Iraq has been unable, due to US sanctions, to pay Iran millions of dollars owed for electricity, an Iraqi official said, potentially damaging its efforts to supply enough power to a population suffering chronic shortages.

Iraq imports 650 MW of electricity from Iran and plans to boost imports to around 1,000 MW this year, Adel Mahdi, an adviser in the electricity ministry, said on Wednesday.

But due to US sanctions against Tehran over its nuclear programme, foreign banks have refused to transfer at least $200 million of overdue payments to Iran, raising fears among Iraqi officials that a cheap and vital power supply could be cut ahead of the sizzling Iraqi summer.

'I fear an indirect effect, that by summer maybe the debt on us will be half a billion (dollars) and at that time they (Iran) have peak demand they could say 'we will have to eliminate the contract and stop',' Mahdi said in an interview.

'That would cause a very big problem to Iraq,' he added.

He said last year Iraq's peak power supply was about 6,500-7,000 MW, and demand was estimated at 14,000 MW during the summer when temperatures frequently exceed 50 Celsius and air conditioning units run constantly.

In 2011, supply is expected to rise to around 8,000 MW as new power plants and turbines go online. But demand is also expected to increase to more than 15,000 MW as the country rebuilds an economy and infrastructure damaged by war, Mahdi said.

'The demand is still rising at high levels, the annual demand growth is around 8 to 10 percent,' he said,' which means this year the shortfall will remain at around 50 per cent.'

Additional generation would remain limited in 2012 but people would start noticing a large increase the following year, he said.

Last summer, days of protests in the Shi'ite south over crippling power cuts forced the then electricity minister to step down. The former oil minister, Hussain al-Shahristani, is serving as acting electricity minister.

Seven years after the US-led invasion, Iraq's national grid still only supplies a few hours of power each day and intermittent electricity is one of the public's top complaints.

Struggling to meet demand, Iraq is considering connecting to a regional power grid link, Mahdi said.

'There are positive indications from both the Syrian and Egyptian sides,' Mahdi said. 'We need negotiations with Jordan and Syria, and to complete the required... installation of transmission lines.'

The regional power grid link is intended to have a capacity to provide each member with more than 500 MW and connect Egypt, Libya, Lebanon, Palestine, Jordan, Syria, Turkey and Iraq, he said.

Iraq is also in talks with Syria over electricity imports this summer through an old link, with a capacity of 70 MW, to the northern Iraqi city of Mosul, he said.-Reuters