Rail transportation plays important roles in freight, conveyance of passengers, reduction in traffic congestion, decrease air pollution and therefore this industry has become highlighted during the recent years because of its different advantages comparing to other means of transportation.
According to Iran’s 20-year vision document (2005-2025), length of railroads should be 25,000 Km while it is about 11,000 Km last year according to The Railways of Islamic Republic of Iran and it is far from expected schedule. Following figure shows length of main rails during 2001 to 2015. It illustrates that growth rate of added rails declined since 2013 and it was mainly because of imposing heavy sanctions on Iran. Now, 5,000 Km rails is under construction according to officials and different projects about 1,800 Km will be inaugurated until Iranian year-end in mid-march 2018. In fact, it would be anticipated that the pace of development in this industry has an ascending slope after JCPOA agreement. According to officials, some rail transportation projects will be initialized till autumn 2017 and it will cost around 650 million Dollars.
According to chairman of Islamic Republic of Iran Railways, Saeed Mohammadzadeh, 12% of all freight transport happened through railways in Iran. Last year about 40 million tons cargo transported via railroads while it must be around 80 million tons based on 2025 perspective document. Iran plans to reach steel production capacity of 55 million tons per year by the end of 2025 while last year, it produced 17.9 million tons. According to IMIDRO’s news portal, railroads development is highly correlated to expansion of mining sector, as minerals included more than 60% of all cargo transited through last year. To achieve target of Iran in steel industry, railroads network needs to sustain growth rate of equal to 8% annually for next decade. Following figure shows freight per year by rails.
Two main restrictions of rails expansion in Iran are rail and wagon shortage. There are not enough rails to meet increasing demands of Iran rail projects. Akhundi, Minister of Roads and Urban Development, said Iran needs 300,000 to 400,000 million tons rails annually. Isfahan steel company inaugurated its rail production line with a capacity of 400,000 tons by 2016 year-end. While the ministry in a controversial deal committed to import 150,000 rails from an Indian company called JSPL (Jindal Steel and Power Limited) and also 115,000 tons from Karabuk which is a Turkish steel maker.
The number of wagons used for transporting passengers and cargo are about 2,200 and 23,000 respectively. Minister of Roads and Urban Development signed a preliminary agreement with Russian company UWC, United Wagon Company, to supply 6,000 freight wagons within three years, it means a 25% increase in capacity. This contract contains two main parts, first manufacturing and delivering 1,100 wagons by UWC and a joint venture agreement and based on this agreement, the rest of wagons should produce in Iranian companies through Russia financing. Iran also plans to produce passenger wagons, based on IDRO (Industrial Development and Renovation Organization) press. The following figure shows that the number of passenger and wagons per year which elucidate these new wagons can change rail industry perspective vehemently.
Another quandary in rail industry is financing projects. According to Iran’s budget structure, 1% of oil and gas income allocated for this. Because of plunge of oil price since 2014, budget allocated to rails industry decreased proportionately. Last year Iran’s parliament approved establishment of transport fund with initial investment equal to 5 billion Dollars. The Ministry of Roads and Urban Development allowed investing the fund’s resources in infrastructure of transport industry and investment guaranties. Government uses some facilities to attracts more investments in this industry such as: reducing of tariffs and using of low interest loan. In addition, there is no increment in rail rate for cargoes, by this way, it would be an encouraging for cargoes owners to use railways instead of other means of transport. And also, last but not least is government’s assurance of private sectors for developing of rail transportation (guarantee of 1,200 km traveling per day for every locomotive and also the government will support exchange rate fluctuation for more than 10 percent). Another way for supply of financial resources of projects is using foreign financing like Tehran-Mashhad railroad project which has been done by Chinese bank.
Rail companies in Iran confront big costs named railways access charges. They pay many of their revenues to Islamic Republic of Iran Railways as access to railway network. Figure shows this cost as a percentage of total revenue for 4 active companies that provide services regarding railways. They include: Persian Railway Transport Development, Rail Pardaz Seir, Tuka Rail and Rail Seir Kosar companies that their ticks are HPRZ1, HRLZ1, TORZ1 and RSKZ1 respectively in Tehran Stock Exchange. These companies’ shares are trading in Tehran Stock Exchange. It is clear that they pay 40% to 70% of all their revenues in order to have the access right, except RSKZ1 that it paid lower access charge than others, mostly because it is a new investment in this industry and the government used it as an encouraging (also there are other transportation directives such as different access charges based on freight and passenger wagons). Saeed Mohammadzadeh said that Islamic Republic of Iran Rail (IRIR) plans to decrease this charge, especially in passenger sector it is aimed to decline this charge to zero. He also said rails companies are tax-exempt and free from value-added tax. Such proceeding could make this industry more attractive economically.
In conclusion, although rails industry has many benefits such as reduction in traffic and air pollution and economic advantages, it needs massive investment. The government shows its resolute decision to develop rails industry by state-run investing, easing rules, attract and assuring foreign investment, empowering related domestic industries. In addition, rail exhibition had been hold in Iran recently which was a suitable place for simultaneous presence of customers, suppliers, consultants, investors and operational forces. All of these are harbinger of fast growth for rails industry.
