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Siemens signs Iran rail contract as Germany drums up business

TEHRAN (Reuters) - Germany’s Siemens signed a contract to upgrade Iran’s railway network on Monday, one of several deals agreed by German firms during a two-day visit to Tehran by Economy Minister Sigmar Gabriel.

German Economy Minister Sigmar Gabriel speaks to journalists in Tehran, Iran, October 2, 2016. REUTERS/Hannibal Hanschke

Gabriel has flown to Iran with a planeful of 120 managers who are keen to re-establish business relations with the Islamic Republic after it reached a landmark deal with world powers last year to scale back its disputed nuclear program.

But political concerns, and a range of U.S. sanctions still in place, have so far held back a hoped-for business boom.

Siemens said it will supply components for 50 diesel-electric locomotives to Iran. It did not disclose the value of the contract, but based on comparable deals, it could be in the low hundreds of millions of euros.

The economy ministry said several firms from the Mittelstand, the small-to-medium-sized companies that form the backbone of the economy, had also signed deals with Iranian partners. These included SMS group, a builder of steelmaking plants, and INTRA industrial solutions.

In addition, Mitsubishi Germany has signed a contract to modernize a gas-fired plant, while plant constructor Keller HCW wants to build a brickyard in Iran, it said. Both countries’ central banks have also agreed to technical co-operation.

There was no detail on the size of the agreed deals.

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Iran’s Deputy Economy Minister Mohammad Khazaei said earlier that 10 economic agreements would be signed on the sidelines of Gabriel’s visit. “I hope that this will smooth the way between both countries,” he said.

Germany, which has commercial and cultural ties with Iran that go back to the 19th century, was for decades a major trading partner of Tehran before the sanctions allowed China and several other nations to overtake it.

While industrial firms such as Siemens are keen to benefit from opportunities in Iran, Gabriel has warned Tehran that to normalize ties it must accept Israel’s right to exist and stop what he called Iran’s decisive role in the Syrian civil war, where it has intervened to support President Bashar al-Assad against Western-backed rebels.

The German banking sector has been reluctant to underwrite business deals for fear of falling foul of remaining U.S. sanctions imposed on Iran for what Washington says is Tehran’s money laundering, support for terrorism and human rights abuses.

Gabriel said earlier that Germany wants to help Iran push ahead with reforms, and promised to remind the United States of its commitment to reduce sanctions against Iran.

He also said that Iran was a reliable credit partner that kept agreements as a rule.

German exports to Iran jumped 15 percent in the first half of the year to 1.13 billion euros and could reach 4 billion euros in the full year, said Michael Tockuss, head of the Hamburg-based German-Iranian Chamber of Commerce.

Additional reporting by Christoph Steitz in Frankfurt; Writing by Caroline Copley; Editing by Mark Trevelyan