In the rugged highlands of northwestern Mozambique, astride the wild Zambezi River, sits a $2 billion, man-made symbol of southern Africa's failed dreams.

The Cahora Bassa hydroelectric project is the world's sixth largest, capable of churning out twice the power of Hoover Dam. Yet for the past three years, its five massive generators have been running at less than 1 percent of capacity, their steady hum all but silenced.

As planned 20 years ago by Mozambique's Portuguese colonial masters, the dam was supposed to be an African version of the Tennessee Valley Authority. It was to provide nearly 10 percent of neighboring South Africa's electricity needs and to trigger a flood of industrial and agricultural development inside Mozambique that would transform the fertile Zambezi River Valley into southern Africa's most prosperous region.

But the war between Mozambique's socialist government and the rebels who seek its overthrow has killed the dream. Nearly 500 stainless steel pylons along the 560-mile corridor of transmission lines to South Africa have been toppled by the insurgents, leaving the system stranded and threatening to bankrupt investors who are losing an estimated $60 million annually on the project.

As a result, there are unconfirmed reports that the consortium that now operates the dam -- Portuguese and Mozambican banks and the two countries' governments -- is weighing whether to cut its losses by permanently shutting it down.

Cahora Bassa was a major issue on the bargaining table when Mozambique and white-ruled South Africa put aside ideological and political differences two years ago to sign the Nkomati nonaggression pact. The agreement called for each side to stop supporting armed rebellion against the other. Another part of the promise of Nkomati was that South Africa would help provide economic development to its famine-ridden neighbor.

Two months after the accord, the two countries and Portugal signed a trilateral agreement designed to guarantee a steady power supply to South Africa from the dam while giving Mozambique for the first time a share of the profits and enabling Portuguese investors to recoup their losses.

At its signing in Cape Town, the pact was hailed by Jaime Gama, then Portugal's foreign minister, as ushering in "a new era of tranquility and peaceful evolution for all those who live in southern Africa." South African Foreign Minister R.F. (Pik) Botha said it would "light the way for further cooperation on the subcontinent."

But two years later, the first megawatt of electricity under the new pact has yet to make its way south. And instead of tranquility, the war continues between Mozambique and its rebels, who American diplomats believe are still being supplied by the South African military despite the peace pact.

"You can't make a power line function if one of the parties to the agreement decides it's going to sabotage it," said Sergio Vieira, Mozambique's security minister, at a recent press conference.

The head of the South African trade mission in Maputo, Colin Patterson, declined to be interviewed for this article. In the past, South African diplomats have denied its forces are still aiding the rebels and say they would dearly like the Cahora Bassa agreement to succeed.

Snaking its way through five countries, the Zambezi is one of Africa's greatest rivers. The wild rapids of the Cahora Bassa gorge prevented missionary David Livingstone from fulfilling his dream of finding a navigable route into the central interior.

Portugal generally has been judged by historians as the most backward and negligent of Africa's colonial masters. But Portuguese civil engineers and developers sought to forge a different legacy -- and perhaps to prolong their rule -- by taming the great river.

It was a mammoth project, involving 17 companies from seven different countries. Nearly 8,000 men worked more than seven years beginning in 1970 in some of Africa's most rugged and isolated countryside. They excavated 273,000 cubic yards of rock, built their own concrete plant, which eventually produced 585,000 cubic yards for the project, and brought in the five turbines, each of which weighed 440 tons, in two parts that were welded together at the site.

They created a 1,500-square-mile lake behind the dam wall. There is enough water there not only to provide the 2,075 megawatts of the present project but to add generators producing another 2,575 megawatts if money and customers could be found.

By 1977, the project was completed and power started flowing south. By then Portugal had ceded Mozambique to black nationalists, but the project remained in Portuguese hands under a 1975 contract allowing the consortium to operate the plant for 23 years to recoup its investment and interest.

When the first of the system's 7,000 pylons fell in 1980, it took 20 days to locate and repair, recalls Jose Manuel Braizinha, the dam's Portuguese public relations officer, who has worked here since the beginning. At first, he says, the saboteurs used dynamite. Then they learned that by loosening a few screws at the pylon base, the weight of the cables would bring the pylon slowly crashing down.

By October 1983, two dozen pylons were down and South Africa suspended its supply contract with the consortium. Workmen labored for five months to repair the lines, replacing each of the damaged pylons, which are custom-made in Italy at $10,000 each. By February 1984 they were ready -- but on the eve of the Nkomati accord, the saboteurs struck again. Two more attempts to repair the lines since then have failed.

The pattern, says Braizinha, is "we repair, they destroy; we repair again and they destroy again. Now we are waiting."

The dam is using only 10 of its 2,075-megawatt capacity -- six to operate its auxiliaries and supply the town of Songa, where the company's 1,500 employes live, and four for other nearby Mozambican towns. Only one of the five generators operates at a time.

Meanwhile, the bills keep mounting. Braizinha says it costs $5 million a year just to operate the dam and Songa, a model town where the consortium runs its own bus system, cafeterias, social clubs and closed-circuit television system, making it a small, protected oasis in a country of deprivation and scarcity.

Like the Nkomati accord, the Cahora Bassa agreement seems all but dead. There has been occasional talk of recruiting a private security force from South Africa to guard the transmission lines, but experts here say the cost would be prohibitive.

Mozambican officials say they would still like to salvage the dam and the dream it symbolizes, but they feel powerless without outside support.

"It's up to the three governments to find a way to keep it functioning," says Eduardo Arao, governor of Tete, the province where the dam is located. "It's not only in our interests, it's also in the interests of South Africa and Portugal and the other countries in the region. It would be very expensive to construct another dam like this and far better to use this one." CAPTION: Pictures 1 and 2, Only one of eight water outlets is in use, on $2 billion dam built on the Zambesi, taming one of Africa's mightiest rivers. The Washington Post