– by ORKASH Labs, Copyright: ORKASH Services Pvt Ltd

The strategic importance of Iran’s Chabahar port is as a viable alternative land route to Afghanistan bypassing Pakistan. However, more significant is its potential as a new trade route to Central Asia’s minerals and markets of Afghanistan, Turkmenistan, Uzbekistan, Kazakhstan and other Central Asian countries east of the Caspian Sea.
(The article first appeared on South Asia Monitor China sniffs around Chabahar: Will India get its act right? ). 

Recent news of China’s offer to Iran to upgrade the Chabahar port on the Persian  Gulf (72 km west of Gwadar port in Pakistan that is also formally under Chinese control), has once again stepped up pressure on the Indian government to act quickly and decisively in investing in Chabahar.

Several other reasons, besides countering Chinese dominance, have been cited: inter alia access to Afghanistan bypassing Pakistan, role in ending Iranian isolation and facilitating US-Iran rapprochement.

However, this article argues that knee jerk reactions to disparate geo-strategic events and rhetoric are not fruitful in this case. Utility of a port is as good as the logistic linkages that connect it to major areas of influence, markets and investment destinations, infrastructure in and from the port, and most importantly, a clear strategy on how connecting areas are to be used.

And in this context the Indian establishment is making the same mistakes with idea of Chabahar that it has repeated over and over again in the region – lack of a long term geo-strategic plan. The question is not whether India needs to invest in Chabahar or not, the geo-political and energy security stakes for not upgrading are too high. What needs to be asked is the purpose of this exercise, and work backwards for formulating decisions on developing infrastructure, engagement with stakeholders and addressing challenges that exist.

Without a clear plan on how and for what Chabahar is to be used the idea will fall into oblivion like many of India’s other initiatives, including the International North South Trade Corridor (that begins from Bandar Abbas port in Iran and via three separate routes connects to Europe)

Challenges to developing Chabahar Port

Significant challenges exist on the side of all stakeholders, which have to be systematically addressed as part of the broad strategy of developing Chabahar.

Feasibility of Logistical linkages

Despite its strategic location as an invaluable access point not only to Afghanistan, but also to Central Asia, Russia and Europe there is no evidence that traffic has actually increased in Chabahar, or significant investments pumped in. This has raised questions about the logistical linkages from and to Chabahar, including quality of connecting road and rail links, ease of traffic movement, toll and border custom structures and support infrastructure.

Most major road routes at the moment run from Chabahar to northern Iran close to the Afghanistan border and then enter Afghanistan (through either Zaranj in south western Afghanistan and then connect to Highway A77 to Kabul and Qandahar or through north western Herat province), Uzbekistan (via Afghanistan’s Herat province to Tashkent) and Tajikistan (via Turkmenistan). Several alignments on these roads are disjointed and not wide enough to allow movement of big trucks and trailers. Around major cities like Mashhad (north eastern Iran) and Zahedan (east Iran) , significant improvements have taken place, however overall quality of roads requires major investments. In addition, three major rail routes have been proposed in the area that will connect to Herat, network links from Bandar-Abbas and to Central Asian countries.

Two hurdles arise in this regard:

From the Iranian quarter, the most important challenge exists in their ability to complete proposed rail and road links and upgrade infrastructure in the region, given the paucity of financial investments, due to US and EU imposed sanctions.

Second,  no clear mapping of logistical and security challenges has been done on the ground on the route connecting to Afghanistan and Central Asia, including the reign of local ‘warlords’ in the region, crime, extortion and militancy.

The curious challenge of Afghanistan

Notwithstanding multiplicity of intentions, Afghanistan remains central to India’s lean towards Chabahar and is a key stakeholder for development of all proposed connecting infrastructure.

In this regard, another significant challenge to the development of Chabahar, lies in strong ‘alternate power centers’ that exist within the Afghan establishment and have a stake in ensuring that the route through Pakistan’s Karachi port remains viable.

