New Delhi: India has cancelled its deal with Chinese port-crane-maker Shanghai Zhenhua Heavy Industries Company for the strategic Chabahar port project that New Delhi is developing in Iran’s Sistan-Baluchistan province, ThePrint has learnt.
Under the contract, secured three years ago, the company was supposed to supply four Rail-Mounted Quay Cranes (RMQC) at a cost of $29.8 million.
The decision to scrap the deal comes amid tensions between India and China at the Line of Actual Control (LAC) in Ladakh. However, officials in the Union shipping ministry said the contract had been cancelled because of a delay on the part of the company, and their demand that India indemnify any losses it suffers because of US sanctions on Iran.
The Chinese firm had won the bid in 2017, but, three years down the line, hadn’t delivered even a single crane.
“The Chinese firm was asking for extra-guarantee. We told them it is not possible for us to give one Chinese company this kind of extra guarantee. So, we decided to invite fresh tender,” Sanjay Bandopadhyay, additional secretary in the Union Shipping Ministry, told ThePrint.
ThePrint has sent an email to Shanghai Zhenhua Heavy Industries Company, also called ZPMC, for a comment on the cancellation of the deal. This report will be updated when they respond.
The scrapping of the deal is going to further delay the Chabahar port project, which has deep strategic importance as it will allow India to bypass Pakistan for access to markets in Afghanistan and Central Asia.
In July, Iran had dropped India from a related project to construct a rail link connecting Chabahar Port to Zahedan along the Afghanistan-Iran border.
Iran has said it will fund and develop the rail link on its own, but is leaving the door open for India to join at a later date.
External Affairs Minister S. Jaishankar met his Iranian counterpart earlier this week in Tehran to discuss the Chabahar port project, among other issues related to the situation in Afghanistan.
Also Read: Jaishankar in Iran as India’s worried about China deal & Beijing ‘grabbing’ Chabahar Port
Govt floats fresh tender
The government-owned India Ports Global Private Limited (IPGPL), which is implementing the Chabahar port project, floated fresh tenders for four RMQC on 31 August.
“India started doubting the intention of the Chinese firm after their demand that we indemnify all their losses. We thought it prudent to drop China and float fresh tender,” IPGPL Managing Director Arun Kumar Gupta told ThePrint over the phone.
Gupta said that the government has also decided to scrap another deal — this one by the Finnish crane maker Cargotec OYJ — for delay. The company had won the bid to supply 14 Rubber-Tyred Gantry Cranes (RTGC) but has failed to supply a single crane to date.
US sanctions have companies and banks on edge
In November 2018, the US put Iran under tough sanctions after pulling out of the 2015 nuclear pact that called for Tehran to take some steps to assuage western concerns about its nuclear activities. In return, the 2015 pact freed Iran from sanctions imposed by the western nations.
The fresh sanctions involved a threat of US boycott for any nation dealing with Iran. However, India got reprieve from the sanctions for Chabahar port in view of its significance for development in Afghanistan.
A senior official in the shipping ministry who did not want to be named said, despite India getting the exemption, companies are reluctant to honour their bid because of apprehensions that doing business with Iran could adversely impact their business with the US.
“Banks are also reluctant to do business with Iran. The Finnish company, for instance, has to give a bank guarantee but are unable to do so as the Finnish banks are apprehensive,” the ministry official added.
In May 2016, India had signed a Memorandum of Understanding with Iran, under which it was to equip as well as operate the two terminals at Chabahar with a capital investment of $85.21 million and an annual revenue expenditure of $22.95 million on a 10-year lease.
But, until the procurement of equipment and finalisation of the long-term MOM (Manage Operate Maintain) operator, it signed a short-term lease contract to start interim operations on the port, where work is complete.
India has selected Kaveh Port and Marine Services, an Iranian company, for running the interim operations. It started work in December 2018.
Also Read: China’s deepening ties with Iran raises critical concerns for India, Chabahar port