$120 mn investments, $250 mn credit line to fund Chabahar port growth

Major issues ironed out; Iran agrees for arbitration at SIAC

India’s 10-year bilateral contract with Iran for the operation of Chabahar Port is likely to bring in an investment of approximately $370 million. This comprises a direct investment of $120 million from India for infrastructure development and a $250 million line of credit to Iran, Business Standard has learnt.

With the $120 million committed for port development, India is set to procure advanced equipment, such as rail-mounted quay cranes, rubber-tyred gantry cranes (also known as transtainers), reach stackers, and forklifts. The funds will also be directed towards the development of related infrastructure.

The agreement, signed for a decade, can be extended by mutual consent, marking a medium-term goal for India as it moves into operations, according to multiple officials privy to the developments.

 

Major concerns, including lack of consensus on an arbitral framework, have been addressed. The issue relates to a previous impasse in the negotiations when Iran declined to agree to an international arbitration framework, citing the need for a constitutional amendment. India, on the other hand, insisted on the arbitration clause for transparency in dispute resolution.

As per the agreement signed on Monday, matters requiring arbitration will be referred to the Singapore International Arbitration Centre, said the officials.

A concern regarding cargo movement also surfaced in the later stages of the negotiation process. Iran, the sources, insisted on minimum guaranteed traffic (MGT), a standard provision in concession-based port agreements. Failure to meet the minimum cargo requirement could result in penalties for the concessionaire.

The signed Chabahar agreement includes a clause on cargo targets, but no penalties will be imposed if such traffic is not achieved, according to an official. Non-binding cargo targets will aid in securing commercial interests and minimising the potential for future disputes, he further said.

In the first year, India Ports Global Limited (IGPL) is expected to bring in 30,000 twenty-foot equivalent units (TEUs) or containers worth of traffic. This number is projected to increase to 140,000 containers in the fifth year, and 300,000 TEUs in the tenth year of the bilateral agreement.

These targets will be revised after five years, depending on market conditions and other factors.

Under the revenue sharing agreement, for exports from the Shahid Behesti Terminal, IPGL and Iran will each retain 50 per cent of the revenue share. For imports, Iran’s maritime organisation will receive 60 per cent of the revenue.