The port authority in the Yemeni city of Aden has begun contacts with Dubai government-owned port operator DP World on cancelling a contract to manage Aden port, a senior Yemeni transport ministry official said yesterday.

"The board of Gulf of Aden Ports Corporation decided to cancel the agreement with DP World. There are contacts with DP World to complete the process of cancellation amicably," the official said.

He said the decision had been taken on Saturday and the two parties would use international arbitration if they could not reach an agreement.

In response to a query, a DP World spokeswoman said yesterday: "We do not comment on media speculation."

In June the impoverished country's anti-corruption body said it would ask parliament to cancel the deal with the world's third largest port operator, claiming the company had failed to carry out investment projects on time. At the time, DP World said the allegations were "misleading and unfounded".

Yemen signed a contract with DP World in 2008 to develop and run the port, whose strategic location at the mouth of the Red Sea once made it a vital stop for ships bound for the Suez Canal. The agreement stipulates $ 220 million of investment to develop the port.

Early this year, Yemeni transport minister Waed Abdullah Bathib said the company had missed a target of raising container capacity to 900,000 20-foot equivalent container units by the end of 2011, and had failed to build and provide infrastructure as specified in the 2008 agreement.