DHAKA: Energy-hungry Bangladesh has signed a $1.7-billion deal with India to build two coal-fired power plants in the country's south to ease a huge electricity shortage, an official said.

The plants, which will have a total daily generating capacity of 1,320 megawatts (MW), will help alleviate the severe power shortfalls suffered by impoverished Bangladesh.

The plants will be constructed by Dhaka's Power Development Board and India's National Thermal Power Corp.

Both the plants are expected to be ready in three years, Dhaka's Power Development Board spokesman Bazlul Haque said.

The two companies, both state-owned, will share the $1.7-billion cost of building the plants, which will be managed by the Indian company and will use imported coal, Haque said.

Officials from the two countries signed the agreement in Dhaka late Friday, he said.

A four-month feasibility study will be carried out before construction starts in July.

Bangladesh has long suffered severe power outages due to demands imposed by its fast-growing economy.

The power shortfall is especially acute in the hot summer months from April to October.

Years of under-investment mean Bangladesh's power plants generate around 4,000 megawatts of electricity a day.

Meanwhile, demand totals 6,000 megawatts -- a figure growing by 500 megawatts a year due to increasing industrialisation.

Just 40 per cent of Bangladesh's 144 million people have power while peak-time shortages force some factories to halt production.

Power secretary Abul Kalam Azad said the new plants are part of the government's $9.5-billion power investment plan to boost generating capacity.

"We're going to invite bids from local and foreign companies to generate power to eliminate the shortfall," he said.

Azad added that New Delhi has also agreed to help Dhaka modernise some of its decades-old plants.

The deal highlights Dhaka's improving ties with New Delhi under its new secular government led by Sheikh Hasina's Awami League party, Bangladesh analysts say.

The power secretary said that the groundwork for the deals was laid during a visit by Bangladesh's prime minister to India in January.

Before she took power a year ago, ties were soured by charges levelled by New Delhi that Bangladesh was providing shelter to militant groups active in India's neighbouring northeast.

However, in the recent months Bangladesh has detained several leading suspected rebels and handed them to India.

Haque also said the countries have signed the deal under which India will also export up to 500 megawatts of electricity a year to Bangladesh to lessen its power woes. "We will lay cross-border transmission lines at a cost of $160 million to import electricity. India will invest a similar amount," said Haque.