Japanese Prime Minister Shinzo Abe, second from left, meets Mozambican President Armando Guebuza, right, in Maputo.Photo: AP.

Maputo - Japan is to fund the $174 million construction of new gas-fired power plant in Mozambique to help the southern African nation's fast-growing economy keep up with electricity demand, the national power utility said this week.

Mozambique has seen a spike in foreign investment since it hit on huge gas reserves, but power shortages threaten the development of industry and economic growth.

Power demand, which is at about 800 megawatts at peak times, already outstrips supply of around 700 megawatts in the former Portuguese colony, whose economy is expected to grow by 14 percent this year.

“The construction of infrastructure will not only increase the availability and quality of electricity in the southern region of the country, but also aims to ensure a back-up to the city of Maputo,” said Fernando Augusto de Sousa, the chief executive of Electricidade de Mocambique (EDM), at the signing of the agreement on Monday.

The power station will add 110 megawatts to the grid when it due to start running in 2018.

The announcement was made during Japanese Prime Minister Shinzo Abe's visit to Mozambique, part of a three-country tour of Africa, the first by a Japanese leader since 2004.

Japan has also agreed to lend Mozambique $672 million over five years as Tokyo seeks to secure access to Mozambique's rich coal and gas reserves. - Reuters