Iran-based Mapna Group will arrange financing for the 3,000MW Rumaila independent power project (IPP) near Basra in southern Iraq, according to market sources.

The developer, Jordan’s Shamara Group, signed a $2.5bn contract with Mapna for engineering, procurement and contracting in July.

The Iraqi Electricity Ministry is believed to have signed an agreement to purchase power from the Shamara Group for 15-17 years. The Iraqi federal government has issued a sovereign guarantee letter, the first of its kind, and for the first IPP outside the Kurdish autonomous region.

The choice of Mapna and Iranian financing over regional or Western contractors is thought to be politically motivated. Iran has played an influential role in Iraq since the US withdrawal from the country.

“The Basra project is strategically very important,” says a financial expert on Iran. “Southern Iraq is majority Shia, and in close proximity to Iran and some major gas fields, and Tehran wants a strategic role.”

Basra is just 23 kilometres from the Iranian border.

Iraqi citizens protested over frequent power cuts during this summer’s heatwave. In early August, thousands of demonstrators poured onto the streets of major cities including Basra, to demand better public services and government accountability.

As a result of years of underinvestment and conflict, installed generation capacity was 11,025MW in 2013, far below the peak power demand recorded during the year, which reached 16,574MW.

The Iraqi government aims to reach 20,000MW of capacity in 2016, according to a Mapna press release.

Financing and construction for the IPP may begin before sanctions are lifted.

Neither Shamara Group nor Mapna Group responded to requests for comment.

Iran is expected to invest heavily in Iraq over the next few years.

It is unclear where the funds for the Rumaila IPP will come from in Iran. Public and private Iranian banks have little in liquid assets and high levels of non-performing loans, while sovereign wealth funds have been depleted by sanctions and lower oil prices.