Iran's government makes progress with rail projects

Published in MEED, 29 August 2017

Iran’s plan to invest $25bn in its rail network is starting to bear fruit, with multibillion-dollar deals signed this year

Ever since Mohsen Poursaeed-Aqaei, the then managing director of Islamic Republic of Iran Railways (RAI), told local media in October 2015 of the government’s plans for $25bn-worth of rail projects, international companies have been queueing up for a piece of the action.

The ambitions include an expansion of the 10,000-kilometre network to about 25,000km by 2025, with passenger numbers rising from 25 million a year in 2005 to 65 million by 2025. “We have prepared incentive packages to attract domestic and foreign investment,” said Poursaeed-Aqaei at the time, and although it has taken a while to move projects off the drawing board, developments are now starting to happen at an impressive pace.

A rash of major deals have been signed with foreign firms this year to manufacture railcars, construct high-speed lines and electrify existing routes. Indeed, almost every time a large foreign trade delegation comes to Tehran, or when an Iranian economic ministerial group goes abroad, rail partnerships seem to be on the agenda. Europeans have been the biggest winners to date, but there have been significant deals with Asian partners too.

Activity kicked off in January, when Germany’s Siemens signed a deal with RAI to provide 3,000 wagons. This is part of a plan to modernise the network’s rolling stock by retiring any wagon more than 55 years old. It follows a deal signed by the German firm in October 2016 to build 50 diesel-electric locomotives in Iran with the local Mapna Group.

Two months later, Iranian Rail Industries Development Company (IRICO) and China’s CRRC Nanjing Puzhen Company signed a memorandum of understanding (MoU) to build 215 subway cars for use in Isfahan, Shiraz and Tabriz. As with many of the newer deals, this built on an earlier arrangement, in this case a December 2008 deal for Chinese-built carriages to be delivered to Iran.

Also in March, Russian wagon manufacturer Transmashholding finalised a E2.5bn ($2.9bn) deal to build passenger and cargo carriages in Iran. It was signed with Iran’s Industrial Development & Renovation Organization (IDRO) and will involve a joint venture, with Transmashholding holding 80 per cent and IDRO the rest. Tehran will import 1,100 freight wagons from Russia and a further 5,000 units will be built in Iran. “This partnership is likely to last for the next 30 years or be extended even further,” said Iran’s industry minister Mohammad Nematzadeh.

In July, activity shifted back to western Europe, when major deals with Italy and France were inked. The first of these came on 12 July, when Saeed Mohammadzadeh, the current managing director of RAI, and Renato Mazzoncini, CEO of Italy’s state-owned Ferrovie dello Stato (FS), signed a E1.2bn deal to build a high-speed line between Arak and Qom. The deal is set to come into effect within 180 days, allowing time to finalise guarantees and financing issues, the latter being provided via Italian export credit agency SACE.

It followed a framework cooperation deal worth E5bn signed by RAI and FS in April 2016, which covered the development of two high-speed lines between Qom and Arak and from Tehran to Hamadan. Italy’s Italferr and Italcertifer also agreed in July to set up training programmes in conjunction with the Iran University of Science & Technology.

The big French deal was with Alstom and covers the manufacturing of up to 1,000 train cars annually in a joint venture with IDRO and IRICO, with the French company holding a 60 per cent stake and the Iranian partners 20 per cent each. Some of the carriages are earmarked for export. “Alongside this, several agreements will be signed with other companies to supply the parts and components including the engine, rail, brake and electrical systems,” said Nematzadeh.

Later the same month, Export-Import Bank of China signed a $1.5bn deal on 25 July to finance the electrification of a 926km high-speed line between Tehran and Mashhad, following “16 months of intensive talks”, according to Ali Ashraf Afkhami, CEO of the local Bank of Industry & Mine, which is providing some government guarantees for the Chinese investment. China National Machinery Import & Export Corporation will electrify the line in partnership with RAI, with the total project cost estimated at $2.8bn.

Separately, China Railway Group is carrying out a $1.8bn project to electrify a line linking Tehran, Qom and Isfahan. And Russia’s RZD International is working on a $1.28bn contract to electrify a 495km line from Garmsar to Inche Bouroun in the Golestan province.

Among all these major deals have come a host of other agreements and MoUs. In mid-May, for example, RAI signed an MoU with Spain’s state-owned Administrador de Infraestructuras Ferroviarias covering the modernisation of signalling and communications systems. The deal was finalised on the sidelines of the fifth International Railway Transportation Exhibition in Tehran. That event, in which more than 130 foreign companies participated, also saw an MoU signed between the local Bonyad Eastern Railway Company and Germany’s Deutsche Bahn, with the latter providing technical, financial and infrastructure advice.

It is not just about domestic rail lines, however. Cross-border links are also an area of activity. In June, an agreement to improve rail links was signed in Georgia’s capital Tbilisi between RAI’s Mohammadzadeh and his Georgian and Azerbaijani counterparts. That is part of a longer-term vision to develop rail services between India and Europe, passing through Iran. Investments have also been made on rail links to Afghanistan and the Central Asian republics. A line to Herat, in the west of Afghanistan, is due to open later this year.

While all these deals are being completed, some 7,500km of new lines are already under construction, according to IRICO, and the fruits of some recent investments are already visible. On 8 May, President Hassan Rouhani inaugurated a new 267km line between Tehran and Hamadan and, as of late June, a 205km line from Qazvin to Rasht was nearing completion.

Iran’s rail system could certainly do with all these investments, if some recent news stories are any indicator of a wider malaise. There were three derailments in the Khuzestan province alone in July, for example, the last of which injured seven people on a train en route to Mashhad from Ahvaz. As long as the government is willing to negotiate more deals, international partners are likely to continue turning up in Tehran looking to improve the situation.