Iran Unbound: Infrastructure Opportunities
Total Page:16
File Type:pdf, Size:1020Kb
6 Oct 2016 Iran Unbound: Infrastructure Opportunities Iran, the Middle East’s second-most-populated country, after Egypt, and its second- largest economy, after Saudi Arabia, shows clear potential in its infrastructure sector for Hong Kong companies in the wake of the lifting of nuclear-related international sanctions in January 2016. Following years of underinvestment due to sanctions that cut Iran out of the global trade and financial system, the Iranian infrastructure sector shows huge room for improvement, with inward foreign direct investment (FDI) and new technology badly needed to enhance the country’s ageing transport system and utilities. In light of this, HKTDC Research recently visited Tehran, the Iranian capital and its largest city; Mashhad, its second-largest city; Shiraz, a major economic and cultural centre in southern Iran; and Isfahan, an important industrial city. The aim was to explore opportunities in the country’s services market for Hong Kong companies engaged in industries such as design, construction, engineering, project management, logistics and finance. Investors Eyeing Infrastructure Projects To begin with, it should be noted that Iran’s infrastructure base is generally good, with an extensive road system of about 199,000 km. Motorways and highways are generally paved and in good condition. Metro systems are found in key cities, which are linked by more than 10,000 km of railway. A multiple-lane road in Mashhad’s city centre. A paved highway in Shiraz. However, following years of economic isolation by the West due to sanctions, Iran’s transport and utilities sector is hugely underinvested and appears to be dated, particularly its mass-transit systems. The country’s transport facilities lack the capacity to cope with the increasing number of vehicles in the urban areas. Traffic congestion in Tehran is a daily occurrence during peak hours, with roads often clogged for hours. 1 Iran Unbound: Infrastructure Opportunities Utilities infrastructure is also becoming inefficient because of technological deficiencies. In the Global Competitive Report from the World Economic Forum 2015-2016, Iran was ranked 76th out of 140 countries for the quality of its overall infrastructure, far behind countries such as the United Arab Emirates (2nd) and Saudi Arabia (31st). To expand and upgrade Iran’s current facilities and operation systems, the country is expected to address its investment deficits, thereby creating investment opportunities in the coming decade of about US$250 billion to US$300 billion in its transport infrastructure (rail, road, aviation, maritime and sea port) and another US$120 billion to US$150 billion in the area of power generation, water supply and waste-water treatment, according to estimates by Frost & Sullivan[1]. In meeting this enormous demand for infrastructure capital, the Iranian government is keen to attract FDI through a number of project arrangements, including Build-Own- Operate (BOO), Build-Operate-Transfer (BOT) and Public Private Partnership (PPP), and to encourage joint ventures between local and foreign firms. For example, on the energy front, Iran has reached a US$4.2 billion deal with Turkish energy company Unit International to build seven natural-gas power plants with a combined installed capacity of 6,020 megawatts (MGW) under a 20-year BOT model. In the telecoms industry, the Telecommunication Company of Iran (TCI) has signed co- operation agreements with Italian telecoms-equipment manufacturer Itatel, South Korean mobile carriers KT Corp., and Kazakhtelecom of Kazakhstan for the expansion and upgrade of its telecom network. Transport and Utilities Construction Opportunities The Iranian government is giving high priority to the upgrade of its transport infrastructure, such as railways, roads and ports, with a view to strengthening internal connectivity between major cities as well as external links with its neighbouring countries. While numerous projects to improve transport infrastructure are in the pipeline, many local companies lack the technological capability to handle them cost-effectively. With circumstances now becoming more favourable, many Iranian companies are likely to be more active in seeking partnerships with overseas companies that can provide them with the necessary skills, technology and resources to carry out the projects. Apart from new and large infrastructure plans, Work on idle construction sites, such as in this many small-scale projects, which were previously rural area of Shiraz, could now resume. halted due to a lack of funding during the sanctions period, are also expected to resume, thereby creating another area of potential business co-operation between Hong Kong and Iranian companies. In this regard, the opening up of Iran’s infrastructure market in the post-sanctions era[2] will present good business opportunities for many Hong Kong companies which have 2 Iran Unbound: Infrastructure Opportunities been active in the Middle East, particularly those with proven records of handling medium-to-large scale infrastructure