Tata group Tuesday signed an agreement with Zambia's state-run power utility to build a hydroelectric station in the southern African nation where demand for electricity has outstripped supply.

The 120-megawatt plant, will be constructed over two years and cost $150 million (115 million euros), said Rodney Sisaala, managing director of Zambia's Electricity Supply Corporation (ZESCO).

It will be jointly financed by ZESCO and India's giant conglomerate, the Tata Group, which has interests in steel, mining, cars and computers.

"The two companies will form a special purpose vehicle company to carry out this development," Sisaala told reporters.

He said Zambia's demand for electricity had shot up dramatically in recent years, adding that the country would require additional capacity by 2008 to meet the projected deficit.

"The main drivers of this demand are the growing mining, industrial and agriculture sectors.

Old mines are being recapitalised and new ones are being opened," Sisaala said.

ZESCO already has a load-shedding programme for residential customers in order to save the power being generated for commercial users.

The entire southern African region, from which Zambia imports electricity when faced with a deficit, will be in need of additional capacity by 2008, Sisaala said.