Second, the uncertain situation in Afghanistan post the withdrawal of US troops also indicates that India must proceed with caution. As much as Indian pro-active involvement is required to stabilize the region, one of the most important reason for developing Chabahar, remains commercial and investment potential. Like the ‘Wait and watch’ attitude of the Chinese in the Aynak (in Logar province) copper mines where almost no mining activity has commenced, even though it was awarded in 2007 and several other infrastructure projects, India needs to see where the balance of power tilts post 2014. Exploitation of rich mineral deposits in north and central Afghanistan, including Hajigak (iron ore mines in Bamiyan, where India’s Iron and Steel Consortium has won mining rights), can only be viable with the support of the Afghan government, whose legitimacy is uncertain at the moment.

Absence of strategic planning by India

The last challenge for India centres on an absence of strategic planning on how Afghanistan and Central Asian markets and investment opportunities are to be tapped. Separate plans will have to be drawn out for strategic purpose of both International North South Trade Corridor and Chabahar and logistic linkages, since India has emerged as a prime player in both these initiatives. The plan is to use Bandar Abbas as a gateway to economic relations with larger Commonwealth of Independent States and Europe and Chabahar for Afghanistan and Central Asia. However, little planning has been done on capitalization of trade and investment opportunities, barriers that exist and political negotiation strategy in these countries.

A blueprint also needs to be made about how the US establishment will be tackled over proposed massive investments by India into the Iranian infrastructure. And here India has the potential to play a strategic game – a) by reducing US’s dependence on Pakistan for supply routes, and b) creating ‘economic stakes’ for Iran to be drawn out of isolation and integrated with transnational commercial activities.

Balancing out the Odds

Notwithstanding the challenges to development of Chabahar port and logistic linkages that have been highlighted above, the aim of this piece is not to question the Indian decision to invest in Chabahar, but rather to suggest steps that can help make an informed decision. Strategically, development of Chabahar can be a ‘Game Changer’ for all those involved:

For India, it can give access to new markets and investment opportunities, securing the hydrocarbon supplies. For Iran, it will inject much needed resources into the economy – whether in the form of cash or creation of infrastructure and help the regime in integrating with the global commercial activities. For Afghanistan, access to an alternative warm water port can help reduce dependence on Pakistan’s Karachi port and give a boost to investments in the country.

And for the US, an alternative logistics route can open up that bypasses Pakistan, thus reducing dependence of US and NATO forces on Pakistani establishment. In addition, the trade and transport movement that this will unleash has the power to create ‘economic stakes of stability’ for Iran.

However, certain operational, logistical and security related questions will determine ‘How, When and in what way’ should these investments be made by India. A Four-Step Approach is proposed:

Step 1: On-ground visits and surveys must be undertaken on priority to understand the operational, logistical and security feasibility of the port and which logistic linkages should be developed. Combining sophisticated technology tools like Geographic Information System, Intelligence and Risk Management Systems etc with pro-active ‘on-ground’ intelligence can help in determining the nature and timing of investments.

Step 2: A Return on Investment must be calculated for investments in Chabahar – centering on geo-political stability and energy security on the one hand, but also trade and investment feasibility.  For this, India must get right its strategic vision for the region, including its export and investment model in Afghanistan and Central Asia, access to hydrocarbon resources and how a network of pipelines, roadways and railways can help further its vision.

Step 3: It is necessary to understanding all relevant stakeholders, their motivations and especially where the balance of power is likely to tilt in Afghanistan.

Step 4: Formulation of a strategy to negotiate with the US and other Western powers. The biggest challenge for engaging with Iran remains the US intolerance of any country engaging in commercial relations with Iran. India has rightly played the card of access to Afghanistan as the sine-qua-non of their interest in Chabahar to get a US bye-in. The Indian diplomacy will have to work overtime to ensure more such strategic initiatives.

Conclusion:

Development of Chabahar and its logistic linkages presents a unique opportunity to India to strengthen its geo-strategic hold in Afghanistan, Iran and Central Asia, to secure its supplies of energy, to boost trade and investment and play a counter to Pakistan and China. However, the capitalization of this potential will require careful planning – strategic, operational and commercial.

In addition, the ground level operational questions will have to be in the framework of India’s broad strategic vision in the region: Trade and Investment, Geo-political and Energy security and Ripple effect for creation of additional infrastructure – pipelines, highways and railways.

