The presidents of Mozambique and Malawi signed an electricity agreement Saturday in a first step to restore troubled relations between the two southern African neighbours.

The heads of state agreed in the Mozambican capital Maputo to revive a plan to supply electricity from Mozambique's Cahora Bassa hydroelectric dam to its energy-starved neighbour.

"In Malawi we are short of power. This is having a negative impact on industry. Things have stalled but we hope we can have this project up and running soon. We are desperate for power," said Malawian Foreign Minister Ephraim Chiume.

First proposed in 2008, the project stalled because of cost concerns.

New Malawian President Joyce Banda and her Mozambican counterpart Armando Guebuza signed a memorandum of understanding during a visit to heal relations that broke down under her predecessor Bingu Wa Mutharika.

Mutharika notoriously cut short a 2009 state visit amid a diplomatic spat when Malawian police mounted a cross-border raid into Mozambique.

Since she took over upon the death of Mutharika, Banda has gone to great lengths to rebuild relationships that collapsed under his authoritarian rule.

"In Malawi with our new president, we are trying to open a new chapter," said Chiume.

"We want to ensure the bonds of friendship are enhanced ... and misunderstandings unblocked."

A more recent spat turned around landlocked Malawi's ambitions to export down the Zambezi river, much of which passes through Mozambican territory.

Mutharika even inaugurated a river port for this in 2010 without an agreement, after Mozambique confiscated trial barges sent down the river.

Built in 1974, Cahora Bassa only began turning a profit in 2010, three years after the building of a line to South Africa, which buys 65 percent of the dam's output.