The governments of India and Iran could either extend or renegotiate a Memorandum of Understanding (MoU) signed in May 2015 for the proposed development of the Chabahar special economic zone (SEZ).

In October 2015, a local media report in India stated that the government is ready to invest up to Rs2tn ($30bn) in developing the port subject to the price of gas, which India imports from Iran, and the relevant transport and shipping costs.

Recent developments, however, seem to indicate that both governments need to address some important issues before the joint undertaking could take off.

It is understood that negotiations were taking place in late 2015 in order to conclude an initial investment worth $85m for India to construct two berths at the port. New Delhi is also thought to have requested, and obtained an approval, for a $150m letter of credit (LOC) to fulfil outstanding dues owed to Iran for crude oil purchases.

Iran needed the $150m credit letter to fund a rail project that extends from the Chabahar port to Zahedan, a local media report further cited. However, handing the credit over to Iran will require a complicated process within India’s financial system to avoid being questioned by global funding agencies due to the US and EU sanctions against Iran.

Recent reports arising from Iran have also indicated that the Chinese government had expressed concrete interest in investing in the port project.

“It is still very confusing at this stage, but hopefully we will obtain some clarity very soon,” a source familiar with the project tells MEED.

The Chabahar SEZ is located in southern Iran on the Gulf of Oman coast. The development of the port is being seen as critical in promoting trade between Iran and India, Afghanistan and the rest of central Asia.

Apart from the two berths, which the Indian government will fund and build, other proposed schemes on the Chabahar SEZ include over a dozen petrochemical plants, a 1,000MW power plant, as well as a steel manufacturing complex.