 

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  •  The New Companies Bill makes it mandatory for companies to earmark atleast 2 percent of their average net profits for the preceding three financial years, for implementing a Corporate social responsibility (CSR) strategy.
  • The bill is applicable to companies with a net worth of Rs. 500 crore or more, a turnover of Rs 1,000 crore or more and a net profit of Rs 5 crore or more during any financial year.
  • Thus the bill makes it compulsory to not just earmark the funds but also form a CSR committee (of board members consisting 3 or more directors out of which atleast one is an independent director), formulate a CSR policy , allocate the amount to different activities and monitor the implementation from time to time. Further, the CSR policy is to be disclosed on the company website.
  • With regard to implementation, only project based investments, and not mere donations, will be accepted as CSR which involve innovative social inventions/initiatives that factor in hazards, risks and vulnerabilities. Baselines surveys, social impact assessment and meticulous evaluation including documentation is mandatory along with training and re orientation of the staff.
  • The CSR amount unused/unlapsed in a particular year will be carried forward to the following year. CSR budget itself hence is non lapsable.
  • With regard to failure to spend the requisite amount, the bill states that the company shall have to provide sufficient reasons for not spending the allocated CSR budget. While no specific penalties are contemplated in the Bill with respect to CSR, sections 450 and 451, provide for general penalties for flouting the rules and repeat offences.
  • An estimated 2,500 companies fall into this “mandatory” CSR-reporting category.
  • CSR activities in the first year would be between Rs. 9,000 crore and Rs. 10,000 crore spent in social welfare.

Implications for the Companies

The new bill has two important provisions with regard to CSR. The first is that the board is mandated to ensure that the company will spend on the CSR.

Second being that they have to give an explanation regarding the spending. So, effectively although there is no mandatory obligation on the company, but a responsibility is cast upon the board members.An explanation that is unsatisfactory can empower the regulator to question the roles and duties of the directors making it not just a provision on paper but an obligation on the board, which they may not be able to get away from easily.

The idea has also been to make the spending transparent and more than just ad hoc philanthropy. By mandating a CSR team, with 3 directors including one Independent Director, a CSR strategy, ensuring implementation and monitoring of results are all in the direction of pushing companies to develop a management level approach by targeting operational risk mitigation through CSR, as an effective tool. They may be further propelled to understand ground realities, leading to an amalgamation of stakeholder interests with the company’s long term goals. This will be an optimal concept, enhancing welfare of all the concerned entities.

CSR Strategy
Central Tenets of a CSR Strategy

Challenges Ahead

  • The first and most important challenge is that of political pressure by local politicians especially for PSU’s to spend in their constituencies. The mandatory spending and the essential baseline suveys along with social impact assessment will lose its meaning if the initiatives cant be directed in areas which need them the most with regard to mitigation of operating risks.
  • Another concern is that a mandatory spending is nothing but tax. Hence, mandatory CSR increases the country’s already high corporate tax, implicitly. It stands at 32.5% which itself is higher than the global average of 24.09 %. The figure for other countries, China, Vietnam and Indonasia stand at 25%. Thailand and Turkey are at 20%, South Africa 28% and Nigeria at 30%. Increase in the corporate tax may hamper the country’s ranking as an investment destination, leaving India at a competitive disadvantage in the global marketplace.
  • An added issue is the monetization of the Returns on Investment (ROI) for the company’s initiatives. This is because CSR based initiatives may have a huge gestation period and so calculating returns on investments like scholarships for deprived sections or benefit to the environment by adoption of cleaner fuels etc. may be lengthy propositions.
  • Companies may be forced to do some reshuffling within the organization which could lead to diversion of its manpower away from the core activities. Because of lack of expertise, this will further pave way for CSR consulting in huge proportions. Hence, the process of empanelment of expert agencies into the CSR framework of an organization, must be eased.
  • Finally, though the Companies bill is a great step forward, efforts must be made to clear the haze around the kind of activities that may be taken up by companies under CSR to prevent the initiative from getting mired by emergence of corruption with companies trying to ‘greenwash’ their profitable activities under the garb of CSR.
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