Workers build a pipeline for transporting natural gas
Workers build a pipeline for transporting natural gas in a file photo. REUTERS

China and Tanzania have signed a $1 billion loan agreement to build a major natural gas pipeline in east Africa's second-biggest economy, a Tanzanian newspaper quoted the country's energy minister as saying on Friday.

The deal involves the construction of a 532-kilometre pipeline from Mnazi Bay and Songo Songo island in southern Tanzania to the country's commercial capital, Dar es Salaam.

The completion of the project will enable the 36-inch gas cylinder to produce 784 million standard cubic feet of gas per day, capable of powering 3,900 megawatts (MW), Energy and Minerals Minister William Ngeleja was quoted saying.

Tanzania's current natural gas reserves have risen to more than 10 trillion cubic feet (tcf) from a previous estimate of 7.5 tcf following major gas discoveries in its deep-water offshore region.

An existing 16-inch natural gas pipeline owned by private investors has been facing capacity constraints amid growing energy demand in the country.

Ngeleja said the engineering, procurement and construction (EPC) deal was signed in the Chinese capital, Beijing, on Tuesday.

China Export-Import Bank (EximBank) will provide a soft loan to cover 90 percent of the project cost, while the Tanzanian government will finance the remaining cost, the paper reported.

The minister said the project would be jointly implemented by the China Petroleum and Technology Development Company (CPTDC), a unit of China National Petroleum Corp (CNPC), and state-run Tanzania Petroleum Development Corporation (TPDC).

Tanzania has asked the Chinese financiers to fast-track implementation of the project to ensure construction of the pipeline was concluded by December 2012 from the initial schedule of March 2013 to curb the country's chronic power crisis.

Ngeleja said Tanzania's energy demand was expected to grow to 1,583MW by 2015 from the current demand of around 1,000MW.

Tanzania's economy is blighted by chronic energy shortages that have resulted in rolling power outages, undermining economic growth.

The Tanzanian government said it plans to shift its focus to investment in thermal plants fuelled by natural gas and coal in attempts at weaning itself off weather-dependent hydropower, which accounts for 55 percent of the country's energy sources.