North-South corridor: Russia’s connecting link with India and Africa
The introduction of Western sanctions targeting Russian air, sea and road carriers stimulated Moscow to undertake the pivot to Asia and the Orient, in general, by changing transportation routes of its main export cargo at an accelerated pace. One of the top priority projects was the formation of the North-South international transport corridor (ITC), designed specifically to connect Russian sea ports in the Baltic and the Arctic region with ports on the coast of the Persian Gulf and the Indian Ocean. Alexander Isaev, Director General of the Directorate of International Transport Corridors (DITC), provided the insight of the endeavor in an exclusive interview with Capital Ideas.

At the international forum in Beijing "One Belt, One Road", President Vladimir Putin highlighted the idea of the North-South international transport corridor with the final destination being the Indian port Mumbai, and subsequently ports on the coast of Africa. What was the reaction of Chinese partners to this grandiose project?

At the Beijing forum, the Russian President disclosed our long-term plans, which are already in the initial stage of implementation (including the North-South ITC), and noted that they would harmoniously complement other infrastructure projects in Eurasia, including those promoted within the framework of the One Belt, One Road initiative. Eventually, it would make it possible to create a unified transport and logistics framework, diversify cargo flows due to more efficient, reliable, and secure supplies.

The Head of the Russian state also announced the formation of a network of transport corridors in different directions on the territory of Russia proper, including the ITC aimed at connecting Russian sea ports in the Baltic and Arctic with ports on the Persian Gulf and Indian Ocean coasts. At the same time, the President stressed that seamless railway communication will be provided on the entire route – from our northern city of Murmansk to the Iranian Bandar Abbas. On the part of our Chinese partners, we see full understanding and support for Russian proposals.

Can you give a complete list of countries that showed interest in the ITC project, as of today?

For the first time, the idea of an international North-South transport corridor equipped with modern logistics infrastructure was expressed in the mid-1990s backed up by the rationale to extend European transport corridors.

In 1999, a group of Indian, Iranian and Russian transport companies signed a general agreement on the export-import transportation of containers along the Sri Lanka-India-Iran-Caspian Sea-Russia international transport corridor. The agreement defined the organization of this transportation, stipulated the responsibility of the participants, approximated rates and terms of passage of goods in 20-foot and 40-foot containers.

In September 2000, at the Second International Euro-Asian Transport Conference in St. Petersburg, three countries - Russia, Iran and India - signed an intergovernmental agreement on the creation of an international transport corridor "North-South". In this agreement, paragraph 1.9 of Article 1 defines the International Transport Corridor (ITC) as a route running from India, then to Oman by sea, then through Iran, the Caspian region, the territory of the Russian Federation, as well as a route going in the opposite direction.

By May 2002, the Agreement had been ratified by all its participants and entered into force. Later, seven countries joined the ITC - Kazakhstan in 2003, Belarus and Oman in 2004, Tajikistan in 2005, followed by Azerbaijan, Syria, Armenia, and Bulgaria as an observer state.

Today, many countries are interested in the project. At the same time, I would like to highlight the role of Russia and Iran, through whose territories the ITC routes pass.

How many routes does the North–South ITC envisage?

The corridor includes three main routes, each of them has its own characteristics. The Western one passes through the territories of Russia, Azerbaijan and Iran - road and rail transport. Vostochny - through the territories of Russia, Kazakhstan, Turkmenistan and Iran, as well as road and rail transport. Trans-Caspian - through the Caspian Sea with access to the territories of Russia and Iran, as well as Turkmenistan – by sea transport.

All routes are complementary, on the one hand, and are competing with each other, on the other hand. In this regard, all participants of the ITC project share the opinion that it is essential to build a strategy for the development of each of the routes, not neglecting terms of substantive interaction with partner countries.

Thus, in order to develop the Western Route, a trilateral meeting between Russia, Azerbaijan and Iran was held in Baku in September 2022; it culminated in the adoption of the Baku Declaration. The document emphasizes that by 2030, the volume of transit and bilateral cargo transported along the route should reach at least 15 million tons.

Equally important is the "rolling out" of the Eastern (railway) route. It transported only 700 tons of cargo in 2021, and in the 11 months of 2022 – 62 thousand tons and 220 containers from Iran, South Asian countries and the Persian Gulf.

