The $100m low-interest loans will be provided by the Japanese International Co-operation Agency and distributed by the UN Development Programme. The funds will be used to dredge the waterway at Umm Qasr, which has filled with silt because of neglect, dramatically reducing the number of ships that can use the site.

Deputy Prime Minister Baram Salih announced the deal at the Basra Development Forum on 12 December.

He and local officials spoke of the importance of the $15bn upgrade of the port for regional and national development.

The proposal, put forward in 2006 by Sheikh Joseph Hanna, an Iraqi entrepreneur now based in Abu Dhabi, would involve a spit being built into the Gulf to enclose a harbour. It would include container terminals and berths for oil export, and possibly refinery facilities.

However, it has stalled because of a dispute between Baghdad and Basra over who should run the facility, and what proportion of the port’s revenues should stay in the southern province.

Douglas Alexander, International Development Minister for the UK, says he hopes progress will be made in 2008 with the passing of the draft provincial powers law, which will help resolve such issues.
“[The law] will help clarify respective roles within the Iraqi constitution,” he says.

“I emphasised in my discussions with Prime Minister Maliki today the importance of ensuring the right legislative framework is in place to facilitate the scale of investment that many [want] to see not just in southern Iraq but across Iraq.

“That is going to be one of the key tests in the ability to translate the possibility and promise of today into the reality of economic development in the months and years ahead.”

Reconstruction officials in the south of the country have also expressed scepticism over how the seaport project will be financed.

Hanna’s proposal would be entirely funded by international banks, and officials in Basra do not believe that money on this scale can currently be secured for private sector projects in Iraq.

Corruption is said to be a serious problem at Umm Qasr, with only a fraction of the port’s revenues believed to end up in the national or local coffers.

Major General Binns, of the British Armed Forces in Basra, says the Iraqi army and police face a challenge in overhauling the port authority and securing revenues from Umm Qasr.

“We can provide visible security there but it would take somebody who understands the complexities of fraud to really get to grips with it,” he says.