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Business News/ News / India/  India, Iran sign long-term contract for Chabahar Port after years of talks
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India, Iran sign long-term contract for Chabahar Port after years of talks

The pact replaces one-year contracts that were being signed to keep the port operational until now. This was a big disincentive for shippers to use the port, as they were looking for a more permanent arrangement.

The long-term bilateral contract was signed between Indian Ports Global Limited and the Port & Maritime Organisation of Iran, enabling the operation of the Shahid Beheshti terminal at the Chabahar Port for 10 years. Photo: AFPPremium
The long-term bilateral contract was signed between Indian Ports Global Limited and the Port & Maritime Organisation of Iran, enabling the operation of the Shahid Beheshti terminal at the Chabahar Port for 10 years. Photo: AFP

India and Iran have finally signed a long-term contract for the development of Chabahar Port after years of negotiations. A high-level delegation led by the Indian minister for shipping Sarbananda Sonowal visited Iran to sign the contract, which will pave the way for the full use of this strategic port in southeastern Iran, developed with Indian aid.

The long-term bilateral contract was signed between Indian Ports Global Limited (IPGL) and the Port & Maritime Organisation (PMO) of Iran, enabling the operation of the Shahid Beheshti terminal at the Chabahar Port for 10 years.

The pact replaces one-year contracts that were being signed to keep the port operational until now. This was a big disincentive for shippers to use the port, as they were looking for a more permanent arrangement.

Sonowal and Mehrdad Bazrpash, Iran's minister of roads & urban development, attended the agreement-signing ceremony in Tehran.

“Today is a historic day for the maritime sector of the region as India and Iran signed this long-term agreement on Chabahar Port, heralding a new age of trade and marine cooperation as well as transshipment, while boosting trilateral trade among India, Iran and Afghanistan. As India continues to invest in Chabahar Port, its efficiency and capacity will be further enhanced, solidifying India's commitment to the region's economic development," Sonowal said at the signing.

He added, “Chabahar Port's significance transcends its role as a mere conduit between India and Iran. It serves as a vital trade artery connecting India with Afghanistan and Central Asian countries. This linkage has unlocked new avenues for trade and fortified supply chain resilience across the region... The establishment of regular ship calls between Chabahar Port and Indian ports has instilled stability and confidence among traders, offering them visibility and predictability in their supply chain operations."

Also read: India, Iran drop arbitration clause for Chabahar port

Earlier, external affairs minister S Jaishankar said he expected the Chabahar Port agreement to open up avenues for significant investments on the Indian side. Addressing media at a NSE-ANMI seminar on ‘Indian Capital Markets, Roadmap for Viksit Bharat’ in Mumbai on Monday, the minister said, “We believe that as and when a long-term arrangement is concluded it would certainly clear the pathway for bigger investments to be made in ports. Right now the port hasn’t grown since there was no long-term agreement and therefore it was difficult to make investments in ports. The Indian side will see more investments and connectivity linkages too will increase."

As part of the agreement, India will procure various equipment required to expand operations at the port including reach stackers, forklifts, pneumatic unloaders, and so on. The agreement paves the way for enhanced trade and investment opportunities, which could boost India’s economic development, a statement from shipping ministry said.

Strategic importance

Located in the Sistan-Baluchistan province on Iran’s southwestern coast, Chabahar Port is at an important point on the Arabian Sea, with easy access from India’s west coast. Kandla port in Gujarat is the closest port at 550 nautical miles, while the distance between Chabahar and Mumbai is 786 nautical miles. Since 2019, the port has handled more than 80,000 twenty-foot equivalent units( TEUs) of container traffic and more than 8 million tonnes of bulk and general cargo.

The port also offers an alternative route from the Strait of Hormuz for cargo traffic between Central Asian countries and Afghanistan. This diversification strengthens India's strategic position in the region.

Also read: Rethink prompt: Why did the Iran-Israel conflict barely shake oil prices?

The port's integration with a special free zone augments its appeal, while India's incentives, such as concessions on vessel-related charges and cargo charges, bolster trade flows through Chabahar, fostering economic growth and cooperation.

Chabahar is envisaged as a crucial link in the eastern route of the International North-South Transport Corridor (INSTC), facilitating the movement of goods between India and Central Asian countries. This collaboration between India and Iran on developing infrastructure and logistics along the 7,200-km INSTC aims to reduce transportation costs and time, thereby promoting trade between these regions.

In 2003, India agreed to help Iran develop the port and accompanying infrastructure links during Iranian President Muhammad Khatami’s visit to India. New Delhi’s interest in Chabahar came from the port’s value as a gateway for Indian goods to reach markets in Afghanistan and Central Asia.

However, matters progressed slowly thereafter. In 2013, India committed to providing $100 million for the development of Chabahar. A memorandum of understanding (MoU) for development of Chabahar Port was signed in May 2015 and the contract was executed on 23 May 2016 in Tehran. India agreed to invest $85 million in the development of Chabahar’s Shahid Beheshti terminal. However, the reimposition of sanctions on Iran for its nuclear programme hampered India’s ability to develop the port.

The present agreement aims to enhance regional connectivity and facilitate trade, particularly between India, Iran and Afghanistan. The India Ports Global Chabahar Free Zone (IPGCFZ), a subsidiary of IPGL, facilitated the first consignment of exports from Afghanistan to India in 2019. The operations continued through short terms contracts while negotiations on the Long-Term Agreement peaked pace with the visit of Sonowal to Chabahar in August, 2022.

Negotiations stalled  

Negotiations on the long-term contract were held up over disagreements on arbitration clauses. Mint had earlier reported that the two sides have reached an accommodation which will allow arbitration under rules framed by the UN Commission on International Trade Law (UNCITRAL).

The deal is also significant as it comes amid geopolitical disruption in West Asia. In recent weeks, Iran and Israel have clashed militarily after Tehran accused Tel Aviv of launching an air strike against an Iranian diplomatic building in Syria earlier in April. Iran also launched a barrage of missile and drone attacks on Israel.

India has expressed concern as tensions rise in the region. It has maintained a diplomatic dialogue with Iran on issues of concern, such as attacks on India-linked ships by Yemen’s Houthi rebels, who are believed to have links to Iran.

Also read: Why Iran is hard to intimidate

Apart from its strategic importance, Chabahar Port also has the potential to generate considerable revenue. In the first half FY24, container cargo handling at the Shahid Beheshti terminal at 25.788 TEUs while bulk cargo handling at around 1.5 million metric tonnes (mt).

Investments in the Iranian port facility are the first by India in such infrastructure overseas. The port's capacity for cargo handling is currently 8 mt and India plans to expand it to 18 mt in next phase.

More port deals expected

India is looking to strengthen its presence in key infrastructure along the route passing through the Persian Gulf. Adani Group already operates the Haifa port in Israel and more port deals by Indian entities are expected in the region.

For 2023, India is aiming for 13,282 TEUs of cargo handling at the Shahid Beheshti terminal, up from 3,096 TEUs in 2022.

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 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 Iran, largely centered around the Chabahar Port as it gives India a strategic advantage over both China and Pakistan and is about 170 km 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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ABOUT THE AUTHOR
Subhash Narayan
Subhash is the infrastructure editor at Mint and tracks the momentous developments taking place in the space that is fast changing the Indian landscape. He feels that reporting has been a passion that provides the necessary adrenaline rush and keeps you going.
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Published: 13 May 2024, 06:58 PM IST
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