Ethiopia and Italy on Monday signed a 2.4 billion birr (about 277 million US dollars) soft loan agreement.

The agreeement was part of the commitment made by the Italian government during the official visit of Ethiopian Prime Minister Meles Zenawi to that country.

Ethiopian Minister of Finance Sufian Ahmed and Italian Ambassador to Ethiopia Guido La Tella signed the agreement on behalf of their respective governments.

According to the agreement, the loan will be used to finance part of the costs relevant to civil works and a portion of the electro-mechanical and hydro-mechanical works of the Gilgel Gibe II hydroelectric power project, which is an extension of the Gilgel Gibe I Hydropower Station.

It was reported that the Gilgel Gibe II hydroelectric power project would have a capacity to generate 420 megawatts and believed to raise the country's power generation capacity by 60 percent.

Ethiopia is an extremely poor country in the world and its development has to rely on massive foreign aid.