India is weighing a rupee-rial payment mechanism for the Chabahar project in Iran as it weaves a way around the impending sanctions imposed by the US on the Persian Gulf nation from 4 November, to kickstart the port that is considered critical to the country’s geopolitical and trade interests.

“We are trying for a rupee-riyal payment mechanism for Chabahar port project,” Shipping Secretary Gopal Krishna told BusinessLine . “Basically, the guarantees will have to be given in rupees now instead of in dollars or euros,” Gopal Krishna added.

The issue was discussed with a high-level delegation led by Mohammad Rastad, Deputy Minister and Managing Director for Ports and Maritime Organization, Islamic Republic of Iran, during its visit to India earlier this week. The plan to set up an alternative payment mechanism reveals that India is willing to go ahead with the project even if the diplomatic lobbying for a waiver from the US on Chabahar port project fails to yield results.

India’s bid to start commercial operations at the port has been held up due to banking challenges arising from the fresh round of sanctions imposed by the US.

India has picked Bandar Abbas-based Kaveh Port and Marine Services company to run the port as a stop-gap arrangement for 18 months till a full-fledged manage, operate and maintain (MOM) contractor is finalised by India Ports Global Pvt Ltd.

“Kaveh Port and Marine Services will start operations on our behalf and we should be ready to make payments to them. But, at present, due to banking difficulties we are not ready. There are banking issues on how to transfer funds and so it is on hold,” a government official said adding there was “no point starting the port if we can’t remit/transfer funds”.

Team to visit Iran

“A rupee-rial payment mechanism is the only way out of this,” said Arun Kumar Gupta, Managing Director, India Ports Global. “That is what we are working on. Instead of dollars or euros, all payments to the Iranian side will be under rupee-rial mechanism,” he said adding that a team from India Ports Global will visit Iran in the next few days to “work out things”.

“Irrespective of the sanctions, we are trying to go ahead with the project; a new payment system will have to be put in place,” he stated.

India Ports Global, a 60:40 joint venture between Jawaharlal Port Trust and Deendayal Port Trust (previously Kandla Port Trust), was set up by the government to make strategic investments in ports overseas.

Shipping Minister Nitin Gadkari underlined the strategic importance of Chabahar port to India.

“Our government is building a big port at Chabahar. The distance between Mumbai and Delhi is longer compared to the distance between Chabahar and Kandla. In the next two-three months, we will start the port. Gas and power are available at cheaper rate in Chabahar, port is ready and distance is less, but due to international situation and constraints, we are facing problems. Companies can start manufacturing urea in Chabahar and send it to Kandla by sea and we can reduce the cost by at least 40 per cent,” Gadkari said recently in Mumbai.

Capital investment

India Ports Global and Aria Banader Iranian Port signed a deal in May 2016 to equip and operate container and multi-purpose terminals at Shahid Beheshti – Chabahar Port Phase-I with capital investment of $85.21 million and annual revenue expenditure of $22.95 million on a 10-year lease.

Located in the Sistan-Baluchistan Province on Iran’s South-eastern coast (outside Persian Gulf), Chabahar port is of great strategic importance for development of regional maritime transit traffic to Afghanistan and Central Asia.

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