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Business News/ Opinion / Chabahar port could shape global strategy of India’s state-run ports
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Chabahar port could shape global strategy of India’s state-run ports

Given its often hostile ties with Pakistan, India views the port in Iran as an alternative route not only to Afghanistan, but also to resource-rich Central Asia

India’s presence at the Chabahar port—which lies outside the Persian Gulf and is easily accessed from India’s western coast—would give it a sea-land access route into Afghanistan through Iran’s eastern borders. Photo: ReutersPremium
India’s presence at the Chabahar port—which lies outside the Persian Gulf and is easily accessed from India’s western coast—would give it a sea-land access route into Afghanistan through Iran’s eastern borders. Photo: Reuters

Last week, the cabinet led by Prime Minister Narendra Modi approved the framework for India’s participation in developing Iran’s Chabahar port with an investment of $85.21 million, clearing the decks for two of the country’s biggest state-owned ports to venture overseas for the first time.

According to plans, Jawaharlal Nehru Port Trust and Kandla Port Trust will form a joint venture (JV) or an appropriate special purpose vehicle to lease two fully constructed berths in the first phase of the Chabahar port project for 10 years, which could be renewed by “mutual agreement".

The JV will invest the money for equipping the two berths within 12 months, one as a container terminal and the second as a multi-purpose cargo terminal.

The Indian side will transfer ownership of the equipment to be provided through the investment to Iran’s Ports and Maritime Organisation (P&MO) without any payment at the end of the 10th year.

The Indian and Iranian sides could enter into subsequent negotiations for participation in the construction, equipping and operating of terminals in phase-II development of Chabahar port on a build, operate and transfer (BOT) basis, subject to the Indian side’s satisfactory performance in phase I.

The Iranian side will make efforts to provide free trade zone conditions and facilities at the port.

India has decided to invest in developing Chabahar port, which is considered strategically and economically important for the country’s exports to landlocked Afghanistan.

India has been eying Chabahar port, located in the Sistan-Baluchistan Province on Iran’s south-eastern coast, for nearly a decade to get easier access to Afghanistan. India, Iran and Afghanistan have an agreement on preferential treatment and low tariffs for goods moved through Chabahar port, which also has a free trade and industrial zone in its vicinity.

Given India’s often hostile relations with Pakistan, India views the port as an alternative route not only to Afghanistan, but also to resource-rich Central Asia.

Chabahar is also closer to India than the existing Iranian port at Bandar Abbas, which is about 380 nautical miles away from Chabahar.

India’s presence at the Chabahar port—which lies outside the Persian Gulf and is easily accessed from India’s western coast—would give it a sea-land access route into Afghanistan through Iran’s eastern borders.

Using the existing Iranian road network from Chabahar port, one can link up to Afghanistan’s Zaranj, which is about 883km from the port, and then using the Zaranj-Delaram road constructed by India in 2009, access Afghanistan’s “garland" highway, thereby establishing road access to four of the major cities of Afghanistan—Herat, Kandahar, Kabul and Mazar-e-Sharif.

Globally, government-owned ports are seeking investment opportunities overseas to forge stronger commercial links between maritime regions that have the potential to generate cargo for their own ports. This strategy is based on the premise that more cargo would mean more ships calling at ports, creating more employment opportunities—both direct and indirect—for locals.

Secondly, it would mean having strategic control over logistics of key raw materials.

Kandla and JN ports have cash surpluses, a part of which can be deployed to develop port assets abroad and to grow their business.

India’s private business groups such as Adani Group and GVK Group have already bought port assets abroad, mainly in Australia, as part of a larger plan to invest in coal mines and related infrastructure in that country.

India’s shipping ministry has for long been toying with the idea of setting up a company for making overseas investments by state-owned ports on the lines of global heavyweights such as Singapore’s PSA International Pte Ltd, Dubai’s DP World Ltd and Belgium’s Antwerp Port Authority. PSA is fully owned by Temasek Holdings Pte Ltd, Singapore’s state-owned investment company, while DP World is majority-owned by the Dubai government. Both have a large presence in India.

Antwerp port is 100% owned by the City of Antwerp. Antwerp Port Authority, which manages the port, has set up Port of Antwerp International, a vehicle to pursue development activities beyond Europe, particularly in growth regions. Port of Antwerp International has invested in Essar Ports Ltd, the entity that runs ports at Hazira, Vadinar and Paradip in India.

Though the opportunity to develop Chabahar port has come through a government-to-government agreement between the two nations, it is a foundation that has the potential to propel India’s state-owned ports to look for a larger footprint globally.

P. Manoj looks at trends in the shipping industry.

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Published: 23 Oct 2014, 07:16 PM IST
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