November 04, 2014


Ashok Behuria 
01 November 2014

Modi's Cabinet has taken a welcome decision to reset India's Chabahar policy and put a stop to the lethargic approach exhibited by the country during the last one decade. However, it needs to take better stock of the ground realities and sustain its interest to harvest huge strategic gains in future

At long last, on October 18 the BJP-led NDA Government decided to invest in the strategically important Iranian port of Chabahar. As per the Cabinet's decision, India will invest $85.21 million in developing the port for use by India. Apart from this, the Cabinet decided to invest an annual revenue expenditure of $22.95 million to support the efforts.

The joint venture

Media reports further revealed that during the first phase of the project, an Indian joint venture (JV) company — consisting of Jawaharlal Nehru Port Trust (JNPT) and Kandla Port Trust (KPT) — may partner with one or more Iranian concerns, with approval from the Iranian Ports and Maritime Organisation (P&MO), to execute the project on build-operate-transfer (BOT) basis.

The JV will develop and operate the port for 10 years and transfer the port to P&MO at the end of the 10th year. The JV will build, equip two berths within a year — one of them as a container terminal and the other as a multi-purpose cargo terminal. Based on the performance of the JV during the first phase, depending on the satisfaction of both the countries, further negotiations can be conducted for continuation of the arrangement again on BOT basis. 

India: Serious but shy?

The decision to develop Chabahar as a strategic, if not commercial port, was hanging fire for quite some time. Ever since former Iranian President Khatami offered India to build and operate Chabahar during his visit to India in 2003, foreign policy mandarins in India wasted valuable time weighing the pros and cons of the project. The imposition of extensive US sanctions on Iran in 2006, and improvement in India-US relations put paid to hopes of Indian investments in the port, even if it made tremendous strategic sense for India to invest in Chabahar.

Every time India faced resistance from Islamabad to send essential items to Afghanistan through Karachi port, Chabahar would find mention in strategic discourse in India as a project worth investing in. But it is primarily Indian sensitivity to US concerns about Iran which came in the way of developing Chabahar and alternate transit route through it to Afghanistan.

Even though India could not make much progress on the Chabahar front, as part of its overall plan to bypass Pakistan and access Afghanistan and central Asia through Iran, India built the 218 kilometre-long Zaranj (on Iran-Afghanistan border)-Delaram highway in Nimruz province of Afghanistan in 2009 to connect to the 2,200 kilometre two-lane metalled road network circulating inside Afghanistan, connecting major cities in the country. India spent about Rs 600 crore to build this connecting highway. The project was executed over four years (2005-2009) by Border Roads Organisation (BRO), which lost two of its employees along with four Indo-Tibetan Border Police (ITBP) personnel and 100-odd Afghan workers to insurgent attacks.

Iran's Chabahar efforts bearing fruit

Cynics noted that the Zaranj-Delaram highway was left to the mercy of Taliban following Indian indecision about developing Chabahar port and the land route — from Chabahar through Iranshahr to Zahedan and further north to Zabol and then to Milak close to Zaranj in Afghanistan. The whole route was about 890 kilometre-long and according to estimates by RITES, an Indian Government enterprise, the initial plan to build a railway from Chabahar to Zaranj would have cost about $1bn, which was unaffordable. By 2011, the Iranians had shelved the plan for connecting Zaranj by rail and built a four-lane highway linking Chabahar with Milak.

Chabahar petrochemical zone

By 2014, Iran decided to invest heavily in Chabahar all on its own. Its main aim has been to prepare Chabahar as the third major hub for petrochemical industries in Iran (the first two are in Bandar Imam and Assaluyeh).

The Iranian Government has earmarked a large area spread over about 1,100 hectares as petrochemical complex. This area is being developed to attract both domestic and external investment. In a dusty corner of the city, about 20-25 km away from the Chabahar airport, with investment by SATA (Armed Forces' Social Welfare Investment Organisation), an Iranian company called Mokran Negin Development Co. has laid down roads, drawn up electricity lines and is in the process of building water connections. During the first phase, about 1,100 hectares of land has been developed, and about 3,000 hectares would be made ready by the end of the third phase.

