* Minister says Egypt's quota should not be reduced
* Upstream nations hope dams could plug energy deficit
CAIRO, May 18 (Reuters) - Egypt insisted on Tuesday it can block dams and other projects upstream on the Nile, challenging a new deal among African nations seeking to alter historic water sharing arrangements and secure more water for farms and growth.
Four African countries signed the agreement in Uganda last week in a bid to access a greater share of water from the Nile, despite colonial-era pacts that give Egypt the lion's share of the water and allow it to veto upstream projects such as dams. "Any project that takes away from the river's flow has to be approved by Egypt and Sudan in accordance with international treaties," Egypt's Water Resources and Irrigation Minister Mohamed Nasreddin Allam said.
"Egypt is closely watching energy generation projects in the (Nile) basin," he said.
Tanzania, Uganda, Rwanda and Ethiopia signed the deal on May 14, creating a permanent commission to manage the Nile's waters that did not include Egypt or Sudan. Kenya, Burundi and Democratic Republic of Congo are expected to sign within a year.
The new commission would ostensibly have the power to veto energy and irrigation projects in signatory states.
Egypt, almost totally dependent on the Nile and already threatened by climate change, is closely watching hydro-electric dams in East Africa it fears may restrict the river's flow.
Egypt has already warned that the new agreement lacked legitimacy and plans to press donors for support.
Yet upstream countries say they need more water too. Power shortages have hindered investment in Africa even though alternative sources to hydroelectric power exist.
The day the pact was signed, Ethiopia inaugurated its Beles Dam, which it says will produce 460 megawatts. [ID:nLDE64D1LB]
After the inauguration, Egyptian media voiced concern the project could reduce the flow of water to Egypt. Some 85 percent of the Nile's waters originate in Ethiopia.
Allam said Egypt had no objections to dams or other energy projects upstream on the world's longest river as long as the country's share of 55.5 billion cubic metres was not reduced.
Analysts say global donors and banks may be reluctant to finance projects that would harm Egypt's and Sudan's access to water for fear of getting entangled in a regional spat.
Egypt is widely credited with having blocked a loan from the African Development Bank for a dam project in Ethiopia in 1990.
"Most donors see that consensus between Nile Basin countries and the consent of Egypt as key to funding any project," said Gamal Soltan of the Al-Ahram Centre for Political and Strategic Studies. "Egypt could work with these international donors."
One state newspaper quoted Egypt's Prime Minister Ahmed Nazif on Tuesday as saying: "Signing a unilateral treaty confirms that the motivation behind it was political, so it shall be dealt will politically."
Ethiopia, which rationed power for five months in 2009, when outages every second day closed factories, hampered exports and fuelled a currency shortage, says a new pact could help boost energy projects and shore up investment.
"Egypt is not trying to undermine development projects ... but it is trying to push for projects that could serve the interests of all those states and Egypt itself," Soltan said. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a factbox on Nile River facts, agreements and issues click on [ID:nLDE63L1LM] [ID:nLR646831] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Ashraf Badr; Editing by Samia Nakhoul)
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