KAMPALA- A Chinese firm has applied to Ugandan authorities for a licence to develop a $1.4 billion hydropower plant that could potentially expand the country's generation capacity by 40% according to a regulatory official and papers seen by Reuters.

The firm, POWERCHINA International Group Limited (PIGL), wants to develop the Ayago Hydroelectric Power Station, located on a section of River Nile between the lakes Kyoga and Albert, according to its licence application seen by Reuters on Tuesday.

"We have called for comments from the public on their proposed project," Julius Wandera, spokesman for state-run power regulator Electricity Regulatory Authority (ERA) told Reuters.

ERA licences all power generators in the country and is also responsible for setting generation and end-user power tariffs.

The Ayago power plant will have a capacity of 840 megawatts (MW) and, when successfully developed, would be Uganda's largest power plant.

The Karuma hydroelectric dam, upstream of Ayago and due to be completed early this year by China's Synohydro Corporation, is currently Uganda's largest power project.

Wandera told Reuters alongside the solicitation of public views on the project, ERA would also conduct its own due diligence on POWERCHINA International to ascertain whether it had the financial and technical capacity to execute the project.

"By April we should be communicating our final decision on their application to them," he said.

According to their application, the firm plans to raise funds for the project through a 25%-75% mix of equity and debt.

The project could potentially ramp up Uganda's generation capacity by 40% to about 2,800 MW according to calculations from data available from the energy ministry.

In recent years, Uganda has been wooing private-sector energy investors and taking loans from China and other sources to help boost power production to meet fast-growing demand.

To make the sector attractive to foreign investors, the government abolished subsidies for consumers and introduced a tariff-setting system that is benchmarked on movements in key parameters such as inflation, foreign exchange and oil prices.

Uganda is one of the six countries that signed the 2010 Cooperative Framework Agreement (CFA) that allows upstream Nile basin countries to develop projects along the river without Egypt's consent as it was in a previous colonial-era agreement on use of Nile waters.

(Reporting by Elias Biryabarema; editing by David Evans) ((Email:elias.biryabarema@thomsonreuters.com mailto:elias.biryabarema@thomsonreuters.com; Tel. +254 20 499 1232; Reuters Messaging: elias.biryabarema.thomsonreuters.com@reuters.net))