NORTH-SOUTH: KEY FOCUS

The development of the western segment of the North-South International Transport Corridor (ITC) enters the implementation stage. The agreement signed by Russia and Iran has provided  momentum for the launch of working group activities, marking a significant step forward in the development of the North-South ITC. Meanwhile, transport authorities in Azerbaijan and Russia are actively modernising several sections of the corridor.

At the Finish Line

After 15 years of negotiations, approvals, and periodic delays, the North-South ITC project is nearing completion. On May 17, 2023, the transport ministers of Russia and Iran signed an agreement to jointly finance, design, and construct the 170-kilometre Resht-Astara railway section, with an estimated total cost of €1.6 billion. Under the agreement, Russia will cover 85% of the interstate loan to the Islamic Republic of Iran (IRI), amounting to approximately €1.3 billion. Russia has also expressed its readiness to allocate around €1.5 billion to modernise ITC infrastructure and address bottlenecks, both in Iran and on its own territory.

Since the signing, several working group meetings have been held, alongside inter-agency and intergovernmental coordination among ITC participants. These efforts focus on implementing measures to reconstruct and enhance railway, road, and maritime infrastructure.

Recent global economic and geopolitical shifts have aligned the interests of the corridor's key stakeholders. Moscow and Baku, the primary beneficiaries, have demonstrated a strong commitment to accelerating the development of the North-South transport system. This system spans 7,200 kilometres and integrates maritime, railway, and road networks. Starting from the port of St. Petersburg, the corridor traverses Azerbaijan and extends through Iran's southern ports, ultimately connecting to the Indian port of Mumbai. This route provides access to the Indian Ocean, the Persian Gulf, and Southeast Asia. The ITC offers a 40% reduction in distance and a 30% decrease in commercial costs compared to the Suez Canal route, while also simplifying logistics and enhancing cargo safety—a critical advantage amid the escalating Middle East conflict and challenges to civilian shipping in the Red Sea and the Bab-el-Mandeb Strait.

The North-South corridor features three route options: the Trans-Caspian route, which involves cargo transshipment via dry cargo ships and ferries between Russian and Iranian ports on the Caspian Sea; the eastern land route (2,500 kilometres), which passes through Central Asian countries en route to Iran; and the western land route (1,450 kilometres), which facilitates road and railway transshipment through Azerbaijan.

Currently, Kazakhstan, Russia, and Turkmenistan are preparing to establish a single operator to develop the eastern route of the ITC. They plan to introduce tariff discounts of up to 50% to increase annual freight volumes from 10 to 20 million tonnes. A roadmap for synchronised corridor development with Russia, Turkmenistan, and Iran has been approved, aiming to boost capacity by 50%—from 23 to 33 trains per day. Developing the 2,500-kilometre eastern route requires billions of dollars in investment, particularly in the ports of Aktau and Kuryk, which are expected to handle container shipments. Over the next three years, the container processing capacity of Aktau port is set to increase from 140,000 to 550,000 containers annually, with a significant portion reserved for Chinese cargo transshipment via the Trans-Caspian International Transport Route (TCITR). Meanwhile, the multifunctional Sarzha terminal is under construction in Kuryk port.

However, the eastern route faces challenges, including its greater length, logistical difficulties during winter, and limited reverse cargo flows. Most cargo originates in Russia and is destined for Persian Gulf countries, with underloaded trains reducing the route's profitability.

Progress in Azerbaijan

The shorter western route through Azerbaijan is widely regarded as offering both time and cost advantages. Azerbaijan has been proactive in developing the ITC's potential since 2017. Azerbaijan Railways (ADY) has laid tracks from the border town of Astara to the state border, constructed a railway bridge, and commissioned new terminals and checkpoints. The Astara Grain Terminal, the largest in the region with a capacity of 500,000 tonnes annually, was also built. Additionally, ADY constructed the Astara Universal Terminal in Iran, which handles 600,000 to 900,000 tonnes of cargo per year.

Rovshan Rustamov, Chairman of ADY CJSC, stated: 'In line with the action plan adopted during our visit to Iran in November, ADY is finalising work on the Astara terminal. These efforts will be fully completed next year, increasing our cargo capacity in this direction to 4 million tonnes annually.' 

These initiatives have enabled Azerbaijan to enhance combined cargo transshipment, with goods delivered to Astara by rail and then transferred to Iran via heavy trucks, and vice versa. As a result, transit cargo transportation along the western North-South route reached 1.7 million tonnes in 2023, a milestone achieved 11 months ahead of schedule in 2024.

Azerbaijan is also modernising key railway segments. The capacity of the Baku-Yalama section (currently 10 million tonnes annually) and the Alat-Astara section (7.5 million tonnes annually) will be equalised and synchronised to handle 15 million tonnes annually in the second phase.

The next step involves reconstructing the Alat-Osmanly-Astara railway, as outlined in Azerbaijan's 2024-2026 Action Plan for Increasing Transit Potential. This project includes digitalising the transport corridor, introducing advanced communication and signalling systems, and laying fibre optic lines.

In recent years, Azerbaijan has independently modernised its railway infrastructure and border crossings. To expedite these efforts, ADY signed a $131.5 million loan agreement with the Asian Development Bank (ADB). These funds will rehabilitate 166 kilometres of double-track railway, including civil structures and crossings on the Sumgayit-Yalama section. Azerbaijan aims to complete these infrastructure upgrades by the end of 2028, aligning with the completion of the Resht-Astara section in Iran.

New Agreement

Infrastructure development on the western ITC route requires coordinated efforts among the railway authorities of Russia, Azerbaijan, and Iran. In October 2023, Azerbaijan's Deputy Prime Minister Shahin Mustafayev discussed progress on ITC components with Iranian Minister of Roads and Urban Development Farzana Sadig. Sadig noted: "Construction of the Resht-Astara line, a key element of the North-South corridor, has already begun in Iran. Cooperation with Azerbaijan is crucial for developing the ITC's railway infrastructure, and we must work together to achieve the goal of transiting 15 million tonnes of cargo between our countries."

Similar negotiations between Azerbaijan and Russia culminated in an intergovernmental agreement on December 21, 2023, aimed at developing transit freight traffic along the North-South corridor. The agreement was signed during a visit by Azerbaijan's Minister of Digital Development and Transport, Rashad Nabiyev, to Russia. Discussions with Russian Deputy Prime Minister Vitaly Savelyev and Transport Minister Roman Starovoit focused on current issues and future prospects for the ITC.

The agreement's primary objective is to "enhance the efficiency of transport links and increase the potential of the western ITC route." It also ensures the free movement of goods through both countries and optimises customs control. The parties agreed to streamline customs procedures in line with international standards, aiming to simplify and expedite transit cargo clearance. Additionally, the agreement includes mutual recognition of customs documents and identification measures.

A key provision establishes guaranteed annual cargo volumes to be transported from Russia to Azerbaijan following infrastructure upgrades. The agreement also introduces compensation mechanisms: if Russian Railways fails to meet the guaranteed cargo volume, it must compensate ADY for the shortfall. ADY assumes similar obligations, though Azerbaijan is exempt from liability in cases of force majeure, national security concerns, or refusal by Iran to accept transit cargo.

This new agreement represents a significant step toward operationalising the western segment of the North-South ITC, further unlocking Azerbaijan's transit potential.