NORTH-SOUTH AT FINISH LINE

The global significance of South Caucasus’s transport potential has increased despite the geopolitical crisis caused by the Russian-Ukrainian war. The conflict has reformatted transport and logistics schemes on the Eurasian continent, shifting route priorities for a number of countries in the region. Moscow, Baku and Tehran now intend to accelerate trilateral cooperation to implement the International Transport Corridor (ITC) North-South. Baku hosted the signing ceremony of a declaration on the results of the first trilateral Azerbaijan-Russia-Iran meeting, which envisages accelerating the construction of a unified railway network, as well as drafting an agreement on the construction of the Rasht-Astara section within a month.

Difficulties in the Iranian section

Moscow, Baku and Tehran have been negotiating at various formats and levels the launch of the overland section of the North-South ITC stretching from Russia's north-west ports to the west coast of India for about 17 years. Today not only the regional countries, but also the states of South Asia and the Middle East recognise the economic efficiency and strategic importance of this route, considering it as an alternative to maritime traffic through the Suez Canal.

Azerbaijan joined the ITC intergovernmental agreement in 2005, with a number of trilateral agreements concluded three years later, in 2008. However, all attempts to build a railway line have been unsuccessful. The weak link for all these years has been Iran, which is under strong sanctions from the US, the EU and other Western countries. The country has constantly encountered technical and financial problems and has delayed the construction of the line on its territory.

In 2012, Azerbaijan, Iran and Russia almost agreed to create a trilateral joint venture to lay the missing railway link, including the development of a feasibility study for the project, establishment of a trilateral working group and consultancy services. But a new package of sanctions against Iran's banking and financial system forced Tehran to abandon the initiative. There were also tensions during the infamous ‘nuclear deal’, which significantly eased Western sanctions on Iran. In 2015-2016, Tehran repeatedly declared its readiness to complete the construction of the Rasht-Astara line on its own, but the project was again frozen due to a lack of funding. Even a half-billion-dollar loan offered by the Azerbaijani government did not help to promote the works. Iran complained about the complexity and costs associated with laying the tracks in the mountainous landscape (22 tunnels and 15 special bridges on the Rasht-Astara section). There were also complaints about problems with land acquisition: in some sections the route passed through densely populated areas, which increased the cost of buying ‘the righ-of-way’ from the population.

As a result, the North-South corridor's transport infrastructure is still not fully established. Although Iran completed the 175km-section of the Gazvin-Resht railway in March 2019, the Rasht-Astara section (162km) is still incomplete. This prevents the Ardabil railway from connecting to the Azerbaijani railways and the full operation of the ITC corridor.

Harnessing the potential

However, after a decade and a half of negotiations, the two sides have managed to establish a truncated version of the North-South land corridor (western segment). For the past four years, Russian cargo (mainly grain, timber, construction materials, fertilizers and metallurgical products) have been delivered to the terminal at the border town of Astara in Azerbaijan, where they are loaded onto heavy and container trucks and transported to Iran or transited through Persian Gulf ports to their final destination. The reverse route to Russia carries mostly Iranian and partly Indian goods such as food, tropical and dried fruits, clothing and other consumer goods, as well as polymer products.

Even in this limited version, cargo transportation through the ITC has been doing quite well. In 2019, its volume at Astara reached around 4.5 million tonnes, but it declined significantly after the pandemic.

"The volume of traffic on the North-South corridor does not match the potential available to Azerbaijan, Russia and Iran. ITC is the shortest route for transporting cargo in different directions. Cargo traffic forecasts until 2030 show that carriers are interested in the route. Each member country needs to work on upgrading its transport infrastructure, which will enable it to make full use of the corridor's current potential (around 15 million tonnes annually). We are ready to consider the issues of state funding and lending to achieve the goals set," Russian Deputy Transport Minister Dmitry Zverev said at the trilateral meeting in Baku on accelerating the implementation of the North-South Corridor project.

Apparently, unlike previous summits, memoranda and interagency agreements, ITC participants are now determined to implement infrastructure projects and complete the corridor's communications.

New boost

The war in Ukraine and the confrontation between the West and Russia triggered the reanimation of the ITC project. The breakdown of established logistical chains with European countries caused Russia to pay more attention to the early implementation of a long-standing project - a transport corridor to the south. Russian President Vladimir Putin raised this issue at the Caspian Summit in Ashgabat in June, as well as on the sidelines of the July trilateral meeting between the leaders of Russia, Iran and Turkey. This summer, Russia initiated an exchange of views with Baku and Tehran on the prospects for speedy completion of the Iranian part of the transport corridor. Moscow has expressed its readiness to assist Iran in completing the corridor.

During the Baku Forum, the attendants outlined the new perspectives on the implementation of the ITC project and agreed upon successive steps for its implementation.

The Baku summit ended with the signing of the Azerbaijan-Russia-Iran Declaration on the development of the North-South Transport Corridor. The parties agreed to establish a special working group to deal with transport, transit and procedural issues of the development.

In particular, it was agreed that the plan for the Rasht-Astara railway project would be finalised within a month. The document also focuses on the prospects of integrating Iran's Chabahar port into the ITC system. According to the declaration, the parties also declared readiness to increase the throughput capacity of the corridor to the required level and by 2030 to bring the volume of transportation and transit along the three routes of North-South corridor (Western, Central Marine segment and Northern segment via Turkmenistan) to 30 million tons. However, the main route (the Western route) is designed for the transportation of cargo through Azerbaijan. Thus, the country will be able to transit about half of all cargo traffic in the peak period, i.e. 15 million tonnes annually.

"Azerbaijan, Russia and Iran intend to create a common railway network. Even in the short term, it will increase the flow of goods along the land corridor by 15%. It is also necessary to protect the investments of the parties, create end-to-end logistics services and a preferential tariff mechanism. Agreements are pending in the area of connecting ports to the ITC project, terms of operation for each party, which will ensure seamless transportation of cargo in the Persian Gulf," said the Russian Deputy Prime Minister Alexander Novak at the Baku Forum. He noted that within three months it is planned to identify investments and sources of funding, and then to prepare a full-fledged agreement.

Important outcome

The Baku summit culminated in talks between the Minister of Digital Development and Transport of Azerbaijan, Rashad Nabiyev, and the Minister of Roads and Urban Development of Iran, Rostam Ghasemi. They discussed the steps to accelerate the creation of new road transport infrastructure in the border areas in line with the ITC project. Among other things, they discussed the construction of a road bridge towards Iran to connect the East Zangezur economic region and the Nakhchivan Autonomous Republic (NAR), as well as a road bridge across Astarachay between the two countries.

"We are constructing roads and railways in various directions, including within the Zangezur corridor. Azerbaijan plans to complete the construction of the Goradiz-Aghbend road and railroad in 2023, and the Zangezur corridor creates opportunities for additional transit of 5-8 million tons of cargo through the territory of Azerbaijan. Today the annual volume of cargo transportation in the Azerbaijani segment of North-South is 0.5 million tons, and in the medium term it is planned to increase this figure to 6 million tons," Deputy Minister of Transport of Azerbaijan Rahman Hummatov said. According to him, in the long term, the cargo flow can also be increased to 20 million tonnes after the railway connection in Astara and transportation via the Zangezur corridor.

Thus, in a few years, after the completion of all the necessary work, Azerbaijan will become the main transhipment and logistics trade hub between Russia and Iran. Given the growing cargo transportation rates from India, the UAE and other countries in the region, Azerbaijan will significantly increase revenues to the state budget from transit and forwarding companies.