DHAKA  - State firms from Bangladesh and India on Sunday signed a deal to build a $1.5-billion coal-fired power station that would be Bangladesh's biggest and help ease acute power shortages.

The chairmen of Bangladesh's Power Development Board (PDB) Alamgir Kabir and India's National Thermal Power Corp (NTPC) Arup Roy Choudhury sealed the agreement in the Bangladeshi capital Dhaka.

Under the deal, a joint venture company registered in Bangladesh will be set up to construct a 1,320 megawatt daily generation plant in the south of the country. "It will be a coal-fired plant and it will cost approximately $1.5 billion," Choudhury told AFP, adding the facility was expected to generate electricity by 2016.

Bangladesh suffers crippling power outages due to demands imposed by its fast-growing economy. The shortfall is especially severe in the hot summer months from April to October.

Years of under-investment mean Bangladesh's power plants generate around 5,200 megawatts of electricity a day, while demand totals 6,500 megawatts -- a figure growing by 500 megawatts a year.

Just under 50 percent of Bangladesh's 150 million people have power, while peak-time shortages force some factories to halt production.