Tanzania is close to concluding a $400 million loan to finance a 200 megawatts coal-fired power project amidst chronic energy shortages in east Africa's second largest economy, the president said on Monday.

The government has extended nationwide power rationing after a prolonged drought led to a 230 megawatt (MW) deficit on the national grid.

It was first announced in 2009, when officials said they were in talks with China for the loan. President Jakaya Kikwete said the processing of the loan was delayed by the change of ownership of the Kiwira coal mine in the south of the country.

The change of ownership has now reached its conclusion and the process of securing the loan is proceeding with optimism, Kikwete said in a televised month-end national address.

The government has decided to regain full ownership of the coal mine after its 2005 privatisation.

Kikwete said Tanzania could be forced to shut down power generation at the country's largest hydroelectric dam after a long dry spell depleted water levels.

The water level at the Mtera dam is currently just 1.25 metres above the minimum level required to run hydro-power turbines, he said.

He said Tanzania was in talks with private investors for a separate 300 megawatts gas-fired power plant in the southern Tanzanian town of Mtwara after initial investors pulled out of the project due to the global financial crisis.

We have found other investors (for the project) and negotiations are proceeding well, he said.

He said the country's cabinet has authorised the state-run power utility, Tanzania Electric Supply Company (TANESCO), to commission independent power producers to set up emergency power-plants that could generate an additional 260 MW of power.

Tanzania produces only 470 megawatts of electricity against a peak demand of 833 MW.

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