By 2025, according to preliminary estimates by experts, the total volume of Russian export traffic along the Eastern route may amount to about 3 million tons of cargo per year, and by 2030 it is expected to go up to 5 million tons.

And finally, the Trans–Caspian route: it goes through the Caspian Sea using the Russian seaports of Astrakhan, Olya, Makhachkala and Iranian ports on the Caspian Sea - Bandar-Enzeli, Bandar-Amirabad in the direction of the port of Bandar Abbas and in the future - Chahbahar (in the Persian and Oman Bays). Currently, this route is used for foreign trade transportation between Russia and Iran. The volume stands at about 3 million tons per year. 

Russian and Iranian river-sea class vessels are in use on this route. Through the Ministry of Transport of Russia and Rosmorrechflot, close cooperation is being carried out with the Iranian side to launch shipping lines between the ports of Russia and Iran in the Caspian Sea.

What is the estimated cost of the entire ITC project? Will Russia alone be capable to bear such huge expenses?

According to the Russian Ministry of Economic Development, about 100 projects with a total cost of over $38 billion will be built by the participating countries thus creating the infrastructure of the transportation corridor. At the same time, Russia intends to implement projects on its territory in accordance with the "road map" for the development of the North-South corridor, which was approved by the Russian government in December last year.

The total volume of Russian investments in the development of the ITC will amount to 250-280 billion rubles until 2030. These funds are provided by the federal budget and are not subject to sequestration. 

What do you see as the main problems of a bona fide launch of ITC?

I would say that there are not problems of building this infrastructure, but we might face problems of the further development of the ITC. After all, the existing infrastructure of the ITC already provides road, rail and sea transportation, its capacity in 2023 is larger than in 2021. This became possible, in particular, due to the extensive work of Russian Railways.

However, the existing ITC infrastructure no longer meets the growing logistical demand. Indeed, for Russia until 2022, the ITC routes were, first of all, routes of bilateral trade with the Caspian Sea littoral countries, Turkey and Georgia.

Accordingly, the ITC at present consists of a sequence of transport corridors linking states with different customs regimes, railway gauge and varying in other parameters. There is no full-scale interaction between the participating states of the ITC on the creation of a centralized system for the formation of a cargo base. Foreign partners often are confused about business entities that they are expected to work with in Russia. And this constitutes a real problem.

The development of the ITC is hampered by a shortage of services capable of ensuring quality, speed and safety of cargo transportation. After all, the bulk of cargo transported by the ITC is either cargo with high added value, or cargo that is extremely sensitive to speed and other terms of delivery. There is practically no reverse loading of vehicles.

There are still problems with the deepening of the Volga bottom, and it hinders the sustainable growth of navigation along the ITC. It is also necessary to develop our own merchant fleet for the Caspian Sea, to build ferries and other specialized vessels of gross capacity.

The time has come to build additional sea terminals for the transshipment of containers, general cargo, oil and grain, i.e. under the nomenclature of products transported along the Trans-Caspian route of the ITC.

Some of the named problems can be considered as systemic, since they have a history of their own; others come up as new challenges to participants in the transportation process due to the rapidly changing economic and political environment. The problems are well known to us and our foreign partners. We will certainly solve them in collaboration.

Some reports in the media claim the ITC cannot boast of special demand from shippers. In 2022, only 2.3 million tons of cargo passed through the North-South corridor. Is it true?

We have other data at our disposal. The growth of Russian export-import cargo traffic through the ITC amounted to +6% (13.8 million tons in 2021, 14.5 million tons in 2022), including exports that went up +7% (10.3 million tons in 2021, 10.9 million tons in 2022), and imports that added +3% (3.5 million tons in 2021, 3.6 million tons in 2022).

In general, according to experts' forecasts, freight traffic through the North-South ITC should double by 2025, going up to 30 million, and by 2030 reaching 35 million tons.

The construction of the international transport corridor (ITC) was launched in 2005 with the purpose to connect the Russian market with the markets of Iran, India, and countries of the Middle East. Meanwhile, there is a persistent rumour that the ultimate goals of the corridor have undergone a shift from India to Africa. Can you confirm it?

