, holds a strategic regional position. In 2016, Iran and India signed a Memorandum of Understanding (MoU) allowing Indian operators to work in Chabahar. However, the initial contract underwent revisions, and India was unwilling to conclude a long-term contract. The port comes under the wider development of the so-called International North-South Transport Corridor (INSTC), which connects Russia with India via the Iranian railway and road network. The port is also a vital gateway for Central Asian countries and Afghanistan to reach the open sea and connect to Indian imports.
Under the agreement, India will invest in the port through a Build-Operate-Transfer (BoT) model, bringing in the necessary equipment. Of the total 350 hectares of land, 50 are allocated exclusively to India for loading, unloading, and storage purposes.
The 10-year BoT contract ensures that the port equipment purchased by India will remain at Shahid Beheshti Port after the contract's conclusion. So far, India has invested $20mn out of the committed $85mn, with the final contract signing expected to unlock the remaining investment.
'As and when a long-term arrangement is concluded, it will clear the pathway for bigger investments to be made in the port,' Indian Foreign Minister S. Jaishankar told reporters in Mumbai.
'The signing of this contract marks a milestone in the strategic cooperation between Iran and India. It will not only enhance our bilateral relations but also contribute significantly to the region's economic development,' stated Iran's Freezone Minister Mehrdad Bazrpash during the signing ceremony.
The income generated from the port will be divided between Iran and India based on an agreed financial model. Iran's share is 70% in the import sector, with India receiving 30%. India has a 60% share in the export sector, while Iran gets 40%. ISNA reported that the transit share is evenly split between the two countries at 50%.
India has committed a $120mn investment in strategic port equipment and an additional $250mn to upgrade Chabahar’s transportation infrastructure. These investments enhance the port's capacity and efficiency, enabling it to handle increased cargo volumes and bolstering its role in regional trade.
In 2018, India Ports Global Limited (IPGL) commenced its two-year temporary activity contract in the Shahid Beheshti Port. The purpose of this contract was to equip the port with the necessary equipment and fulfil its obligations to become eligible for a ten-year contract process with the Ports and Maritime Organisation.
At the end of these two years, India was not interested in concluding a long-term contract. Although, during this contract period, six gantry cranes specified in the agreement were delivered to Shahid Beheshti Port, it was reported that Iran was not allowed to use this equipment until the signing of the 10-year contract.
The deal also aligns with the trilateral transit agreement between Iran, India, and Afghanistan, focusing on Chabahar’s role in facilitating trade and transit across the trio. This port is expected to compete with Pakistan's Gwadar port, further positioning India as a critical player in the region's maritime logistics. This railway project stands as a major national endeavour within the Sistan-Baluchestan Province, and its successful completion is poised to bring about significant transformations in commercial relations among various countries.
Iran invited India to conclude a contract three times, which was rejected by the Indians twice in part due to US pressure on the country. India has also requested that a third country have the right to arbitrate in the international court previously to deal with the position it had been placed in. The port, however, was not subject to US sanctions, even during the Trump administration.
Iran traded $377mn worth of goods with India during the initial two months of 2024, registering a 5.3% y/y increase, as reported by the latest data released by the Indian Ministry of Commerce and Industry.
