India, Iran drop arbitration clause for Chabahar port



The move paves the way for the two sides to sign a long-term deal for the development of the strategic port, two persons aware of the development said.

NEW DELHI : India and Iran have agreed not to seek commercial foreign arbitration for disputes between users and operators at Chabahar Port, paving the way for the two sides to sign a long-term deal for the development of the strategic port, two persons aware of the development said.

They said a team from the ministry of port and shipping is expected to visit Iran in September to try and reach an agreement over the rules of engagement and mode of arbitration. This would be followed up with the two countries reaching a formal agreement for long-term operation of the port located in South-east Iran, with an unhindered sea route to India’s West coast.

“We have agreed that disputes at Chabahar will not go for commercial arbitration in foreign courts but take investment arbitration or other any other mode of dispute settlement. This would prevent Iran from having to amend its Constitution," one of the persons quoted above said. Under Iran’s Constitution, an arbitration cannot be referred to a foreign court. It would require a constitutional amendment, which would have been difficult and would have delayed a long-term contract. Currently, India and Iran sign one-year contracts for developing and running the terminal at Chabahar Port. However, New Delhi has been pushing Teheran to sign a longer-term agreement as it seeks more certainty for investment and development plans for the India-designed port. A long-term contract may be for a period of 10 years with provisions for automatic renewal.

Negotiations on long-term contract had been held up due to disagreements over the arbitration clause. Both sides have now agreed to pursue arbitration under rules framed by the UN Commission on International Trade Law (UNCITRAL) which is favoured by India over those framed by the International Chambers of Commerce (ICC). Both arbitration routes do not have designated courts in specific jurisdictions. India had earlier suggested arbitration matters be taken up either in Dubai or Mumbai. The ministry of ports, shipping and waterways did not respond to a query sent on the issue till press time.

The positive development comes at a time when China has been showing growing interest in investments in ports and other coastal infrastructure in Iran, and the Iranian side has been pressing New Delhi to step up development of Shahid Beheshti terminal, which is operated by the state-run India Ports Global Limited (IPGL).

In 2016, India committed $85 million for the development of the port, along with a $150 million line of credit. As of 2023, India had supplied six gantry cranes to the tune of $25 million for the development of the port. However, Iran has voiced dissatisfaction with India’s efforts in the past. The country’s former Ambassador to Ali Chegeni termed the development work on Chabahar “very slow".

Chabahar, located in South-eastern Iran, was developed with the hope that the port would allow India to sell goods to Central Asia. The port was on India’s radar since 2003, when both countries agreed to develop the port during the visit of Iranian President Khatami to India. However, the project stalled in subsequent years as Iran faced Western sanctions for its nuclear weapons program. In 2013, India committed $100 million to develop the port but matters only progressed after the 2015 nuclear deal was struck between Iran, the Permanent Members of the UN Security Council, Germany and the European Union.

In 2016, during PM Narendra Modi’s visit to Tehran, India, Iran and Afghanistan signed an agreement to develop Chabahar as a trade and transport corridor to bind their economies together. The resumption of US sanctions in 2019 and the fall of Afghanistan in 2021 have complicated matters and slowed work on the port. But last year a team from ministry of ports, shipping and waterways including the minister Sarbananda Sonowal visited Iran and negotiations for development of Chabahar has again gained pace.

State-run India Ports Global Limited (IPGL) operates the Shahid Behestti terminal at Chabahar port and since IPGL began operations at the terminal in 2018 (till May 2023), it has handled more than 6.56 million tonne of bulk cargo, including trans-shipments from Australia, Bangladesh, Brazil, Germany, Russia and the UAE, according to government data. For 2023, India is targeting a cargo handling of 13,282 TEUs at the Shahid Beheshti terminal. As against this, cargo handling in 2022 was 3,096 TEUs. This level of cargo traffic has made the operations viable at the port.

Experts say cargo quantity may increase significantly if the port is linked to the rail network. India is also involved in the construction of the 700-km long Chabahar-Zahedan railway line. An MoU was signed between Indian Railways’ IRCON and Iranian Railways’ Construction and Development of Transportation Infrastructures Company (CDTIC) in 2016 for the construction of the Chabahar-Zahedan Railway project.

India has major investment plans in the country, largely centered around the Chabahar port as it gives India a strategic advantage over both China and Pakistan. Chabahar Port is at a distance of about 170 kilometers from Pakistan’s Gwadar port. In union budget for FY22, the finance ministry allocated 100 crore for the development of the Chabahar Port.

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