Two years ago, Prime Minister Narendra Modi stood with Iran President Hassan Rouhani and Afghanistan President Ashraf Ghani to announce the creation of a trade corridor that would “alter the course of history”.
From the Indian-built port at Chabahar, the Prime Minister said the corridor would “touch South Asia at one end and Europe at another”, and “spur the unhindered flow of commerce throughout the region”.
Now, though, as the port’s building blocks are being assembled, there are growing doubts about the project’s long-term foundations — and signs that Iran has started looking to India’s key regional rival, China, for investment in the port.
Earlier this month, India Ports Global — a joint venture between Jawaharlal Port Trust and Deendayal Port Trust — announced it had signed contracts for the supply of giant gantry and quay cranes, which allow containers to be hauled on to and off ships.
Long delayed by the refusal of Swiss and Finnish firms to bid for contracts, citing worries over US sanctions against Iran, contracts have been won finally by Finland’s Cargotec OYJ and Shanghai Zhenhua Heavy Industries.
But, despite three deadline extensions, India Ports Global has yet to find a private-sector partner to sign on to operate the port, which diplomatic sources have told Business Standard was because of bidder apprehensions about the demand for an upfront fee of about $8.5 million.
Note: Map not to scale; Source: IDSA, GIS LABLast month, Iranian Foreign Minister Javed Zarif said his country would welcome investment by China and Pakistan in Chabahar — a direct competitor to the high-profile, Beijing-funded port at Gawadar, just 72 km away.
Behind the emerging problems with Chabahar lie growing apprehensions that the ambitious project may not be able to deliver on its promise.
Conceived in 2003, the project now involves a web of projects linking Afghanistan, Iran and India: An $85-million investment in terminals at Shahid Beheshti port, a $1.6-billion railway line from Chabahar to Iran’s Zahedan, up to $8 billion in private sector investments in gas, fertilisers and pharmaceuticals, all linking up to the $11-billion Hajigak iron mines awarded to an Indian consortium.
In time, Modi’s speech made clear, this corridor will act as a hub for the revival of pre-colonial land routes from South to Central Asia, and Europe: An Indian version of the New Silk Roads China is building.
“The original idea,” recalls New Delhi’s former envoy to Kabul, Rakesh Sood, “was to simply bypass the choke-hold Pakistan had on our routes to Afghanistan. It was stopping us from sending everything from wheat to buses to our partner.”
But, in the early years after 9/11, optimism grew on tapping Afghanistan’s mineral resources, leading India to conceive of Chabahar as a potential strategic investment, giving it access not just to Afghanistan’s economy but Central Asia.
“The idea also suited Iran,” Sood says, “because they have long wanted a port less vulnerable to United States blockade than Bandar Abbas”.
Modi’s government saw Chabahar as a means of offering India a strategic toehold in Iran, which has been flooded with billions of dollars of Chinese investments in highways, railways, ports and power plants. In 2017, state-owned investment arm CITIC Group established a $10-billion credit line for Iran, and China Development Bank is reportedly considering $15 billion more.
KEY to the future of Chabahar is just how much traffic the port will draw. Last year, Modi said routing cargo from India to Europe overland could “bring down the cost and time of the cargo trade to Europe by about 50 per cent”.
The claim, shipping industry sources say, hasn’t been borne out by the experience of train services, now connecting 35 cities in Europe to 34 in China, which began running in 2016.
Even though trains can take as little as 15 days to travel from Europe to China, half the time taken by sea, the economics aren’t seductive for the vast bulk of cargo.
Prices quoted for shipping a standard 20-foot container from Shanghai to Rotterdam range from $308 to $407. The rail price for the same journey is around $1,000, though Chinese provincial governments are providing generous subsidies — amounting to as much as $500 to $2,500 for each 20-foot container or its equivalent — for western-bound cargoes.
“Even with rail’s subsidies, maritime shipping is roughly one-third the cost,” scholars Dan He and Wenchao Li noted in a study published in 2016. However, they found, “companies are willing to pay only a $200 premium for an improvement in 10 days”.
There are also physical constraints to how much freight trains can efficiently carry: A single-block freight train hauls only 0.45 per cent of the volume of freight as a modern Panamax Triple-E ship.
In a study published earlier this year by Washington, DC-based CSIS, expert Jonathan Hillman concluded that the rise of Europe-China rail networks “do not add up to wide-ranging economic or political impacts. Maritime trade will remain dominant”.
“The Chinese have all sorts of reasons to invest in overland transport,” notes Manoj Joshi, of the New Delhi-based Observer Research Foundation.
“They wish to build up these routes as an alternative to the seas, where they are vulnerable to being choked by the United States”.
“India doesn’t have the same kinds of concern,” says Joshi. “There’s a certain reactive nature to India’s plans, almost as if we’re doing this just because the Chinese are”.
That reflexive, he says wryly, is increasingly common: “There was a conference of South Pacific states the government held recently. What on earth are our strategic interests in the South Pacific?”
Increasing India’s trade with Central Asia — Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan — is a clear strategic interest. Mumbai is only 2,200 km from Bishkek, the capital of gas-rich Kyrgyzstan, to Shanghai’s 4,300 km. But China has been able to flood Central Asia’s markets, thanks to its rail and road access to the region.
Thus, the scholar Sarah Watson noted in 2015, “China exported nearly $18 billion to the region, while India exported only $950 million”.
Yet, it’s far from clear if the ambitious overland corridor due to be constructed out of Chabahar is the most efficient way forward. The Iranian port of Bandar Abbas, less than 300 km from Chabahar, is linked by rail to Turkmenistan, and from there to the rest of Central Asia and Europe.
Even when the Chabahar-Zahedan rail link is built, Indian goods bound for Central Asia will travel westwards and join the existing main line at Mashhad.
In 2014, a study by the Federation of Freight Forwarders’ Associations of India tested the land routes to Europe and Central Asia by sending cargo to Baku, in Azerbaijan, and Astrakhan, in Russia, through Iran’s Bandar Abbas port.
The study also threw up data that raised questions about the idea of Chabahar as a land bridge to Europe. It found that it cost $3,132, and 33 days, to shepherd a 20-foot container from Mumbai to Baku in Azerbaijan.
Even if costs fall as these routes expand, they do not appear to offer significant time saving over the 30-odd days it takes for cargo to be sent by sea from India’s western ports to Europe.