20100107

LUSAKA (Reuters) - Zambia plans to start building a major $1.5 billion power plant next year, which is expected to boost generation capacity by 600 megawatts (MW) when completed in 2017, a senior energy industry official said on Thursday.

Increased investment opportunities in mining, its economic lifeblood, have raised Zambia's power demand, leading to an electricity deficit which authorities want to overcome by constructing new generation plants.

Israel Phiri, who heads a department charged with promoting private power investment in Zambia, said the government would engage the private sector to help build the Kafue Gorge Lower hydro power project in a two-stage tender process.

"This process is expected to last the whole of 2010 and if you want to talk about actual construction starting on site we are looking at 2011 and commissioning in 2017," Phiri told Reuters in an interview.

The tender aimed to find a potential developer and allow time for selected equity partners to raise funds for the project, to be financed through debt and equity.

Phiri said the government would put up $250 million for the project, with the private sector injecting a similar amount.

"It will be a mix (of) capital, the government felt that if it is a 100 percent independent power producer, then the large equity investment would restrict the pool of suitable bidders," Phiri said.

Phiri said the government participation would give confidence to the private sector and attract equity from a number of partners including Western donors, development banks and export and import banks.