By Alireza Ramezani, for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iran Business News.
Iran’s development of its rail sector has been slow for more than three decades. Since the 1979 Islamic Revolution, only 3,418 miles of railway have been built to extend the existing 2,796 miles of track.
A report released in January by the parliament’s Research Center said that the annual budget proposed by President Hassan Rouhani’s government would increase allocations for the development of the rail sector by 12.8%, to about 21.26 trillion rials ($702.2 million at the official exchange rate) for the fiscal year ending March 20, 2017. The expansion of the rail budget, however, still appears to be far from sufficient. Addressing aging rail cars and other infrastructure deficiencies will requires billions of dollars in investment.
The Construction and Development of Transportation Infrastructure Company, under the Ministry of Roads and Urban Development, already lags behind regional and industrialized countries in terms of the length of the rail network and in cargo and passenger services. The company is still struggling to finish the 46 projects that were supposed to become operational by March 19 of this year.
Thus, according to the Research Center report, the proposed budget for fiscal year 2016-17 is set to allocate 8.78 trillion rials ($290 million) for all the unfinished projects, and the remaining rail funds — about 12.48 trillion rials ($412.2 million) — will go toward a new electrified line project to connect Esfahan to Ahwaz.
Upon completion of the pending projects, Iran will have expanded its rail network to 7,456 miles. Meanwhile, it is also planning to double the network over the next decade and replace rolling stock that trundles along at 55 miles per hour with high-speed trains on electrified lines, an undertaking that Minister of Roads and Urban Development Abbas Akhoundi has said will require $28 billion to complete over five years.
A more developed rail network would provide a range of benefits to Iran, where the road accident rate is about 20 times the global average, according to UNICEF. A modern and well-developed rail transport system would also help cut fuel consumption and reduce air pollution, two major challenges the Iranian government has been confronting in urban areas for years.
According to Majid Babai, a rail industry expert writing for Donya-e Eqtesad, the leading economic newspaper, Iran transports nearly 35 million tons of freight and about 27 million passengers per year by rail. That is, Akhoundi has said, about 8% of cargo and 6% of passengers. Babai has criticized rail’s small transport share, noting that the government has failed in the past decade to establish a dedicated regulatory body for the rail sector despite calls by top authorities to accelerate the privatization of industries.
For now, the government hopes to more than double the rail network’s capacity for passenger transport by March 2021. At present, the average age of rail cars in Iran hovers around 29 years. This figure needs to be reduced to 15 years to meet global standards, said Massoud Ahmadi, technical deputy head of Iran Railways, in an interview last September with the Azad News Agency. Worryingly, wagons as old as 55 years are still being used in the network.
Mohsen Pour Seyed Aqaei, the managing director of Iran Railways, said in September that some 64 million passengers would be able to use trains for transportation if the private sector added 1,500 passenger wagons to the national fleet by the end of the sixth five-year development plan, in 2021. He also said he expects private investors to import 618 cargo locomotives and 28,500 cargo wagons. The government’s contribution to the sector will include 230 maneuver locomotives, 186 passenger locomotives, 944 express trains, 650 suburban trains, 15 heavy relief units and 20 light relief units, according to Pour Seyed Aqaei.
While the Rouhani administration is urging investors to take part in upgrading the rail fleet, it seems that in the coming years, it first and foremost wants to focus on establishing an “integrated” domestic rail network. In this regard, a key strategic goal is to make Iran a regional transportation hub, a well-connected businessman familiar with the administration’s economic policies told Al-Monitor on condition of anonymity.
The source said that both Rouhani and the supreme leader, Ayatollah Ali Khamenei, share this objective, and he also asserted that foreign investment is seen as key to fulfilling this objective. The businessman added that top officials have been planning to turn Iran into a hub that could link European countries to central and other parts of Asia.
The roads and urban development minister had mentioned this vision in January, highlighting the need for Iran to be connected with regional markets by sea, air and land, including by rail. “We have to revise our transportation programs in a way that would enable us to be connected to rail networks in Asian countries,” Akhoundi said, noting that an integrated rail network is a strategic part of infrastructure in cities and across the country.
Akhoundi also called for the “real” privatization of the rail sector, encouraging “socialist” officials to dare to embrace the social consequences of economic reform, referring to a possible rise in transportation costs. He admitted, however, that few investors have the massive amount of capital the industry requires. For instance, Akhoundi said, the renovation of the rail fleet alone will require 100 trillion rial ($3.3 billion) in investment.
In Akhoundi’s view, it is of great importance to connect the national rail network to the northern and southern port cities, Iran’s main gateways. To achieve this objective, however, the administration must identify and announce investment possibilities and ease cumbersome regulations.
More important, the power centers that can ensure a safe business environment should prepare to pay a reasonable price for the inflow of needed capital, namely, helping reduce anti-foreign investment sentiment, because the transportation system is the heart of the national economy and can move Iran toward a robust economic recovery.
[Editors Note: a presentation on investment opportunities in the Iranian rail sector can be downloaded here.]