Niger, a uranium-producing desert nation, often faces food shortages and imports 90 percent of its electricity from neighbouring Nigeria, which itself suffers frequent power cuts. Niger's untapped oil reserves are due to be developed in a US$5 billion Chinese-funded programme.

"No other development project will have sparked so much long term interest or such high expectations," Prime Minister Seini Oumarou said in comments broadcast by state television.

President Mamadou Tandja laid the first brick on Sunday at the site, some 180 km (110 miles) northwest of the capital. The dame is due for completion in 2013.

The dam is the initial stage of a broader project that will cost some 300 billion CFA francs (US$709 million) and, the government hopes, will improve food security through irrigation, provide electricity and regenerate the environment.

Financing for the hydropower station itself is due to come from a public-private partnership, the government has said.

Drought and desertification, which is reducing the area of usable farmland by 200,000 hectares every year, mean that some 3 million people face food shortages every year in Niger.

A 3.3 percent annual population growth -- one of highest rates in the world -- is adding the pressures.

Niger's government is battling to put down a northern rebellion led by light-skinned Tuareg nomads who are demanding a greater share of the country's revenues from resources.

Some 70 government soldiers and 200 rebels have been killed since the rebellion last year. But the Kandadji site is not in a part of the country that has been affected by the violence so far. (For full Reuters Africa coverage and to have your say on the top issues, visit: http://africa.reuters.com) (Writing by David Lewis; Editing by Alistair Thomson)