Source: ET Infra
Iran’s Ports and Maritime Organisation (PMO) will procure key cargo handling equipment for India-funded Chabahar port on behalf of India Ports Global Ltd (IPGL) and the purchase cost will be refunded to the Iranian entity in United Arab Emirates Dirhams (AED), per a ten-year deal signed by the two countries on Monday to start full-fledged operations at the port that India has secured for strategic and geo-political reasons.
IPGL will increase the investment from the earlier agreed $85 million to $120 million for supply of equipment, the two nations have agreed.
This is a last-ditch effort by Indian and Iran to break a six-year jinx surrounding equipment purchase that has stalled the start of full-fledged operations at Chabahar Port.
ET Infra was the first to report on this development last year.
The ten-year deal was signed in the presence of an Indian delegation led by Sarbananda Sonowal, the caretaker Union Minister for Ports, Shipping and Waterways; Sushil Kumar Singh, Joint Secretary (Ports, PPP & PHRD), Ministry of Ports, Shipping and waterways; J P Singh, Joint Secretary, Ministry of External Affairs and Unmesh Wagh, Chairman, Jawaharlal Nehru Port Authority.
Multiple attempts by IPGL to buy the equipment since 2017 have failed as suppliers were wary of quoting on contracts due to the sanctions imposed by the West on the Persian Gulf nation over its nuclear programme.
A Joint Procurement Committee (JPC) led by the Director General of the Ports and Maritime Authority of Sistan and Baluchistan Province and including the Managing Director of IPGL will within two months, agree on the prices and providers of equipment.
“Within one month of agreeing on the prices and providers, IPGL will remit the full quantity of financing required for the procurement and installation (cost, insurance and freight value of the equipment and overhead charges) to the account(s) nominated by PMO in United Arab Emirates Dirhams (AED). The exact total quantity of financing for purchase, installation and overhead charges of the equipment will be determined by the JPC. On request of IPGL and in order to expedite the aforementioned obligations, PMO, fully authorized by IPGL, will procure the equipment as the representative of IPGL,” the two sides agreed in the contract.
According to the contract, rail mounted quay cranes will be procured within three years of receipt of payment by PMO, rubber tyred gantry cranes within two years and all remaining gear within 18 months.
The arrangement, though, will not relieve IPGL of its procurement obligations under the contract.
“As a result, if the contract(s) for the purchase of all or any of the equipment are not signed by the PMO within the deadline of 12 months after confirmation of receiving the advance payment by PMO, IPGL shall procure all or the remaining equipment whatsoever at its own liability, within maximum 3 years,” the contract stated.
According to a person briefed on the development, an entity based in Abu Dhabi, Dubai or Sharjah will buy the equipment and get them delivered at their respective destination ports from where they will be transferred to Chabahar port.
Following relentless pursuit by India, the United States of America even gave a “document”, exempting Chabahar Port from the sanctions. However, the document “lacked clarity” and banks “refused” to accept it, making it difficult for the equipment manufacturers to open a letter of credit – a document that guarantees payment to vendors – to finalise the deals.
“An entity in Dubai has now expressed willingness to source the equipment for Chabahar port using the exemption letter granted by the United States of America, which it feels is more than enough to carry out the task,” the person, a government official, said.
Indian officials involved in the Chabahar port project have held discussions with officials in Abu Dhabi Port, Dubai Port and Sharjah Port on the matter. These ports will finalise the equipment purchase contracts directly with the vendors and the cost will be refunded by India in UAE Dirhams, he said.
The Shahid-Beheshti port at Chabahar has been given the status of a free trade industrial zone by Iran’s PMO, thereby benefiting from all the advantages available in respect of a free trade zone, including tax concessions, discounts, etc.
The ten-year contract can be extended subject to a new business model and conditions approved by the PMO.
IPGL will be allowed to levy rates for handling multipurpose and container cargo at the port per tariffs approved by the PMO.
The revenue of IPGL is limited to its specified share from terminal services including onboard stevedoring and onshore services, cargo handling services, terminal handling services, storage/warehousing and miscellaneous services.
All other port dues and duties including port dues and charges on cargo and container (full and empty), port charges at the berth, port sanitation duties, demand levies, goods fire insurance, etc will accrue to the PMO and IPGL will not be entitled to receive any share from those revenues.
The revenue share pertaining to multipurpose cargo and container terminals will be distributed, for the first and second 5-year periods within the contract period between PMO and IPGL per an agreed formula.
Contractual disputes that are not resolved amicably will be referred to a three-member arbitration tribunal based in Muscat in accordance with the Singapore International Arbitration Centre (SIAC).
India Ports Global and Aria Banader Iranian Chabahar Port & Marine Services Company (ABI) of Iran signed a deal in May 2016 to equip and operate the container and multi-purpose terminals at Shahid Beheshti Chabahar port Phase-I with a capital investment of $85.21 million and annual revenue expenditure of $22.95 million on a 10-year lease.
The agreement entailed installing equipment for handling bulk cargo and containers at Chabahar port.
The delay in erecting RMQCs and procuring other gears has derailed the official start to the ten-year contract for operating the port.
India and Iran, though, have operationalised the port through an annual short-term interim contract given the challenges over financing the purchase of key cargo handling equipment.
Located in the Sistan-Baluchistan Province on Iran’s South-eastern coast (outside Persian Gulf), Chabahar port gives India a sea-land access route into Afghanistan and Central Asia through Iran’s eastern borders. The project is considered a strategic venture for the development of regional maritime transit traffic into Afghanistan and Central Asia.
Chabahar is also being built as a gateway to the East and West of the Caspian Sea as part of the International North-South Transport Corridor (INSTC).
The INSTC is a 7,200-km-long multi-modal network of sea, rail, and road routes for moving freight between India, Iran, Afghanistan, Azerbaijan, Russia, Central Asia, and Europe.
Of the $85.21 million that India had agreed to invest as part of the deal, IPGL has purchased and installed six mobile harbour cranes at Chabahar port, for which the LC’s were opened through state-owned UCO Bank, which has “very little exposure in the US” to help avoid possible sanctions.
Iran wanted Chabahar port to handle higher container volumes to take the load off Bandar Abbas Port, the largest in that country.
Chabahar Port currently handles some 30,000-40,000 twenty-foot equivalent units (TEU’s) a year and some 2 million tons (mt) of bulk cargo.