The final goals have not changed. They have been simply clarified and expanded in accordance with the new priorities of Russian foreign trade. Therefore, India, the Near and Middle East, as well as the Asia-Pacific countries and Africa too are all incorporated into this strategic framework.

By the way, the participants of the Astrakhan International Forum held recently proposed to consider the possibility of expanding the transport corridor to Uzbekistan, Iraq, Afghanistan and Pakistan.

The North-South project was originally initiated to create a short cut compared to the sea transport route through the Suez Canal. The transportation of goods through the ITC will reduce the timeframe, will it not?

The main advantage of the North-South ITC over the Suez Canal is the faster cargo delivery to the end-recipients. The speed of cargo movement from Europe to India along the North-South corridor could be termed “express delivery” if compared to logistics relying on the Suez channel. Accordingly, the costs of using ITC would be significantly lower.

The delivery time of goods from Mumbai to St. Petersburg via the traditional route passing through the Suez Canal varies from 30 to 45 days. By contrast, cargo transportation from India to Russia via the North–South overland route can vary from 15 to 24 days. The transportation of goods along the eastern branch of the corridor passing through Kazakhstan and Turkmenistan shortens the delivery time to 15-18 days.

Experts expect that after the commissioning of the Astara–Rasht railway section on the territory of Iran, the delivery time of goods via the ITC would be reduced even more.

Is it true that the ITC competitiveness is negatively affected by customs duties, which is why logistics along this route is more expensive than the delivery of goods through the Suez Canal to Europe?

We expect that a free trade agreement between the EAEU and Iran will be signed by the end of this year. It will significantly reduce the expenses of exporters and importers associated with the payment of customs duties.

I would also draw attention to the strengthening of cooperation between the customs services of Russia, Azerbaijan and Iran:  in August last year they signed a memorandum aimed at simplification of transit traffic. It provides for the introduction of mechanisms

for coordinating the activities of the customs authorities of the three countries located on the route of transit cargo from Iran to Russia through Azerbaijan and back.

The working shifts of the customs authorities were synchronized, and it made it possible to reduce queues at checkpoints. We currently monitor the exchange of operational information on transported goods, including dangerous and prohibited, as well as vehicles, and also the ongoing work and mapping of future plans for the reconstruction of checkpoints.

A project on mutual recognition of customs control rulings is being implemented with Azerbaijan. It would make it possible to expand the circle of participants, increase the volume of trade turnover, enhance transparency and security of the supply chains of goods.

In addition, at the initiative of the Federal Customs Service of Russia, new projects are being worked out to accelerate the movement of goods within the corridor. Among the most promising is the project "Simplified Customs Corridor", which provides for reducing the administrative “red tape” and frequency of application of customs control measures when declaring and releasing goods during their movement between the two countries that have concluded an agreement. The agreement may cover all goods and specific categories of products.

Russia has repeatedly stated its readiness to work through Iran, but some experts believe that Iran, on the contrary, is not ready to build up the ITC infrastructure on its territory. Could you either confirm or deny these claims?

Our Iranian colleagues indicate quite the opposite: Tehran has its own national strategy for the development of transport infrastructure, and continues to successfully implement it, both in terms of railways and highways, and ports on the shores of the Caspian Sea, as well as in the Persian and Oman Gulfs.

The leadership of the Islamic Republic of Iran consistently pursues a policy aimed at embedding national transport network in the system of international transport communications. For example, Iran's First Vice President Mohammad Mohber recently proposed creating a comprehensive transit corridor to connect all the Shanghai Cooperation Organization (SCO) member states through Iran.

Iran remains constrained by international sanctions and would need huge investments to implement such plans. Who could provide such investments?

Iran implements some of the transportation and logistics projects at its own expense. However, Iran effectively attracts investments from other countries, for example, from Russia, China, India, and some others.

Russia and Iran have signed an agreement on the construction of the Rasht-Astara railway within the framework of the ITC project. What is the current state of affairs on this track?

In addition to the intergovernmental agreement that you mentioned, a contract was signed between the authorized organizations of the two parties for the design and construction of the Rasht-Astara railway, as well as for the supply of relevant goods and services. It is being successfully implemented in accordance with the schedule of joint work, and the completion is planned by 2028. The project provides for major Russian investments in Iran's railway infrastructure. The total estimated cost of the project stands at 1.6 billion euro, and Russia's share amounts to 1.3 billion euro.

