Nov. 1, 2016
Throughout history, Iran has been crossed by vital trade routes connecting the major economic centers of Asia and Europe. The mere mention of the Silk Road or the Royal Road of Darius the Great evokes images of long camel trains making steady progress across the desert, layovers at well-stocked caravansaries, and mounted couriers speeding to the next way-station. But Persia's millennia-old role as a transit point for commercial and passenger traffic was not limited to established, overland itineraries between east and west. The territory now occupied by modern-day Iran also played host to important seaports on the Indian Ocean, such as Siraf and Abbas on the Persian Gulf.
Today, after over a decade of restrictive UN sanctions, Iran finally has the opportunity to re-establish its once legendary reputation for efficient international transportation. Its unrivaled position at the crossroads of the Indian subcontinent, the Middle East, Central Asia with its valuable hydrocarbons resources, and the key energy corridors of the Caucasus, Turkey, and the Persian Gulf lend the country a natural advantage over many of its neighbors in the region. The sheer size of Iran, combined with the positive effects of having a relatively young population and a robust manufacturing and industrial base, indicate that the lifting of sanctions will soon allow the nation to achieve its considerable latent economic potential. The opening up of its economy to the wider world will offer the opportunity to develop infrastructure, and a key area in need of support at present is its transportation sector. Attracting investors, however, is another story. Fortunately, the country's politicians and policymakers seem to be approaching the transformation in a pragmatic fashion, and recognize that a serendipitous geographic location alone is not enough to draw in foreign capital.
In anticipation of the end of negotiations over the sanctions, a major international investment conference was organized and held in Tehran in October 2015. The Iran Transportation and Urban Development Summit: Investment Opportunities (ITUDS 2015) brought some 150 foreign participants and hundreds of domestic representatives to the capital city to discuss the many tenders to be launched over the coming years. Deputy Minister of the Road and Urban Development Ministry for Planning and Economy of Transport Amir Amini, outlining the broader concepts behind national planning for the sector, stated that access and proximity to other markets would not be enough to entice overseas investors to want to get involved in the upgrade and construction of highways, railways, airports and shipping facilities. Profitability would be the first consideration for these investors, so information about the wider development plans for the country's transportation infrastructure would have to be provided to show the potential an individual project could have when integrated with the larger national network.
The conference foregrounded plans for cooperation among the various state organizations tasked with managing the development of transportation infrastructure. Strategies for establishing an open environment for investment and for clearly outlining the numerous opportunities available to different countries and firms were defined for a diverse audience which included official representation from Turkey, India, China, South Korea, Japan, Germany, and Spain. The ministry is overseeing the entire process, while the actual building of the country's new infrastructure will be managed by the Construction and Development of Transportation Infrastructures Company (CDTIC), which will rely on financing from private firms and the issuing of corporate bonds in addition to the state budget to achieve its mandate. Projects valued at a total of over USD25 billion were announced at the event.
Currently at a total length of over 180,000km, Iran's road network has been growing steadily in recent years to meet demand from passenger, trucking, and commercial traffic. The ministry has adopted the use of public-private partnerships (PPP), specifically the build-operate-transfer (BOT) model, to rehabilitate and improve key sections of its road network in addition to constructing completely new routes to connect previously separated parts of the country. Sections that have received special attention have been routes that link parts of Russia and the Ukraine, or key cities of Central Asia in Turkmenistan and Kazakhstan, with Iran's southern ports of Bandar Abbas and Chabahar as part of the Asian Highway (AH) network. The AH is a UN-led and Asian Development Bank-funded project to make use of preexisting road infrastructure across the continent to connect areas of economic and commercial value. As part of the new push to source foreign capital for infrastructural development, over 5,600km of highways, 745km of freeways, and close to 3,000km of main roads will be completed. Among the most expensive of these undertakings are the Isfahan Shiraz, the Salafchegan-Arak, the Hamedan – Kermanshah- Khosravi, and the Sirjan-Bandar Abbas expressways.
The country's rail network has been an increasingly important asset since the first tracks were laid in the late 19th century. During World War I and shortly after, an additional line connecting the Azerbaijan border and the Northwestern city of Tabriz as well as a short railway along the Pakistan border were completed. In the 1930s, a cross-country line was completed to connect the Caspian Sea with the Persian Gulf, marking the first major train connection between two sides of the country. This sparked a period of concentrated railway expansion during World War II which increased the country's total network by thousands of kilometers and linked major cities such as Tabriz and, Kashan, Mashad, Isfahan, and Tehran. International connections began in the late 1970s with the line linking Turkey, and by extension Europe, to the Iranian rail system. The mid-1990s saw a new line crossing from Mashad to Turkmenistan finally connecting Iran with Central Asia and countries of the CIS.
