The award in June of a contract to the local Railway Services & Technical Construction Company to build a 580-kilometre railway between Shiraz and Bandar Abbas in the south of Iran is the latest sign Tehran is pushing ahead with its ambitious infrastructure development programme.

The construction sector in Iran is difficult to enter. The sanctions mean it is dominated by local firms

Middle East-based analyst

According to regional projects tracker MEED Projects, there are currently $305.8bn-worth of projects planned or under way in Iran, with $51.2bn of these in the infrastructure sector. This includes $28.4bn of projects under construction and a further $22.8bn worth of schemes in the planning or design stage.

Population growth in Iran

The infrastructure spending is mainly in response to Iran’s expanding population, which has risen from 70.5 million in 2006 to 75.4 million in 2010. Tehran’s current population of 12 million is also expected to increase to 20 million by 2030.

Iran is also keen to improve its transport links to boost trade with neighbouring states. The investments will create significant opportunities for the construction sector, but due to trade restrictions and international sanctions, the country remains off limit for many foreign investors.

There are also doubts over whether Iran will successfully complete its ambitious schemes. Incessant political wrangling has led to delays and the cancellation of several key infrastructure projects in recent years.

At the heart of Tehran’s transport plans is its rail programme. In 2010, Iran’s railway system carried a total of 19.5 million passengers. Tehran is looking to increase this to 82 million passengers by 2015. The existing 9,000 kilometres of railway is expected to be extended to 25,000km by 2015.

One of the largest infrastructure contracts awarded in Iran last year was for a project to build a 579km-long rail line linking Tehran and Khosravi, which is located on the western border with Iraq. In September 2010, China Railway Construction Corporation was awarded an estimated $2bn contract to build the line, which is intended to serve the thousands of pilgrims who travel from Iran to the Iraqi cities of Najaf and Karbala.

In June, the Roads & Transportation Ministry received bids for a contract to build another 525km railway line between Kermanshah and Khosravi in the western region.

In February, China signed a preliminary agreement with Iran to build a rail network in a deal worth $13bn. The railway will be 5,300km in length. Details of the route have yet to be revealed. China is Iran’s largest trading partner with bilateral trade estimated at $30bn. Chinese contractors are some of the few international firms that have been able to bid for and win work in Iran.

“The construction sector in Iran is difficult to enter. The sanctions mean it is currently dominated by local firms. The Chinese are the only ones that have really been able to penetrate [the market],’’ says a Middle East-based analyst.

Tehran is looking to develop international links to facilitate trade with its neighbours. In February, a co-operation agreement was signed between Iran, Russia and Azerbaijan to look at the possibility of an ambitious North-South Rail Corridor. The freight rail would link Europe, through Russia, Azerbaijan and Iran, and eventually connect to India and Southeast Asia.

Iran is also currently undertaking a $50bn programme to expand its metro system. The planned projects will run for a total length of 1,000km when completed. However, the metro schemes have been delayed due to political wrangling and funding issues.

Iran airport projects

Progress has been better with upgrading Iran’s airport infrastructure. One of the schemes currently out for tender is the project to build a new terminal at Kish International airport, which will accommodate 3.5 million passengers a year. Kish island is located in the Gulf, about 19km from mainland Iran.

Another expansion is planned for the neighbouring island of Qeshm. The Qeshm International Airport Company is seeking finance for the $103m extension of Qeshm International airport. The expansion is aimed at increasing foreign investment into the Qeshm free zone and will include the construction of a second passenger terminal, three air bridges, a hotel, restaurants and a second runway.

In April, the government allocated $40m for an expansion programme at Ramsar airport in the Mazandaran province, located in the Caspian area.

Iran is also investing to improve its port facilities. In 2010, it awarded almost $1bn worth of contracts to upgrade or expand port facilities across the country.

The pipeline of projects clearly shows Tehran’s ambitions in upgrading its transport infrastructure. However, the country has seen increased political instability in 2011, with a series of disagreements and resignations in the top tiers of government. If Iran is to successfully bring its transport plans to fruition, improving political relationships internally and externally will be key.