I would also like to emphasize that after the commissioning of this section of the ITC, not only the gap in the railway line from St. Petersburg to Bandar Abbas will be closed, but also it would amount to the final formation of a railway ring around the Caspian Sea, an ambitious project that all the countries of the Caspian Five littoral states are consistently working on.

Russia's lack of river-sea merchant vessels capable of navigating both the Caspian Sea and the Volga River and further to St. Petersburg is a problem, is it not? How is it planned to be solved? In addition, has the problem of increasing the number of container ships in the Caspian Sea been resolved?

According to the assessment of our Ministry of Industry and Trade, sea transportation through the North‒South ITC will rise to 8 million tons by 2030, and up to 20 million tons by 2050. This will be possible thanks to the construction of modern cargo ships of the river-sea class.

Experts have calculated that for the transportation of 8 million tons across the Caspian Sea, about 20 vessels need to be built, of which 10 should be container ships, and in the future, at least 50 vessels will be required to service this route. This task is planned to be solved on the basis of the Russian shipyards of the United Shipbuilding Corporation (USC) located in the Caspian region.  

What opportunities will open up for the Russian regions after the launch of all ITC routes?

Estimates have been made as well as forecasts of transport and economic ties between countries that have an interest in transporting goods via the ITC, taking into account the state of the current infrastructure. The leading Russian regions have been identified, which are already using transportation via the ITC and count on accelerating their socio-economic development. We are talking about, first of all, Astrakhan and Saratov regions, Perm and Stavropol Territories, Moscow, Volgograd, Kemerovo, Orenburg, Chelyabinsk regions, and the Republic of Tatarstan. They would capitalize on the extra opportunities to boost foreign trade along the ITC routes.

Can ITC become the main channel for the supply of Russian grain to India, the Middle East and Africa without going through an intermediary, in particular, Turkey?

When organizing such deliveries, our exporters use traditional channels. Already today, part of the grain is exported through Russian ports in the Caspian Sea, where, as I noted above, new grain terminals are being built. At the same time, analyzing the promising nomenclature of the North-South ITC cargo, we note that the volume of grain cargo tends to increase. Thus, the role of the international transport corridor in ensuring grain exports will only gain weight in the future. 

Given the additional volumes of cargo transportation, the country needs more transport vehicles like railway carriages and locomotives. How would be this issue solved?

The issue of the locomotive and carriage fleet, indeed, is one of the most pressing. In 2022, Russian Railways has allocated over 89 billion rubles for the renewal of the locomotive fleet. This allowed the purchase of 497 new locomotives. Next year, the company intends to purchase 602 locomotives with unconditional import substitution of their components. Hence, one of the main tasks of Russian Railways is to increase the quality indicators of the use of the rolling stock.

The global trend in the freight car market is that the arrival of new rolling stock outstrips the rate of retirement of old cars. As a result, the number of wagons has increased by 213 thousand over the past six years, reaching a historical maximum of 1 million 291 thousand units. Since 2017, the car fleet has grown by 20%, and it means that this process remarkably outpaces the growth rates of the volume of work performed and the length of station and main tracks.

Contracts have been signed for the creation of an experimental batch of eight-axle articulated tank cars with a load capacity of 148 tons. They will be used by owners and operators of rolling stock for the organization of transportation of oil cargo. Of course, all the capabilities of the constantly updated locomotive and wagon fleet will be used for railway transportation along the ITC.

Do you believe that the European Union may eventually join the ITC?

It's not a matter of faith. On the other hand, it is not entirely clear why it is necessary to rigidly link the prospect of participation in the project of Western companies with the mandatory accession to the project of the European Union?

The International Agreement signed on September 12, 2000 regarding the North-South ITC is open to anyone who wants to join in. There is a clear procedure for the accession.  We are ready to cooperate with Western businesses that are really ready, in their turn, to support the project.

The ITC must ensure the stability, safety, and stability of transportation. We focus, primarily, on our own strength and the potential of our partners. I am sure that the necessary infrastructure and logistics solutions will be built and implemented, and in the long run it will turn the ITC into one of the largest international transport arteries.