Editorial Today – Chabahar Port

Location In south-eastern Iran, it is located on Makran coast in the Gulf of Oman.

Background In 2003, the Iran and India had agreed to develop the Chabahar port.

Importance of Chabahar port Economic, Political, Diplomatic and Strategic.

Despite the strategic import of Chabahar for India, there has been very little progress on it for several reasons Iran’s unenthusiastic support for the project.

Development till now India signed trilateral pact for the strategically located Chabahar Port along with Iran and Afghanistan.

What could be done India might be better off building an international consortium to invest in the project.

Location

• In south-eastern Iran, it is located on Makran coast in the Gulf of Oman. It is the only Iranian port having direct access to ocean. Though it is a free trade and industrial zone but is underdeveloped especially when compared to the sprawling port of Bandar Abbas further west.

Background

• In 2003, the Iran and India had agreed to develop the port but the venture made slow progress due to Western curbs on Iran over its controversial nuclear programme.
• But after the sanction has been lifted both side trying to fast-track the plan.

Importance of Chabahar port

Economic

• Chabahar port is the part of North-South Transport Corridor, will make India to export the goods to central asia and Europe.
• The International North–South Transport Corridor is the ship, rail, and road route for moving freight between India, Russia, Iran, Europe and Central Asia. The route primarily involves moving freight from India, Iran, Azerbaijan and Russia via ship, rail and road.

• It would provide an alternative access to trade with Afghanistan bypassing Pakistan.

• The free-trade zone around the port can be an important trade centre with West Asia.
• Reduced Current Account Deficit: Reduced transportation costs will allow India to import crude oil, urea and dry fruits at lower prices.

Political

• It will reduce dependence of land-locked Afghanistan on Pakistan for sea-access lowering Pakistan’s strategic hold on Afghanistan (as Pakistan denies access to India for trade in Afghanistan via the Wagah Border).
• Both Iran and India has stake in the stability of Afghanistan. Chabahar provides India an easier land-sea route to Afghanistan, where it has fostered close security cooperation and economic interests over the years. India has already spent $100 million on building a 220-kilometre road in the Nimroz province of Afghanistan. The road will be extended to Chabahar. India has pledged $100m for laying railway lines connecting Afghanistan with Central Asia. Increasing trade would help in the stability of Afghanistan.
• China is encircling India through its policy of string of pearls. Pursuant to this policy China is developing Gwadar Port of Pakistan. Developing Chabahar port will help to encounter Chinese presence in this region.
• It will provide India access to the Middle East and Gulf countries increasing trade and ties.
• Provides India a foothold in the western Arabian Sea, which is important as many of our energy imports pass.

Diplomatic

• It will provide a link to promote cultural linkages between India and Iran.
• It can act as a centre to coordinate humanitarian operations such as mass evacuation of refugees in times of need.
• It will provide the diplomatic edge to India’s ambition of developing a blue-water navy.

Strategic

• First, it is the nearest port to India on the Iranian coast, which provides access to the resources and markets of Afghanistan and Central Asia.
•  Second, it is located 76 nautical miles (less than 150km) west of the Pakistani port of Gwadar, being developed by China; this makes it ideal for keeping track of Chinese or Pakistani military activity based out of Gwadar.

Despite the strategic import of Chabahar for India, there has been very little progress on it for several reasons

•  Iran’s unenthusiastic support for the project. Although the idea was first mooted in 2003, it was only in 2012 on the sidelines of the 16th Non-Aligned Movement Summit in Tehran that Iran (then reeling under sanctions for its nuclear activities) conceded to set up a joint working group to operationalize the port project as part of the trilateral cooperation agreement between Afghanistan, India and Iran on investment cooperation, trade and transit.
• A key factor behind Iran’s reluctance to allow an Indian presence at Chabahar was the opposition by the Army of the Guardians of the Islamic Revolution (the so-called Revolutionary Guards), which reportedly uses the port to ship arms to Yemen and militant groups in the region.
• Its strategic significance notwithstanding, the economic viability of the project is suspect. India, which has had trouble raising funds for the project, has so far been able to invest only $85 million to build a couple of berths. While India recently indicated that it was willing to invest up to $20 billion—one of its largest overseas ventures—to develop the port, petrochemical and fertilizer plants in the Chabahar SEZ, it remains to be seen if it can raise the funds.
• Given the presence of Gwadar next door, where China has already invested over $1 billion and committed another $46 billion for the 3,000-km long economic corridor to link Gwadar to Kashgar in Xinjiang province and its One Belt, One Road project, it is unclear whether the Chabahar route will generate enough trade and traffic to justify the investment.
• In fact, Tehran, which has been playing hardball with India and demanding greater Indian investment in Chabahar, itself plans to invest $4 billion to build a refinery in Gwadar to process 400,000 barrels of oil per day.

Development till now

• The Union Cabinet has given its approval to the proposal of the Ministry of Shipping for provision and operationalization of credit of 150 million USD from EXIM Bank for development of Chabahar Port in Iran in February 2016.
• An MoU was signed between India and Iran. As per the MoU, India is to equip and operate two berths in Chabahar Port Phase-I with capital investment of USD 85.21 million and annual revenue expenditure of USD 22.95 million on a ten year lease. Ownership of equipment will be transferred to Iranian side on completion of 10 year period or for an extended period, based on mutual agreement.
• As per the MoU, operation of two berths will commence within a period of maximum 18 months after the signing of the Contract.
• The two berths will be operated by the India Ports Global Private Limited, a Company promoted by the Jawaharlal Nehru Port Trust and Kandla Port Trust – two major ports working under the Ministry of Shipping.
• The Union Cabinet has now authorized the Ministers of Finance, External Affairs and Shipping to approve the final contract with Iran and for resolution of any issue arising in implementation of the project.
• The Union Cabinet has also authorized the Ministry of Shipping to form a Company in Iran for implementing the Chabahar Port Development Project and related activities.
• Indian Prime Minister visited Iran in May 2016 and signed trilateral pact for the strategically located Chabahar Port along with Iran and Afghanistan.

What could be done

• Resolving the Chabahar conundrum is vital to securing India’s interests in Iran and beyond.
• According to some experts given the challenges in manifesting this project, India is unlikely to succeed on its own. India might be better off building an international consortium with the likes of Japan, Australia and South Korea to invest in the project.
• Japan also needs Central Asian markets and would like to export there and would like to have first mover advantage once the port develops. Also Australia also has a stake in the route as they see a lot of their exports passing through Chabahar.