Railways’ projects in Iran hit roadblock over execution model

Railways’ projects in Iran hit roadblock over execution model

New Delhi: The Iran projects of RITES Ltd, a subsidiary of the Indian Railways, have hit a roadblock due to a dispute over how they would be executed.

Rites, which provides engineering, consultancy and project management services in transport infrastructure, favours constructing the projects on the build, lease and transfer (BLT) model, said a railway official, who declined being named. Iranian authorities, however, want them to be executed on the build, own and transfer (BOT) model.

“The Railway Company of Islamic Republic of Iran wants the projects to be implemented on a BOT model," an Iranian government official in the ministry of roads and transportation said in New Delhi. He spoke on condition of anonymity.

In the BOT model, projects are owned by developers who enjoy rights to earn revenue from an asset over a specified period. In the BLT model, the contractor is paid a fixed amount to build the project by the client, usually in instalments.

The proposed RITES projects in Iran include electrification of a railway track between Tehran and Mashhad, construction of Karadj workshop for locomotive maintenance and building a high-speed train link between Tehran Qom-Isfahan.

The projects are now in “go-slow mode," the railway official said. “They are unwilling to share the risk, and we are not sure about collecting revenues ourselves through tolling."

“To undertake the project on a BOT basis, it will require RITES to raise a lot of financing," said Arvind Mahajan, national industry director (infrastructure and government) at KPMG Advisory Services Pvt. Ltd. “Financing anyway is difficult in the current circumstances and may be more so in the case of Iran."

Compared with India’s 60,000km railway, Iran has only 6,000km.

The areas of co-operation between India and Iran include training of personnel, high-speed signalling and supply of locomotives and spares.

The projects were identified after Railway Board chairman K.C. Jena and RITES managing director V.K. Agarwal visited Iran in April.

While another official from RITES, who didn’t wish to be named, said the public sector unit has been asked to go slow on its projects in Iran after the signing of the historic Indo-US civil nuclear deal, the railway officer quoted earlier denied there was any pressure from the Union government to thwart the Iran projects.

“These projects are stuck on account of the technical, contractual problems," he said.

This is not the first time Iran-India projects are facing problems. The $7.4 billion (Rs36,260 crore) Iran-Pakistan-India pipeline project is also expected to fall through, with Iran planning to move ahead with or without India, as reported by Mint on 27 October. Minister of external affairs Pranab Mukherjee was recently in Tehran to co-chair the India-Iran joint commission, which promotes bilateral cooperation.