projects, and in areas from project design and master layout plan to construction and property management. Railway to Lead Transport Investment Constructing and improving Iran’s transport infrastructure, including the development of a comprehensive national railway network, is one of the government’s infrastructure-building priorities. With a target to more than double the country’s railway network to 25,000 km by 2025, the Iranian government is planning to invest about US$25 billion in its rail networks, including the construction of the Tehran-Isfahan high-speed rail and the electrification of the Tehran-Mashhad railway. Since sanctions were lifted, Iran has signed a memorandum of understanding (MoU) with France to improve the railway stations of Tehran and Mashhad, and another with Germany to upgrade the country’s railway system software. The expansion of Tehran’s metro network is another project that has attracted considerable attention from international suppliers. At present, the Tehran metro system comprises five operational lines (1, 2, 3, 4 and 5, while only part of Line 3 is completed and operational) with about 100 stations. Lines 6 and 7 are under construction while the extension of Line 1 to the Imam Khomeini International Airport is also underway. It is expected that by the end of 2017, a total of 100 km will have been added to the metro system. Metro station at Qods Square, Tehran. With metro networks in major cities including Tehran, Mashhad, Shiraz, and Isfahan, a surge in demand for more metro trains is expected as the relaxation of trade restrictions makes international sourcing easier. According to Iran’s industry minister, the country is expected to put at least 4,000 pieces of metro trains up for tender by 2025. After delivering metro trains to Shiraz and Mashhad, Chinese supplier China CRRC Corporation was reported in the media that it started shipping metro trains to Tehran from March 2016, after entering into a contract of US$1.39 billion to supply 1,008 metro trains to the capital over a five-year period. Plans to Expand Airports As well as plans to improve the country’s rail network, the Iranian government also intends to upgrade its aviation infrastructure as air traffic increases. According to the chairman of the Iranian parliament’s civil aviation commission, Iran is looking to add as many as 500 new aircraft in the next three to five years. 3 Iran Unbound: Infrastructure Opportunities At present, more than 60 airports operate in Iran. The Iran Airports Holding Company (IAHC), a state-owned enterprise under Iran’s Ministry of Roads and Urban Development, plans to undertake significant airport development across the country. For example, a new US$2.8 billion terminal is set to be built at Tehran Imam Khomeini International Airport, the country’s Tehran Mehrabad International Airport. main international aviation hub, boosting its handling capacity to 20 million passengers a year, up from the current six million. Meanwhile, Tehran has a second, smaller international airport called Tehran Mehrabad International Airport, which is still the busiest airport in Iran despite being replaced by the new Tehran Imam Khomeini International Airport for most of its international traffic. Plans for modernisation and expansion are also underway for Mashhad and Isfahan airports, located in the country’s second- and third-biggest cities, respectively, and to build new airports in Ahvaz and Bushehr. In November 2015, the IAHC indicated that about US$3 billion in investment opportunities would be available in airport infrastructure alone in 2016, reflecting the huge business potential in this fast-expanding sector. Port Development Drawing Investment In terms of port infrastructure, development is underway in many Iranian ports, including the third-phase expansion of the Shahid Rajaee Port in Bandar Abbas and construction of new terminals at Chabahar and Negin Island in Bushehr. In particular, Chabahar Port, situated in southeast Iran on the Gulf of Oman, is seen as an alternate gateway to Afghanistan and other Central Asian countries and is gaining much attention from international investors. In May 2016, India announced plans to invest up to US$500 million to develop Chabahar Port and related infrastructure. Meanwhile, according to the Islamic Republic News Agency, a Chinese consortium, which visited a free zone near Chabahar Port in early 2016, has also expressed interest in developing the port as well as building an industrial town there. In terms of port management, South Korea has pledged to work with Iran. The Korean Register of Shipping has signed an MoU to establish a 50-50 joint-venture company with the Iranian Classification Society. The new company, named Iran-Korea Technology Assurance Company, will offer plant facility certification and engineering services in Tehran and plans to be fully operational in 2017. In addition, Hyundai Heavy Industries and SPP Shipbuilding are reportedly in talks with Iranian shipowners over potential orders. Water Management in Demand Tackling the country’s water-shortage problem has also topped the Iranian government’s agenda.