17 January 2022

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CURRENCY

NEW BOUNDARIES FOR REGIONAL PROJECTS

Liberation of Azerbaijani regions contributes to long-term economic cooperation between Baku, Tehran, Moscow and Ankara

Author:

15.11.2020

In recent years, the historically developed economic ties between Azerbaijan, Russia and Iran have acquired a qualitatively new content, shifting from traditional trade towards the implementation of joint railway and electricity projects as part of the North-South corridor, industrial investments, agriculture, joint industrial parks. Moreover, these processes can acquire a qualitatively different content, since the liberation of the occupied territories of Azerbaijan gives birth to fundamentally new realities in the region. According to experts, we can see new formats of economic cooperation between Baku, Tehran and Moscow in the near future.

 

Quadrilateral format

The flawless victory of Azerbaijan and the liberation of Karabakh after the long-term occupation remove the most serious obstacles that hindered economic cooperation in the region and create prerequisites for closer integration of the leading regional states.

President Ilham Aliyev noted the emergence of new realities in the South Caucasus with the changing of the former geopolitical alignment. He also emphasized the importance of intensifying multidirectional cooperation between Iran, Russia, Azerbaijan, and Turkey. “I think that a very positive format of cooperation is developing in our region between the leading political figures who determine the agenda of the region and are focused on cooperation. I think that the day will come when Moscow, Tehran, Baku and also Ankara will work in a quadrilateral format. This will be natural, given the historical, economic, transport, geopolitical and, most importantly, security ties between our countries in this region,” Mr. Aliyev said.

The international transport corridor (ITC) North-South is a perfect example of joint large-scale cross-border projects. The implementation of this key regional project has intensified over the past years. Although the works have slowed down due to the COVID-19 pandemic, the participating countries are currently looking for ways to catch up the missed opportunities.

“Despite the delay observed since the beginning of the year due to the pandemic, the work on all agreements will soon resume. Several infrastructure projects are implemented simultaneously to accelerate the pace of processes within the North-South corridor, including the construction of a railway terminal in Astara, Iran (bilateral project), the construction of the Rasht-Astara railway and the construction of five bridges across transboundary rivers," the ambassador of Iran to Azerbaijan, Seyid Abbas Musevi, said in Baku. According to the diplomat, the agenda also includes the construction of a road bridge across the Araz River and the unification of the Ardebil railway with the railways of Azerbaijan.

Also, several components of the North-South corridor are implemented in Russia, including the construction of new railways and highways with increased throughput in the southern region of Russia, as well as the construction of cargo ports (e.g. Lagan in Kalmykia, Russia) and the extension of the infrastructure of the Olya port in Astrakhan.

"I support all the plans currently implemented between our relevant departments, including the North-South transit corridor connecting Iran with Moscow and Baku, as well as the East-West corridor connecting Turkey, our trilateral partner," Russian Foreign Minister Sergei Lavrov noted in August. According to Mr. Lavrov, it is extremely important to accelerate works on the construction of the ITC infrastructure, in particular, to complete the construction of the 211-kilometer Iranian section of the Rasht-Astara road. Moscow's interest in intensifying the pace of works along the international transport corridor was also manifested in the recent talks between the deputy foreign ministers of Iran and Russia - Golamreza Ansari and Alexander Pankin. The development of transport corridors, as well as other issues of Russian-Iranian cooperation in trade and cargo transshipment were also discussed during the talks.

 

Infrastructure in Azerbaijan

In the meantime, given the absence of direct railway traffic, the project participants are actively promoting the Astara-Baku-Astrakhan route with combined rail-sea and road shipment of cargo. With the completion of the construction of the Iranian section of the ITC, it will be possible to reduce the delivery time of goods along the North-South route by more than half - from 40 to 14 days. In particular, this will reduce transport costs and the cost of transporting a standard 40-foot container from Mumbai to Moscow will be less than $3,000. It is expected that when the route reaches full throughput capacity, the volume of cargo turnover through Azerbaijan will reach 6 million tons doubling in the future.

Over the past few years, Azerbaijan has been making every effort to establish the infrastructure of a new corridor in the country. So, at the end of December 2017, an 85-meter railway bridge was commissioned in Azerbaijan across the border river Astarachai, connecting the Iranian and Azerbaijani sections of the corridor. 14 km of rails were laid from Astara station to the border with Iran. A cargo terminal is already functioning on the territory leased by Azerbaijan to the Islamic Republic. Azerbaijan has invested $60 million in the construction of terminals, and these facilities will be leased to the Azerbaijan Railways CJSC (AZD) for 25 years.

