With China making repeated attempts to wean away India from Chabahar Port upgrade, New Delhi is rushing through a $150-million credit line for Iran and is fast-tracking bilateral negotiations to seal further business alliance between both nations.
The approval for the line of credit (LoC) was taken up on December 4 at the insistence of the Prime Minister’s Office. A week later, the Ministry of Shipping rushed a Cabinet proposal recommending that the Export Development Fund (EDF) be enabled to raise and provide the 150-million buyers’ credit facility denominated in Indian rupees to Iran. “The proposal has been approved by all concerned departments and would be cleared by the Cabinet this week,” said sources. That is because the LoC is the highlight of a hurriedly-convened Joint Commission Meeting (JCM) between the two countries on December 28. The payment of outstanding dues owed to Iran for crude oil purchases has been kept at the top of the JCM agenda.
The $150-million credit, over and above the $85.21 million to be provided by MEA for equipping two berths at Chabahar, was sought by Iran to fund its 630-km rail project from Chabahar port to Zahedan.
The Cabinet proposal is to provide Government of India guarantee covering the principal and interest on bonds to be floated by EDF. The sovereign guarantee would lend the country rating to EDF bonds and ensure that its borrowing premium is within 60 basis points over government securities rate.
The EDF route is being taken to avoid India’s EXIM Bank from extending the loan and getting questioned by global funding agencies in the wake of US and EU sanctions since 2012 that shut Iran out of the global financing system, including access to banking and insurance. Alternatively, any lending by the EXIM Bank to the EDF for onward loan to Iran would have resulted in intensive due diligence and legal firewalling by the lenders as well as binding written assurance from EDF that no part of the fund could be used for any project in Iran.
Sources said the LoC had gained urgency because a number of project contracts covering steel rails, railway rolling stock and steel pellets exports by Indian companies were in place but awaiting financing support to achieve realisation. Steel exports have also been listed on the JCM agenda following approval by a committee of secretaries, also on December 4, for “provision of credit for exports to Iran” for the rail project.
India’s rush to engage with Tehran comes on the heels of a mid-November visit by a Chinese economic delegation, shepherded by its ambassador in Iran, to Chabahar port to study grounds for expansion of business cooperation. New Delhi is already delayed in concluding the commercial contract for the port — considered both a strategic and an economic asset — by November 5 as India and Iran signed an inter-governmental MoU in May setting a deadline for signing the detailed contract within six months. The port development project is also listed for JCM, said sources.
The port is central to India’s efforts to circumvent arch-rival Pakistan and open up a route to landlocked Afghanistan where it has developed close security ties and economic interests. It has become essential to India since China assumed control over Pakistan’s Gwadar Port in February 2013.
Along with Chabahar port, India wants to develop a port-based urea fertiliser plant for which natural gas would be locally sourced.