Chahbahar-Zahedan rail link: Iran's insistence on roping in a specific entity put deal off track
India’s problem with Iran on the Chahbahar-Zahedan rail link is latter’s insistence on ensuring the civil works contract goes to Khatam al-Anbiya constructions, an entity belonging to Iran’s proscribed Islamic Revolutionary Guard Corps (IRGC). These entities are under secondary sanctions by the US, which means companies who deal with them could also come under scrutiny, face restrictions and may even have their assets frozen.
Now, India does have a waiver from the US to go ahead with the development of the port as well as the railway line. But in doing so, India cannot involve sanctioned entities in the project. So, India asked Iran in December 2019 that must nominate another entity, one which is not proscribed. Iran, according to the South Block, gave no replacement.
It’s important note that Khatam al-Anbiya is not just any IRGC entity but one of its key construction arms, which has been involved building activity at nuclear sites. And IRCON, which had done the feasibility and identified the alignment, could not be exposed to this risk.
From an Indian standpoint, a railway line – regardless of who builds it – must come up because it will help move larger quantities of freight from the Afghan border. There already is a road connecting the port to Zahedan, which is how 8200 containers have moved through this port since December 2018. In the past year alone, 52 vessels were handled at the port. These are not big numbers but better than what Indian authorities had anticipated.
The real roadblock for Iran is American sanctions. Much as the proposed China-Iran deal is being touted, the fact remains that no Chinese entity has yet openly flouted the US sanctions regime. Now, many Chinese entities have worked below the radar to supply dual use items for the nuclear programmes in Iran, North Korea and Pakistan but have never done so overtly.
For all the talk about expansion plans to include China in Chahbahaar, the fact remains that on ground there exist only two terminals – Shahid Kalantari operated by Iran and Shahid Behesti run by India. The Chahbahar Special Economic Zone in which China was to invest in large amounts has still not moved ahead.
Another instance was India’s struggle for getting big crane operators to set up equipment at Chahbahar. Most foreign entities were unwilling despite the fact that India had an American waiver.
Then, Iranian authorities told India that they could obtain this equipment from Chinese companies. New Delhi was open to proposition as long as the equipment reached the port. But it’s been months now and no Chinese equipment is on the horizon.
The issue also is of Iran shifting goalposts. Between 2016, when Iran had reached a nuclear deal with the US and 2018, when the Trump Administration withdrew, Iran vacillated, trying to strike a better bargain but in the end, was unable to close deals.
In Farzad-B, for instance, India was to develop, transport and market the gas. But suddenly, Iran wanted to market it on its own, then said India would only be allowed to export post-extraction. New Delhi, incidentally, accommodated many of these concerns but then Iran wanted India to set up a LNG terminal and that further delayed matters.
At one point, India alerted Iran that Saudi Arabia, which shares the field, was drawing out all the gas while it procrastinated. Then came the new sanctions in 2018 and Iran wanted to revert to the older arrangement which by now became difficult for India.
Even the port could have been delayed had India not moved in for a short-term lease contract(SLC). This was done after Iran stalled talks by linking the activation clause to the condition that India first extend $150 m credit facility. The issue still remains unresolved but the port is functioning under a SLC for 18 months which goes on until October 2020. For this, India also agreed to the nomination of Arya Banader, a local entity, to carry out the civil works.
But the same was not possible with the Khatab al-Anbiya. That China will undertake any such risk, exposing its own entities to US sanctions is one worth watching, because trends show otherwise.
India does have a waiver from the US to go ahead with the development of the port as well as the railway line. But in doing so, India cannot involve sanctioned entities in the project. So, India asked Iran in December 2019 that must nominate another entity, one which is not proscribed. Iran...
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