Norway's Norsk Hydro and Qatar aim to finalise next month about $2.6 billion in project financing for a joint venture aluminium smelter in Qatar, a Hydro executive said.

Despite soaring costs for the Qatalam plant, the two are going ahead with the venture. Hydro, the world's third largest integrated aluminium producer, is expanding in the Middle East as it looks to reduce its overall energy costs.

Hydro raised the total cost estimate for the plant by 50 percent last November to $4.5 billion due to rising prices of raw materials and design changes.

'We now have commitments from the lenders for the finance,' said Thomas Knutzen, Norsk Hydro's spokesman for aluminium business. 'The project is going ahead as planned. The final paperwork still remains...everything will be completed in July.'

The project finance will be divided between a $2 billion tranche from commercial banks and $600 million in export credit facilities, industry sources said.

Knutzen declined to give details of the pricing or the number of mandated banks.

Qatar, which has the world's third largest gas reserves, has ploughed billions into steel, petrochemicals and fertiliser plants as it looks to diversify it economy away from oil and gas.

The plant, which is expected to start up in the fourth quarter of 2009, will have capacity of 585,000 tonnes per year, reaching full capacity during 2010.

Hydro aims eventually to boost capacity to 1.2 million tonnes per year, although the joint venture partners have yet to conclude a deal for the future expansion.

The project will be divided into 12 construction packages, including an estimated $700 million power plant with capacity of 1350 megawatts. Several of the packages have already been tendered and the power plant constructor will be selected in July, Knutzen said.

Qatalum, which will produce extrusion ingles primarily used for tubes and foundry alloys used in the automotive industry, plans to export to North America, Asia and Europe.

Growth in demand for aluminium has been sluggish in the US, but Chinese consumption is rising at around 7-8 percent annually.

Hydro holds a 50 percent stake in Qatalam. State-run Qatar Petroleum holds the rest, and will supply the smelter with natural gas.Reuters