The Iranian Government also has plans to link Chabahar with Zahedan and Mashhad by rail. A new pipeline is also being considered for transferring South Pars ethane gas to Chabahar. A railway station is being built to connect the industrial zone with the port.

As per Iranian estimates, there will be about 16 basic petrochemical complexes built in three different phases consisting of plants which will produce urea, ammonia, methanol, polypropylene, olefin and dimethoxyethane. The complex will also have an aromatic complex and a crystal melamine plant. Iranians are looking at a cumulative investment of about $80 billion by the end of the project.

Craze for Chabahar! China leading the pack

Iranians are quite optimistic about the nuclear talks and expect that this will lead to easing of sanctions, following which more and more companies from around the world would invest there.

In fact, Iranian efforts have not gone unrecognised. This petrochemical investment zone has drawn the attention of many foreign companies from China, Oman and some of the European countries. About eight Iranian companies have already invested in the zone.

China has already invested in Chabahar in the heavy oil refinery sector. A new Chinese refinery is coming up just opposite the upcoming petrochemical zone. During a recent visit, one could see squat barracks coming up on the refinery site. China has also started taking interest in the port itself. A Chinese dredger, probably leased to the Iranians and flying the Iranian flag, was seen anchored in the Saeed Beheshti terminal of the Chabahar port.

There is a beeline of Chinese businessmen for investing in Iran, in general and in the port city, in particular. Some of the Chinese businessmen have already set up a special market complex to sell Chinese items.

In the hotels of Tehran, which have suddenly sprung up into action, one could see dozens of Chinese entrepreneurs camping for weeks exploring ways of investing in Iran in anticipation of withdrawal or at least relaxation of sanctions by the US and international community.

Gratified as the Iranians look, upon being courted by the Chinese investors, one could sense a sense of unease about long-term association with China among Iranian interlocutors one came across. In the educational institutes in Tehran, there was neither much interest in China nor enthusiasm about prospects of Chinese investments, even though one could sense a quiet appreciation of "Chinese courage" to court Iran, despite the American sanctions.

Better late than never

For Iranians, Indian interest in Chabahar is reactive rather than proactive. Many Iranian analysts look at Indian decision to invest in Chabahar as a last ditch effort to compensate for years of negligence. Indian investment of $85 million is also being touted as being too little too late by some.

Nevertheless, as one would gather, most Iranians have high expectations from the newly-elected Modi Government. Prime Minister Modi's image of being a doer has also led them to believe that this time round, India will not vacillate on its decision and stay put on the track.

Interaction with officials of the Chabahar Free Zone revealed that Iranians are interested in developing a "logistics zone" jointly with India with the purpose of providing services for transit and trade. Early activation of shipping lines between Chabahar and Indian ports like Kandla and Mumbai is also being urged by Iranians for quite some time.

Future prospects

We must realise that Chabahar is ideal for both oil and non-oil trade. Moreover, there are various investment incentives now in Chabahar like availability of cheap energy and transportation infrastructure. India could consider investing in areas like automobiles, pharmaceuticals, textiles and food processing (tea, rice, spices, etc.). Local traders would also talk about craze for Indian imitation jewellery and the need for India to invest in education, particularly in IT and Business Management. Private educational institutes can be encouraged to open their branches in Chabahar.

Last but not the least, there is a fear among many Indian analysts that being an area dominated by Sunni Baloch population, Iran may not be sincere about its intent to develop Chabahar. Baloch insurgents of Iran have in the past taken on the Iranian forces in the province. However, unlike the case of China in Pakistani province of Balochistan, there is a tremendous reservoir of goodwill vis-à-vis India in the Iranian province of Sistan-Baluchistan. Moreover, Iranian intent to develop Chabahar in spite of their concerns about Baloch insurgency is quite visible in the massive investments they have made in the port and in creating supportive infrastructure around it. It is time for India to shed its inhibitions and go the whole hog.

Connectivity is a key issue for the Indian Government today. With Chabahar providing India access to Afghanistan and Central Asia bypassing Pakistan, investment in Chabahar is likely to yield immediate strategic gains, while commercial considerations are most likely to follow in a not-too-distant future, provided we have the will to seize the opportunity well.

(The writer is Coordinator, South Asia Centre, IDSA)

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