Tanzania plans to build a 400 megawatt (MW) coal-fired power plant by 2012 at a cost of $1.2 billion, the chairman of state-run National Development Corporation (NDC) was quoted saying on Thursday.

Tanzania suffered serious power cuts in 2006 after drought slashed hydropower production, making the need to diversify to other electricity sources more urgent.

NDC intends to build the plant near two coal deposits in southwestern Tanzania and is working through Tancoal Energy Limited, a joint venture with Pacific Corporation East Africa, a subsidiary of Australia's Atomic Resources Ltd (ATQ.AX).

NDC and Pacific Corporation signed a deal last year to develop the Ngaka and Muhukuru coal fields and Tancoal agreed to commit no less than $500,000 for exploration and completion of a pre-feasibility study and due diligence.

This project will only take four years to be completed since its inception in 2008, NDC Chairman Chrisant Mzindakaya was quoted saying in privately-run Guardian newspaper.

According to Atomic Resources' website, the two deposits have a potential of between 110 million tonnes and 150 million tonnes of coal. The company is also involved in uranium exploration and has other operations in Western Australia.

Tancoal's director, Peter Tsegas, said the company was awaiting permission to proceed with the project.

State-run Daily News quoted Tsegas as saying the project would cost $1.2 billion. No further details were available on how the money would be raised. Neither Tancoal nor NDC officials were immediately available to comment.

State-run Tanzania Electric Supply Company (Tanesco) has an installed capacity of 1,212 MW, of which 562 MW is from hydro-power dams. But this is not all regularly available, partly due to intermittent rain.

The east African economy of about 40 million people also generates more than 280 MW of power from natural gas, and plans to boost this by about 545 MW by 2012.

Tanesco said late last year it needed to add 70 MW annually to the grid to meet demand, which is expected to surpass 1,100 MW by 2010. (Reporting by George Obulutsa; Editing by David Clarke and Keiron Henderson)