Tehran is bailing out the expansion of two ports with a rescue package of more than $1bn while it struggles to sign up foreign operators.

Tehran will spend $430m on the expansion of Chabahar port on the Gulf of Oman, and a further $587m to fund the development of a container facility at the Gulf port of Shahid Rajaie.

Under the expansion plans, capacity at Chabahar will rise to 500,000 20-foot-equivalent units (TEUs) from 100,000. Capacity at Shahid Rajaie will increase to 6.3 million TEUs from 1.8 million over two phases.

At Chabahar, the Ports & Shipping Organisation (PSO), part of the Road & Transportation Ministry, has been in talks with Dubai-based port operator DP World and Ashok Leyland Project Services (Alps), part of the Indian Hinduja Group, over the construction of a $150m container terminal (MEED 2:4:08).

However, several key issues have yet to be resolved, which has delayed any investment by the UAE-Indian joint venture.

“DP World and Alps want a guarantee that the port will have a free zone, but plans for a free zone have yet to be approved by parliament,” says one senior PSO official. “Until it is, we have promised that they will have a facility with regulations similar to a free zone.

“They also want guaranteed exemption from income tax, and we are trying to get the government to approve this.”

However, the PSO says resolving these issues could take time and is urging the joint venture to go ahead with its investment while it tries to address the companies’ concerns.

A further problem is over transport connections to Chabahar. The port does not currently have a rail link, although a $700m link to Bam is being studied.

“DP World and Alps have asked for a guarantee that the rail link will be built, but this is in the hands of the Transport Ministry, which is looking for the finance,” says the PSO official.

“We have asked Hinduja to look at the port and railway as one project, building the container terminal and the rail link.”

Tehran also has plans for a rail line along Iran’s eastern border, from Chabahar to Mashhad, a vital route for trade with Pakistan, Afghanistan and the Central Asian republics. This project is being prioritised by Tehran, but progress remains slow because of problems with sourcing the funding (MEED 8:8:08).

The plans to expand Shahid Rajaie are at a far earlier stage, with no foreign port operators yet to express interest in the scheme. As with other major infrastructure projects in the Islamic Republic, the government is finding it difficult to bring in foreign investment.

“There are some financial problems with these large projects in Iran but the government has made these ports a priority and has paid for the expansion from its own budget,” says the official.

DP World and Alps were unavailable for comment as MEED went to press.