Rapid transit: why Europe is lining up to fast-track Iran’s rail revolution

The lifting of UN sanctions on Iran in January led to a raft of railway deals with France’s Alstom and SNCF, Italy’s Ferrovie dello Stato (FS) and German multinational Siemens AG. What are the potential risks and rewards of foreign investment in rail infrastructure in the Islamic republic?


Iran Rail

Home to the world's most ancient highway, the 2,400km Persian Royal Road built by King Darius the Great in the 5th century BC, and later a vital artery linking the vast network of ancient trade routes known as the Silk Road, Iran has for 2,500 years pushed the boundaries of human transportation.

The famous Trans-Iranian Railway extends 1,392km from the northern city of Bandar-E-Torkaman on the Caspian Sea to Bandar-E-Emam Khomeyni on the Persian Gulf. Opened in 1939, the line took eleven years to finish and was used by Anglo-Soviet occupiers to ship arms during the Second World War.
Now, Iran's rail industry is ready for the next stage in its evolution. The cessation of United Nations (UN) trade sanctions in January was followed by successive foreign investment deals as President Hassan Rouhani fast-tracks plans to extend the Islamic republic's rail network to 25,000km by 2025.

"Iran lies on the crossroads of the East and the West and the Silk Road. This is not a random event. It is history which says Iran is the point of equilibrium in the region," said Transport Minister Abbas Akhoundi. "We seek to revive the Silk Road in a modern form in all the rail, air, road and sea sectors.

"The main objective in the rail transportation sector is to complete the entire network and shift some of the road transportation to rail, given the development of industries and mines in Iran."

Euro vision: SNCF, Alstom, FS Italiane and Siemens AG invest in Iran

Such ambition comes with a comparable price tag, however. Iran's sixth five-year plan, which is yet to be ratified in parliament, calls for $28bn to be spent modernising the nation's ageing rail network.

With the global oil price depressed, resource-rich Iran requires both direct investment and intellectual capital from the West if its dream of a 21st-century transport system is to become reality.

In 2015, AREP, a subsidiary of French national railway company SNCF, signed a $7m deal to rebuild three stations - the 80-year-old hub in the Iranian capital Tehran and two more in the holy cities of Mashhad and Qom - in order to accommodate subways, and both commuter and high-speed trains.

"With the global oil price depressed, resource-rich Iran requires both direct investment and intellectual capital from the West."

The French connection led to a second agreement in Paris in January 2016 between SNCF and Iranian Islamic Republic Railways (RAI) covering the redevelopment of key stations, suburban rail projects in major cities, Iran's high-speed programme, and the organisational restructuring of RAI.

A memorandum of understanding (MoU) inked the same month by French multinational Alstom and the Industrial Development and Renovation Organization of Iran (IDRO) aims to kick-start the country's post-sanctions economy by developing mainline and urban transport. A joint-venture (JV) is being considered to execute multiple projects including the production and maintenance of rolling stock.

German engineering giant Siemens AG was next, announcing a €1.5-2bn deal to build 500 carriages and improve electrification on two lines serving Tehran, plus service and maintenance contracts.

The flurry of deal-making continued into February, with Italy's Ferrovie dello Stato (FS) announcing a framework agreement with RAI to plan and construct a high-speed rail corridor linking the cities of Tehran, Qom and Isfahan, electrify the link between Tehran and Tabriz, develop a test centre, and train personnel. As part of the agreement, FS will provide RAI with $5.65bn (€5bn) in export credits.

Untapped potential: Iranian expertise key to rail industry growth

With UN sanctions lifted and the Iranian Government keen to encourage foreign direct investment, the potential rewards for foreign investors are huge. At present, only about 11% of the people who travel in Iran do so by train. The country plans to extend its nationwide railroad line to 25,000km by 2025 from under 15,000km now - less than in the UK - with 7,500km already under construction.

Upgrades including a new generation of high-speed locomotives on electrified lines will reduce the 420km journey from Tehran to Isfahan to just 90 minutes, and the 920km trip to Mashhad to less than six hours.

According to a report in The Economist, Akhoundi plans to open a rail track to access Afghanistan's mines, which will ship minerals to India via the south-eastern port of Chabahar, bypassing Pakistan.

Iran's expansion plans extend to a bridge over the Shatt al-Arab river into Iraq and the Fertile Crescent, while fresh track will open the way through Azerbaijan to Russia and the Central Asian republics.

To finance the Mashhad line, China has reportedly offered a $2bn soft loan underwritten by Iranian oil proceeds frozen during the time of sanctions; South Korea is said to be exploring a similar deal.

With the requisite investment, Iranian companies have proved themselves to be more than capable of developing first-class rail infrastructure. In 1995, the route between Bandar Abbas and Bafgh in the sparsely populated south-east of the country was completed, and in 2009 the connection from Isfahan and Shiraz in the south-west meant the country finally had the skeleton of a national service.

Iran has a sizable capacity for construction of railroad cars, totalling five passenger train coaches and 3,000 freight wagons, as well as 50-60 locomotives per year. Tehran has more than 150km of metro rail ferrying two million commuters daily, and the network is expected to reach 400km on completion.

Position of strength: the geopolitical impact of Iran's rail boom

Rail companies in Europe and neighbouring Asian states are clamouring to stake a claim in what they see as a looming infrastructure and construction boom in Iran, driven by President Rouhani's desire to leverage its unique geographical position as a strategic hinge between Europe, Asia and Africa.

"Rail companies in Europe and neighbouring Asian states are clamouring to stake a claim in what they see as a looming infrastructure and construction boom in Iran."

In November 2015, Russian Railways and RAI signed a €1.2bn deal to electrify the key Garmsar-Sari-Gorgan-Inche Burun route, linking north-central Iran to the north-eastern border with Turkmenistan.

Global Construction Review (GCR) notes that Iran's rail modernisation programme and the end of the UN sanctions have the potential to make the nation a global hub, thanks to its position at the crossroads of the International North-South Transport Corridor (INSTC) and the China to Europe Silk Road.

The INSTC will allow containerised goods to travel from the Port of Mumbai in India to Iran's Gulf coast - bypassing Pakistan - from where they will be able to reach Moscow and Europe in half the time taken by the Suez Canal; the route has been estimated to save $2,500 for every 15t of cargo.

As for China's Silk Road, the GCR report entitled 'Iran's Railway Revolution' contends that high-speed standard gauge line running through central Asia would effectively slice through a knot of broad gauge lines in the states of the former Soviet Union, accelerating the flow of goods to Europe.

In this context, Iran's rail modernisation programme and its collaborative projects with European and Asian rail companies may have geopolitical repercussions beyond the nation's borders, ensuring that the Islamic republic retains its centuries-old position at the forefront of global transportation.