The Forum for Partners in Iran's Marketplace

September 2017, No. 85

China’s EXIM Inks $1.5 bn High-Speed Rail Deal with Iran

EXIM’s Vice President Sun Ping and CEO of the Bank of Industry and Mine Ali Ashraf Afkhami signed the documents in Tehran on July 25 after “16 months of intensive talks”.

The Export-Import Bank of China (EXIM) has signed a $1.5 billion deal to finance the electrification of a high-speed rail line between the Iranian cities of Tehran and Mashhad.

EXIM’s Vice President Sun Ping and CEO of the Bank of Industry and Mine Ali Ashraf Afkhami signed the documents in Tehran on July 25 after “16 months of intensive talks”.

The Iranian bank is about to provide government guarantees for the Chinese investment. Afkhami described the contract as a “major achievement after the implementation of the JCPOA some 18 months ago.”

The Joint Comprehensive Plan of Action or Iran Nuclear Deal was signed with the West and other world powers to have sanctions lifted on Tehran in exchange for scaling back its nuclear program. 

China National Machinery Import and Export Corporation, known as CMC, has undertaken to electrify the 926-km line from the capital to the holy city in northeast Iran in partnership with the Islamic Republic of Iran Railways (IRIR).

Iran’s holding group MAPNA is a subcontractor in the project. It has signed an agreement with Germany’s Siemens for the joint manufacture of 70 electric locomotives to be used in the route.

China Railway Group Limited (CREC) is carrying out another project worth $1.8 billion for the electrification of a high-speed rail link between the cities of Tehran, Qom and Isfahan. 

Sun said EXIM has so far provided loans for 26 Iranian projects in the electricity, petrochemicals, non-ferrous metals, and oil and gas sectors, worth $9 billion.  

Iran has announced plans to splurge up to $25 billion over the next 10 years on modernization and expansion of its railway network.

Earlier in July, the country signed a deal worth 1.2 billion euros with Italy’s state railway company Ferrovie dello Stato (FS) to build a high-speed railway between the central cities of Arak and Qom.

Under its vision plan, Iran seeks to stretch out the nationwide railroad line to 25,000 kilometers by 2025 from under 15,000 kilometers now.

Much of Iran’s transportation is road-based marked by high accident and casualty rates. According to a 2012 report by the World Health Organization, Iran has the highest number of car accidents in the world in which more than 20,000 people are killed every year.

The country, with a population of 80 million, is also struggling to catch up with a runaway urbanization. Tehran and other major cities are aggressively developing a mass-transit system in which metro transportation plays a vital role.

Connectivity is one of the key strengths of Iran, a vast country with a territory more than 1.6 million square kilometers. It is bounded by the Caspian Sea in the north and the Persian Gulf in the south, giving it a unique position to connect the countries of Asia and Europe.

Iran is a major partner in the International North-South Transportation Corridor (INSTC) project, stretching from Bandar Abbas in the Persian Gulf to Russia, Eurasia and Europe. 

Iran’s Deputy Minister of Roads and Urban Development, Asghar Fakhrieh-Kashan, earlier said the project was worth €2.2 billion ($2.56 billion) and that two-thirds of the cost would be financed by the Chinese government at a very low interest rate.

The remaining one-third, he added, would be covered by Chinese insurer Sinosure (China Export and Credit Insurance Corporation).

“China Exim Bank has financed 26 projects in Iran to date,” Sun was quoted as saying on the sidelines of the signing ceremony for the financing deal in Tehran, adding that $8.5 billion worth of loans have so far been granted by the bank to fund Iranian projects.

According to Fakhrieh-Kashan, Iran’s MAPNA Group is the project’s main domestic subcontractor.

The Islamic Republic of Iran Railways said last month that the Tehran-Mashhad railroad project was due to get underway, regardless of the financing process.

“All obstacles to the implementation of the project have been removed and next week, operations for the electrification of Tehran-Mashhad line will begin,” Maziar Yazdani, deputy head of Islamic Republic of Iran Railways, said on June 13. 

A Strand of New Silk Road

In late 2015, He Huawu, the chief engineer of China Railway Corporation, proposed the so-called New Silk Road–a 3,200-kilometer railroad project that ultimately sees Urumqi, the capital of China’s western Xinjiang Province linked to the Iranian capital Tehran, connecting Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan along the way, according to China’s state-owned paper China Daily.

The idea came just before international sanctions imposed on Iran over its nuclear program were lifted in January 2016, as part of a deal Tehran clinched with world powers months earlier.

From Tehran, the grand project will join Iran’s east-west network leading to Turkey and Eastern Europe. It could also open a way to Europe via a developing rail route from southern Iranian ports to Azerbaijan and Europe.

The Belt and Road initiative, put forward in October 2013 by Chinese President Xi Jinping, includes several corridors through land and sea, including the New Silk Road rail route.

The route will serve as a tailwind for the transport of goods and energy between Iran and China, setting a long-term bilateral trade target of $600 billion a year.

In February 2016, both countries tested a train journey on this line. The 32-container train took 14 days to complete the 6,462-mile (10,399-km) journey from China’s eastern Zhejiang Province through Kazakhstan and Turkmenistan–one month less than the sea route from Shanghai to the Iranian port of Bandar Abbas.

For Iran, the electrification of Tehran-Mashhad line is part of its wider rail development plan to electrify all railroads by 2025.

In a meeting with his Chinese counterpart, Xiao Jie, in China back in May, Iran’s Minister of Economy and Finance Ali Tayebnia said, “Iran’s position in Xi Jinping’s innovative plan to revive the New Silk Road is spectacular and ideal. Therefore, we intend to play an effective role in its implementation.”

Iran resolved issues regarding government guarantees during Tayebnia’s visit to China to represent Iran in the New Silk Road Forum.

The two-day “Belt and Road Forum” started on May 14 with China and 29 other nations reaffirming their commitment to build an open economy and ensure free and inclusive trade, under the Belt and Road initiative.

Tayebnia noted that Iran has been a part of the ancient Silk Road—a route contributing for centuries to trade and cultural exchange—stretching from Japan to the Mediterranean Sea, and intends to play a more important part in the new plan.

Yazdani said in June the electrification of Tehran-Mashhad railroad will take four years.

The route is already double-tracked and both tracks will be electrified as part of the deal with the Chinese side. This will raise the speed of the line from the current 160 kph to 200 kph, significantly reducing the duration of a trip between the two cities.

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  September 2017
No. 85