North-South Transportation Corridor: Can It Become Alternative to OBOR?
On May 14-15th, 2017 the Belt and Road Forum was held in Beijing. The two-day forum was dedicated to one of the largest infrastructure projects initiated by China known as the One Belt, One Road initiative. Representatives of 57 countries including 29 states of countries or government attended the event. At the forum, Chinese president Xi Jinping announced that additional $124 bn would be invested into OBOR including financial assistance to developing nations along the way of this project. The Chinese initiative to bring the countries of the region to its infrastructure projects leaves out India, one of the fastest growing economies of the world. And New Delhi is zealously trying to build up its own infrastructure initiative to increase its export potential as well as to get cheap and easy access to Europe. The International North-South Transport Corridor (NSTC) is a trade transport network composed of rail, road, and sea, starting from Mumbai in India, going through Bandar Abbas port in Iran to Baku through railroad or via Caspian Sea and then further to Russia and Europe. The initiative was launched back in 2000 and signed by Iran, Russia and India in St. Petersburg. The corridor is not new however. During the Soviet times the corridor transported goods between India and USSR, but it significantly deteriorated right after the collapse of the Soviet Union. Nevertheless, over the last decade, the cargo transportation via this route increased dramatically. The main advantage of the NSTC is the lower cost of transportation from Europe to India and back. A container sent from India to Helsinki would usually reach the point of destination within 45-50 days, while NSTC can cut this travel time almost in half. Moreover, the costs could be decreased too. A test conducted in 2014 from the Nhava Sheva port in India on two trade routes, one to Astrakhan in Russia, via Bandar Abbas and Amirabad, and another to Baku in Azerbaijan, via Bandar Abbas and Astara, show that these routes can reduce shipment costs by $2,500 per 15 tons of cargo. It is expected that only Russia would be able to get hundreds of millions of dollars from transportation fees, taxes and custom revenues. At the same time for the Russian side, the project is believed to increase trade with India by cutting the cost of transportation. It will also allow Russia to take an active position in Iran and India. Amid the western sanctions, it is also a good opportunity for Russia (and Iran) to find new markets for its exports and substitutes of European imports. For India, the project is vital and beneficial in all aspects, especially taking into consideration the fact that Chinese led and constructed infrastructure projects would try to exclude India from participating in them. NSTC would allow India to get access not only to Europe but to Central Asia and Caucasus. Moreover, India may get a share of the Russian market that is currently dominated by Chinese companies. Iran and Russia, on the other hand, are the other major players in this project. Both of them are trying hard to diminish the impact of western sanctions and get additional opportunities to earn needed cash. It is interesting to mention that, in contrast to many other projects in Eurasia, the project is more economically-driven rather than political. All participating sides mention economic benefits as well as trade rather than political or military aspects.
Azerbaijan is considered the major transportation route in the region that can help to implement NSTC. Despite the fact that Russia and Iran are able to directly trade via the Caspian Sea, nevertheless the involvement of Azerbaijan decreases the cost of transportation and allows it to have uninterrupted communication (the northern part of the Caspian usually freezes). Moreover, Azerbaijan’s infrastructure is more advanced than of Russia in the Northern Caspian. Officially, Baku joined this initiative in September of 2005 as a transit country for the project. Azerbaijani authorities hope to diversify their oil-driven economy with transportation projects that can bring financial flows to the country. Thus, the actions of Baku of constructing a new international port on the Caspian Sea, reconstructing the Baku-Akhalkalaki-Kars railroad, building a railroad connecting Azerbaijan with Iran, and many other projects serve the purpose of making the country a hub. Azerbaijan in turn hopes that NSTC will help the country to become a logistical hub. Together with OBOR initiative, NSTC may connect all routes to Azerbaijan, benefiting the country in the time of decreased oil prices. For Azerbaijan, NSTC got priority status after December of 2015, when the President of the Azerbaijan Republic signed a decree to speeding up the construction of NSTC. Following this decree, Azerbaijan intensified the construction of an 82.5-meters-long bridge across Astara River, on the border between Azerbaijan and Iran. Also, a 8.5 km railroad line is being finished that would connect the railroads of Azerbaijan and Iran. Finally, in August of 2016 Baku hosted a summit of Azerbaijani, Iranian and Russian presidents. Beyond other discussions, these leaders focused their attention on the North-South corridor and the ways to accelerate its implementation. In early of June 2017, the Iranian communication minister stated at the Economic Forum in Saint Petersburg that Azerbaijan and Iran were merging their railroad system, which would spur NSTC.
In order to benefit from transportation corridors not only by collecting fees but also through economic development, Azerbaijan intensified its efforts to establish free economic zones. Thus, in March of 2016, president Aliyev signed a decree on the establishment of a free trade zone in the Alat district adjacent to the International Sea Port. The zone is currently being built and will serve both domestic and international markets. Ideally, the government hopes to turn the zone into the major logistic, manufacturing, distribution and transport center in the Caspian Sea. Such a zone would facilitate traffic along NSTC and would allow all involved countries to intensely cooperate.
Despite the ongoing construction and implementation of projects within the framework of NSTC, the project is far from being viable and sustainable. There are several hurdles that may undermine the implementation of the project. First, in contrast to OBOR initiative there is no major economic driver of NSTC. China is actively penetrating into the region’s building infrastructure, as well as providing financial incentives trough the Asian Infrastructure Investment Bank. In the case of NSTC there is not a single driver that would push the project forward. All three major countries Iran, India and Russia have an equal role and are not rushing to share financial responsibility. Azerbaijan, for example, provided $500 m loan to Iran to complete 8km-long railway linking the borders of Iran and Azerbaijan, which was due to be completed by the end of 2016 but is now slated for the mid of 2017. So, the absence of funding could be detrimental to the project. Second, NSTC does not have effective or active management body (similar to OBOR or TRACECA) that could bring together different agencies and get them to agree on the construction of certain links, on custom tariffs, on legal issues, and on many others. According to the initial agreement, there is a Coordination Council of NSTC, but it does not have a powerful mandate and has only limited responsibilities. Creating a centralized operating agency was mentioned in the Expert Groups’ meeting in 2013 in Baku, but the discussion of that issue was postponed for the next meetings. In addition, the economic crisis in the region as well as sanctions against Russia and Iran add concerns to the sustainability of the project. Finally, the danger of politicization of the project may undermine it. If sanctions against Russia continue for a longer time and the EU countries as well as USA would impose new ones on Iran, then the project is doomed to fail. Even if India and Iran would transport their goods to Europe through NTSC, European countries’ reluctance to transport their goods through NTSC would decrease profitability of the project.
Despite the fact that NSTC can hardly become rival to OBOR initiative yet, Azerbaijan and the countries of the region including Georgia (and Armenia in the future) can benefit a lot from the project. If Azerbaijan is able to direct all goods from India, Iran and potentially other Middle Eastern countries (and maybe African countries via Bender Abbas port) to Europe through Azerbaijan, then the country will be able to benefit from transportation fees, re-exports of goods and additional opportunities. For Georgia, NTSC is a good opportunity to get access to Middle Eastern market as well as South Asia. Finally, the corridor will allow the region to turn into hub by connecting OBOR and NTSC together at one point. Ultimately the region can be the greatest beneficiary of the project if the governments are able to catch this golden opportunity and take the necessary steps to implement the projects.
Photo Credit: Russia and India Report