China has committed $500-600bn in investments into Iran over a 10 year period, with an estimated 10 per cent of this value expected to be realised within the first year, a source familiar with the ongoing discussions between the two governments tells MEED.

Rail projects, such as the electrification of the 900 kilometres of rail line between the capital Tehran and the north-eastern city of Mashhad, will be a key focus of future investments.

“It is in China’s interest to revive and modernise Iran’s rail sector because of the benefits it stands to gain,” the source said. ”Ultimately China wants to connect to Europe through the proposed new Silk Road. A rail line that links Afghanistan to Mashhad on through to Tehran’s main airport and then exit Iran on to Eastern Europe would be crucial to this long-term plan.”

The contract for the electrification of the Tehran-Mashhad rail line was finalised during Chinese President Xi Jinping’s recent official visit to Iran, according to local news agency Tasnim.

The project will be implemented in two phases. The first phase includes electrifying the rail route between Mashhad and Sabzevar, both in the Razavi Khorasan province. The second phase will extend the rail electrification to Tehran.

Electrifying the trains, or fitting them with electric traction power, is expected to save energy, allow for faster trains, and increase the number of rail passengers using the route to 32 million passengers a year, the Iranian Railway Company said.

The implementation of the electrification project is likely to be awarded to Mapna Group, one of the largest conglomerates in Iran with interests in sectors ranging from power to railway. Mapna is key partner of Germany’s Siemens and is likely to be commissioned for the Mashhad-Tehran electrification project. This would mean that Siemen’s rail technology will be adopted for the electrification project.

Iran is also negotiating for the provision of low-interest funding for the development of a high-speed rail system to link Tehran and Isfahan with both the Chinese and European governments, local news agency Tasnim said. As with the electrification project, Siemens is expected to be commissioned for the high-speed rail system.

Road and Urban Development Minister Abbas Alkhoundi has indicated that Iran is trying to obtain the modern rail systems using a hire-purchase method, where the equipment is manufactured in the country.

Iran has a mainline rail network covering more than 10,000 kilometres, merely 181km of which is electrified. The state also earlier signed a $1.2bn financing deal with the Russian government to upgrade an ageing rail line that links north-central Iran with its north-eastern border with Turkmenistan.