India, Iran and the story of Chabahar

iran-chabhaharAfter over a decade of declared intentions, the Government of India has finally decided to put money on the strategically important Chabahar project. Chabahar, situated in South-eastern Iran in the Sistan-Baluchistan province, lies outside the Strait of Hormuz and the Persian Gulf and is about 70 km from the Gwadar Port in Pakistan.

On October 18, 2104, the Indian government approved the setting up of a joint venture between two Indian Port Authorities — Jawaharlal Nehru Port Trust (JNPT) and the Kandla Port Trust (KPT) — to have an Iranian partner and/or an Indian private sector partner to form the vehicle to execute the project. The Government also approved an initial outlay of $85 million and a revenue expenditure of $23 million per year.

Though this decision is in keeping with the overall projection of the decisive nature of the new government’s moves in foreign policy and strategic fronts, it must be said in all fairness that the earlier Congress government had already approved a Cabinet proposal setting aside $115 million to invest in Chabahar, in early 2013. The amounts mentioned now appear to be a re-juggling of the same old numbers, a bit less if not more. Nevertheless, the very fact that Chabahar has come into the focus of the new government so early in the day is itself commendable.

Another major difference is that the earlier Cabinet proposal had linked the investment with Revenue Earnings (RE) and had sought a report from the MEA on the RE to be submitted to the Finance Ministry after a three-year time frame. The present approval instead permits revenue expenditure of $23 million rather than expect any earnings, which is a refreshingly appropriate response. For, the Chabahar project was never meant to be a commercial project but a strategic one with very limited commercial spin-off.

Though we have been talking of Chabahar project for nearly a decade now without having put a penny to start scratching the ground, Chabahar has already entered the lexicon of strategic analysts around the world as India’s own port to counter the Gwadar Port built by China in Pakistan. And much is made of this muscle flexing by India as a reassertion of its primacy in the Arabian Sea vis-a-vis China. The fact, however, is that there is not an inch of Indian real-estate anywhere in the vicinity of Chabahar, despite Iran prodding us for nearly ten years.

A proposal to expand and modernise the Chabahar port was offered by Iranian President Mohammed Khatami during his visit to Delhi in January 2003. Subsequently, two jetties in Chabahar, Shahid Behesti and Shahid Kalantary, were offered to India by the Iranians for construction and operation of a port on BOT basis. India was to dredge the jetties and build berths large enough to accommodate heavy tonnage ships that would carry goods to and fro from Iran and more importantly to Afghanistan. In return for this, the government of Iran was to declare the entire Port area as a Special Economic Zone (SEZ) and grant us about 50 acres of land to build Container Terminals and storage facility etc. The importance of this project lay in minimising our dependence on Karachi port to ferry our goods to Afghanistan.

Indian authorities initially planned to build a railway line from Chabahar to Zaranj, an Afghan town about 880 km away, so as to link up with the Zaranj-Delaram highway built by the Indians in Afghanistan. Once the Railway Ministry got into the act, it assigned its external development wing, the RITES, to do a feasibility study of the project. A team of RITES came up with the findings that it would cost roughly a million dollar per km to lay the railway line and to make it economically viable, the railways would have to carry at least a million tonnes of cargo per month. The fact that the present port facility in Chabahar was not even off-loading 2 million tonnes of cargo per year and that it could take almost a decade more to reach the required tonnage for the Indian railways made the entire project unviable, even if the Indian government agreed to spend about $850 million to lay the railway track. So the project was almost shelved.

It took another 3 to 4 years to revive the entire proposal, thanks mainly to the efforts of an extremely dynamic Indian Ambassador in Tehran and the concerned desk in the Ministry of External Affairs. The efforts convinced the Ministry of Shipping and the PMO to view it only as a project of strategic importance and not as a commercial one. This finally resulted in getting the Cabinet proposal cleared. Yet the Finance Ministry had inserted the clause on Revenue Earnings!

When the proposal was revived in early 2010, the idea of the railway line was abandoned, as the Iranians had already built a four-lane road all the way from Chabahar to the Afghan border. And the project cost had become much more manageable for us, to around $150 million.

This was also the time when PM Manmohan Singh had announced a grant of 100, 000 tonnes of wheat to Afghanistan during one of President Karzai’s visits. Though the gift was easy to offer, shipping and trucking it all the way to Afghanistan was a nightmare. The difficulty of shipping it through the Karachi port, particularly in view of Pakistan’s intransigence in blocking an earlier container full of biscuits to Afghan children at the Wagah border, was known only to a few officials. The PM had asked the MEA to give him a weekly report on the shipment of wheat. The MEA asked the Shipping Ministry whether it could arrange to ship at least 20, to 30,000 tonnes of wheat through Chabahar on a trial basis. The Shipping Ministry agreed to do so, if the MEA bore the cost. With the MEA having no earmarked funds for such an exercise, even the trial shipment failed to take off.

In November 2011, the Government of Kabul offered the mining rights of its famed Hajigak mines (‘the Jewel of the Ore Deposits’, as the Wall Street Journal called it) to a consortium led by the Steel Authority of India and the burden of getting the iron ore out of Afghanistan became entirely ours. The SAIL and its partners would have to make an investment of about $14 billion and it would take another 3 to 4 years to get the ore out. Forget all the flux in Afghanistan, an Indian port in Chabahar still seems the only way out.

Well, the Indian government has now decided to put money and create a Joint venture between two of our ports in Gujarat to partner with either an Indian private company or an Iranian company to construct and operate the port. Will there be any takers? Will any private company put money in a project that is clearly not a commercially viable project? Or will the SAIL pick up the tab?

A Hyderabad based shipping company that visited Chabahar in early 2011 had assessed that it would make far more business sense to start operating from Chabahar in its existing condition without putting any money on dredging and creating fresh berths for heavy tonnage ships. The simple reason was that there was not enough cargo for heavy tonnage ships.

May be the lifting of sanctions on Iran and the flow of Hajigak iron ore will change all that.

(The writer is a Visiting Distinguished Fellow at Observer Research Foundation, Delhi)

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