The construction of the largest grain terminal Astara Grain Terminal is close to completion in the Azerbaijani Astara. The processing throughput of the terminal is designed for 500,000 tons of grains. By 2021, it is planned to increase this indicator to 1 million tons. The terminal's capacity for simultaneous storage of grains will be 60,000 tons. Astara terminal is planned to be used mainly for the shipment of Russian grains to Iran and further to the Persian Gulf region. Given that Iran is one of the three exporters of Russian grain, the western branch of the North-South corridor should provide a direct rail link through the Samur border crossing with further access to the cities of Rasht and Gazwin in Iran. An advantage for grain forwarders will be the provision of a 50% discount on transit to Iran along the North-South route.

At the same time, Azerbaijan should implement large-scale works to upgrade the North-South railway infrastructure, especially on the single-track section from Baku to the border with Iran. This issue was discussed in June 2020 during a videoconference between President Ilham Aliyev and the leadership of the Asian Development Bank (ADB). “We are currently rebuilding our portion of the North-South railway. Azerbaijan has already made large investments in this corridor, which has enormous potential: we began accepting goods from Russia, which are later transported through Azerbaijan to the West and South. However, the quality of our railway lines is not good enough between the borders of Iran and Russia. To increase the speed of trains and expand the capacity of the railway, we need additional investments in infrastructure. We need a modern rail system that will become part of the North-South corridor. We count on ADB's support to fund this project," the President of Azerbaijan said.

According to the latest data, the ADB board is ready to finance the project and plans to provide Azerbaijan with a $150 million loan to upgrade the Baku-Astara railway section to the border with Iran. Another $20 million will be provided by the Azerbaijani government. At the same time, Azerbaijan is going to receive the first installment of the loan ($75 million) in 2023.

 

New opportunities

The projects to be implemented in the regions liberated from the occupation, with the possibility of connecting Turkey to these projects, will become an additional component of the North-South transport corridor between Baku, Moscow and Tehran. The end of the confrontation in Karabakh should contribute to the unblocking of all regional communications, including the restoration of rail and road communications between Azerbaijan and Nakhchivan.

It is also expected that a gradual decrease in the degree of tension in the region and the implementation of projects to rehabilitate transport, electricity, utilities infrastructure, the construction of houses and social facilities will allow all countries of the region to take part in these initiatives both as contractors and investors. “In particular, Iran has already expressed its readiness to join the construction and restoration works in the liberated Azerbaijani regions, to supply construction materials, equipment, etc. We also discuss the participation of Russian and Turkish partners in these projects. The most significant regional project, most likely, will be the completion of the construction of the Khudaferin and Qiz Qalasy hydroelectric complexes with the partnership of Baku and Tehran," economist Eldaniz Amirov believes.

Baku and Tehran also plan to start the construction of the Ardabil-Parsabad railway line to be integrated with the North-South corridor, a logistics center for cross-border shipment of goods, as well as the creation of a joint industrial park on the border of Parsabad (Iran) and Imishli region (Azerbaijan), where it is planned to establish export-oriented production.

According to the Iranian political scientist Ilyas Vahedi, relations between Iran and Azerbaijan can be further developed not only through bilateral trade, but also through joint investment and production projects, regional and international trade agreements. “The international North-South corridor, uniting India, Iran, Azerbaijan, Russia and several other countries, can significantly expand economic cooperation. Moreover, Iran is Azerbaijan’s southern gateway to international waters, connecting by the shortest route, the Azerbaijani production cluster with the Middle East, Indian Ocean and Africa,” Vahedi said.

As for Armenia, which, in fact, lost the war and was forced to accept tough peace conditions, all its illusions about the possibility of unilateral economic development without taking into account the interests of the regional states by plundering Azerbaijan's natural resources and committing other criminal acts in Azerbaijan, have been completely buried. Armenia will have to carefully rebuild its relationships with neighbours. This is quite obvious, since all the hopes of the Armenian authorities to construct a railway line and a gas pipeline to Iran or joint projects with the Islamic Republic to build an oil refinery and hydroelectric power station on the Araz River have not materialized and are unlikely to be realized in the near future. A full-fledged partnership with Russia due to the geographic factor is impossible without unblocking communications with Azerbaijan. Therefore, as President Ilham Aliyev said recently, Armenia must renounce its territorial claims and hostility to Azerbaijan and Turkey. “We don't want confrontation. We want peace, despite all the pain and tragedy that they have brought to our peoples. Therefore, I think that geopolitical realities should develop in a positive direction. We, at least for our part, will do everything to make it so,” Mr. Aliyev said.



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