The loans, the exact amount of which is yet to be specified, will cover projects such as liquefied petroleum gas and reconstructing crude oil export facilities and a refinery in the southern port city of Basra.
 
The agreement was sealed during a visit to Tokyo by Iraqi Prime Minister Ibrahim al-Jaafari.

Jiji Press said on Tuesday the oil funds would be part of the $3.5 billion in loans Tokyo has already pledged to Baghdad.

Japanese Economy, Trade and Industry Minister Toshihiro Nikai and Iraqi Oil Minister Ibrahim Bahr al-Ulum "shared a clear view that the oil and natural gas sector is a key to the reconstruction of Iraq.

"Both ministers confirmed the importance of advancing the oil- and natural gas-related projects which are on the request list submitted by the Iraqi government for yen loans," a joint statement said.

Jiji Press said al-Ulum requested that the oil sector receive 20% to 30% of the total $3.5 billion in loans, which were promised in 2003.

Training

Al-Jaafari (L) met Japan's Prime
Minister Junichiro Koizumi

Japan will also provide training to Iraqi oil and gas engineers, bringing 1000 personnel to Tokyo over two years, starting from 2006.

Japan has taken a high profile in Iraq's reconstruction, pledging $5 billion in aid.

Some $1.5 billion of the package has already been disbursed but Japan has waited to hand out the loans amid the chaos following the US-led invasion that toppled Saddam Hussein.

Tokyo has also dispatched 600 troops to the relatively safe southern Iraqi city of Samawa in the country's first deployment since the second world war to a country where fighting is ongoing.
 
Japanese Prime Minister Junichiro Koizumi, who met al-Jaafari on Monday, is expected to extend the domestically unpopular mission whose authority is set to expire on 14 December.

Crude oil production

"Both ministers confirmed the importance of advancing the oil- and natural gas-related projects..."

Joint statement

Talking to reporters, Al-Uloum said Iraq planned to boost its crude oil production by about a quarter to reach pre-war levels of 2.6 million barrels per day (bpd) next year.

   

Asked by Reuters about next year's production target, Uloum said: "Pre-war levels", which he said was around 2.6 million bpd.

 

Iraq's oil production has averaged about 2.1 million bpd this year, the White House has said.

   

The Iraqi minister did not elaborate, but an official at the Ministry of Economy, Trade and Industry (METI) later said exports would also rise to 2 million bpd from the current 1.6 million-bpd level as the southern port infrastructure improved.