Tehran had hoped to build modern rail links from the capital south to Esfahan via Qom, and to Mashhad in the east. The estimated cost for the two lines, which would be 1,600 kilometres long in total, is about $6.5bn.

“A preliminary Transport Ministry study into the line to Mashhad has been under way for a long time,” says one industry source in Tehran. “That may be finished this year. However, there will be no construction work on these projects in 2009 as there is no money to build them.”

All infrastructure projects have the same problem and railways are competing with other sectors for limited money, says the source.

Tehran has also abandoned an alternative scheme to build a magnetic levitation railway between Tehran and Mashhad. The idea was first floated in 2007. A study into the project carried was out in 2008 by Germany’s Regierungsbaumeister Schlegel, which put the cost of the project at E6.8bn ($8.7bn).

Iran is believed to have held preliminary talks with potential Chinese partners on the scheme, but the project has now been rejected because of its cost.

In place of these high-profile projects, Iranian rail officials say they are continuing to renovate the country’s existing lines.

Barsan, an engineering subsidiary of local group Tam Iran Khodro, has won the contract to overhaul electrical systems along the 1,000km of track between the capital and Mashhad.

The company will provide overhead electrical cables, substations and 70 electric locomotives for the railway (MEED 4:1:08).

Russian Railways will also begin work in February to provide electrical systems on a section of track from Tabriz, in the northwest of the country.

Meanwhile, work has restarted on a single track line from Birjand that will cross the border into Afghanistan. Construction activity has been sporadic in the areas along the border, where drug-smuggling is rife and the security situation is often problematic.