* Battered port is a main source of government revenue
* Mogadishu still relies heavily on aid
* U.S. raid on Somalia highlights Islamist threat
* As traffic at port rises, graft claims dog operations
By Drazen Jorgic and Abdi Sheikh
MOGADISHU, Oct 10 (Reuters) - The dock workers at Mogadishu's port have to carry cargo on their backs to clear berths for the ships waiting out at sea.
The dilapidated facility has no functioning cranes and the vessels must use their own gear to unload once they make it in.
Yet the port is one of the Somali government's main sources of revenue, despite minimal investment over the years.
"It's the biggest asset the Somali government has," said Abdirashid Hashi, a former cabinet minister.
The sorry state of affairs shows the challenges Somalia faces as it tries to rebuild crumbling institutions and stabilise a nation under threat from an Islamist insurgency.
Government efforts to improve the port go to the heart of its desire to ease its reliance on foreign aid and generate more revenues to finance a security force capable of beating back al Shabaab militants.
"The more resources we have, the more institutions can function, and we can actually fight al Shabaab and the Islamist threat ourselves," Abdirahman Omar Osman, an adviser to the Somali presidency, told Reuters.
That threat was made clear again last month by the al Shabaab attack on a mall in Nairobi, Kenya, an incident which bore out international fears that chaotic Somalia provides a launch pad for militant Islam.
Foreign governments and agencies have poured in aid to help rebuild Somalia after 20 years of war, while security still largely depends on African peacekeeping troops who drove al Shabaab from the capital two years ago.
Donors want to see the federal government start to impose order with its own soldiers and introduce a new regime of financial management that will wean it off the donations.
The U.N. Monitoring Group on Somalia said in a report in July that the central bank received about $2.7 million each month from the port, but the monitors estimate at least a third of all revenue is unaccounted for.
The government has questionned some of the report's findings, saying they have "no basis in fact" but Osman conceded there are concerns with processing of port revenues.
Osman said income from the port in August was the highest in 20 years, heading towards $5 million. But that still finances only a modest part of the government's budget that is meant to run security forces, pay civil service salaries, and fund other institutions across a nation of 10 million people.
Diplomats estimate total aid to Somalia, which includes substantial military assistance, at "several hundred million dollars".
The governments' budget is $84 million, of which about $54 million is forecast to come from domestic sources and the remainder in external assistance. Spending is put at $114 million, leaving a $30 million deficit.
The EU reckons in a rough calculation that Somalia will need about $1 billion per year over the next three years to hit key reconstruction targets.
Development of the port, which employs about 4,000 administrators, porters and customs officials, has been slow.
Containers are stacked up at the docks. The slow unloading process adds to crowding at the trade gateway for Somalia's shaky economic revival.
"Ships use their lifts but it takes a week to unload," said Ali Moalim Mohamed, the customs office manager. "Most of goods are brought in without containers, this also wastes time."
One of the biggest problems is largely hidden from view.
Corruption blights the port operations, like much of the official workings in Somalia, which was torn apart by feuding warlords and then ruled by Islamist militants.
The U.N. report said at least a third of port revenues were siphoned off.
"Some clan-based business interests and militia groups have acquired a sense of entitlement, seeing the port as their property, rather than a national asset," Matthew Bryden, a director of Sahan Research think-tank.
Tussles for control can escalate beyond the boardroom. When former President Sherif Sheikh Ahmed ordered out then port director Abdi Jinow in 2010, a militia stepped in to block the move, leading to a standoff with African troops.
The government says it is tackling the corruption problem.
Port customs manager Mohamed said systems were in place to stop backhanders and ensure funds reached the central bank.
"Traders cannot move unless they show us the bank payment receipt," he said.
But port workers tell of underhand ways to cut duties on imports, in a nation where the federal government has limited control beyond the capital, al Shabaab control swathes of the countryside, and some regions barely recognise the government.
"It serves some people well to keep Somalia and the port the way it so it's very difficult to bring about change," said Hashi, who is now deputy director of the Mogadishu-based Heritage Institute for Policy Studies.
Still, the government is working to bring in outside help.
Presidential adviser Osman said it was in talks with foreign firms, including Dubai Port World, to manage the harbour. Turkish entities were also interested.
United Arab Emirates-based shipping firm Simatech began container shipments in February, a first for the facility. On its maiden journey from Dubai's Jebel Ali, a ship carried 535 TEUs (20-foot equivalent units).
But the need for ships to use their own cranes to unload reduces how much they can carry. They often have to moor at sea for days awaiting a berth.
"We never know if we are going to get berths on arrival, what kind of priorities they have for container vessels or general small vessels," said Noaman Akram, Simatech's Somalia manager. "It's difficult."
In reality, the government still relies heavily on aid to pay salaries and depends on the African soldiers for security.
"The idea of tax payments is to create employment, security and establish public roads, schools and hospitals, but we never get a single one of these," said Ismail Nur, a trader importing rice and pasta at the port.
"It is just a waste of money."