As of 2016, official plans aim to expand the network from its current length of over 13,500km to 20,000km by 2025, and to increase the share of railway use in the cargo transportation mix from 11 to 30% and in the passenger transportation mix from 12% to 18%. A total of 15 main projects are now in place to be developed over the coming years. Included among these are the North-South Transport Corridor which will link the Indian metropolis of Mumbai with Moscow, by sea to the Iranian port of Bandar Abbas north to the Caspian port of Bandar Anzali and then across the Azerbaijan border and on to Russia. Other crucial international lines link Turkmenistan, Kazakhstan, and Herat in Afghanistan from Sarakhs in the extreme northeast of the country. Connections with landlocked Central Asian nations will provide these nations with rapid access to sea transport via Iran's southern ports. The first train on the so-called “Silk Road" line also passed through this station in February 2016, signaling the beginning of a crucial new cargo route to the east, which will dramatically reduce shipping times. Additional future lines based on agreements with Iraqi authorities will run to Basra and near to Baghdad, further integrating the country with expanding Middle Eastern markets.
The aviation sector is another area of high demand, as Iran gradually expands and renews its fleet and refurbishes many of its 54 civil airports. With passenger traffic pushing 50 million annually, an additional 300 aircraft will be required over the coming five years, and 500 over the next decade. Domestic traffic has grown by an average 7% over the past decade, while overseas passenger numbers have jumped by an average of 9% across the country's eight international airports. Iran Air, the national carrier, transports 6 million people a year, and since it has been forbidden under international law for the company to purchase European or US-built aircraft over the past seven years, there are potentially ample opportunities available for meeting this new demand. However, in a TBY interview, Farhad Parvaresh, Chairman & Managing Director of Iran Air, noted that “the JCPOA has partially relieved the pressure on the Iranian civil aviation industry, but there are still some remaining issues, such as difficulties in resuming banking payments." Agreements have already been made with Airbus and Boeing, and are presently awaiting US Organization of Foreign Assets Control (OFAC) approval.
The development of civil aviation infrastructure, on the other hand, is being actively pursued. Of the billions of dollars in projects being offered to foreign investors, three are directly connected to the country's main airport, Imam Khomeini International Airport. As a key regional industrial and commercial hub, Tehran serves destinations across Asia, North Africa, and Europe. A total of USD2.5 billion has been set aside for the development of two new transit terminals in the country's main airport facility, increasing capacity to 34 million passengers a year from its current 6.5 million. Following a JV signed in early 2016, Aéroports de Paris and Bouygues Bâtiment International have taken on this project. In addition, transport links with the rail network and the country's highway system are expected to be developed as part of the facility's expansion. Over 20 more aviation projects are being tendered as part of the broader improvement of the country's transport infrastructure.
With a 90-million-ton annual capacity and a container terminal capacity which jumped from 2.5 million TEU in 2010 to 3.3 million TEU today, Shahid Rajaee in Bandar Abbas is Iran's preeminent port. The 2,200-hectare port is run by the Shahid Rajaee Port Authority, which in mid-2016 signed an agreement with the port of Antwerp for five years of support in developing the facility and training staff employed there. The capacities of other important shipping centers such as Chabahar, Amirabad, and Anzali are also being expanded, with the former to receive half a million dollars in investment from India, an important trade partner and consumer of Iranian crude. Indian investment in the surrounding area and the construction of energy and logistics facilities in the Special Economic Zone (SEZ) there will reach USD20 billion in total. A number of other port infrastructure projects have been tendered this year, including the construction of a new grain terminal at Imam Khomeini port near the border with Iraq and the expansion of export terminal logistics facilities at the free zone at Shahid Rajaee. The construction of grain silos and oil storage tanks at Amirabad and Anzali round out the other major BOT contracts on offer at present.
As Iran works to secure foreign capital over the coming year, policymakers can rest assured that many governments and private firms across Asia and beyond are already keen to explore the opportunities offered by the end of sanctions. Establishing watertight legislation and regulatory safeguards for investors will emerge as a crucial tool for maintaining partnerships, ensuring long-term profitability for interested parties and guaranteeing security. The nation's geographic and strategic pedigree is not in dispute, leaving Iran only with legal and logistical obstacles to overcome before it once again becomes renowned for its role in connecting the world.