By Alistair Thomson

DAKAR, Jun 12 (Reuters) China signed a 370 million yuan (48.41 million dollars) soft loan to Senegal today to help the West African country salvage its struggling power industry by 2008 and end crippling summer blackouts seen in recent years.

State power company Senelec has struggled to meet growing demand due to under-investment, poor infrastructure and financial woes that at times have left it unable to pay for supplies of fuel for its oil-fired power stations.

China, which is pouring investment into the continent it increasingly relies on for raw materials and oil to feed its growing economy, has already promised to build a 250 megawatt coal-fired power station in Senegal since renewing diplomatic relations in late 2005.

The new money, which Senegalese Finance Minister Abdoulaye Diop said was borrowed on ''the most concessional terms'', is to finance a new 90 KV distribution network to increase capacity and reduce wastage in Senegal's capital Dakar.

China National Machinery&Equipment Import&Export Corporation, a state-owned engineering group which already has projects in 10 other African countries, will carry out the work, said Chinese Ambassador Lu Shaye, who signed the loan agreement.

Last week, Lu told Reuters China hoped the economic benefits enjoyed by its allies would help convince the five remaining African countries who recognise the breakaway island of Taiwan to drop Taipei and buy into Beijing's ''one China'' policy.

Speaking to reporters after the signing ceremony, Diop said he had met his counterpart in the energy ministry earlier on Tuesday and agreed a recapitalisation plan for Senelec, in addition to the Chinese loan.

''We have managed to free up 70 billion CFA francs, which we will transfer to Senelec in the next three months. We will solve the problems of (fuel) supply and investment,'' Diop said.

He said a further 40 billion CFA francs would be needed in 2008 to address remaining problems at Senelec.

''So I think that in 2008 all Senelec's financial problems will be completely resolved, so as to provide regular (power) to the country, and be able to make investments,'' he said.

Senegal has embarked on an ambitious public works programme building new highways, hotels and other infrastructure ahead of a planned Organisation of the Islamic Conference summit to be held in Dakar in 2008.

China has already promised to spend 35 million dollars on building West Africa's biggest theatre in the city and is due to upgrade 11 sports stadiums around the country.

REUTERS LPB HT2152