Norsk Hydro and Qatar Petroleum will go ahead with a $4.8 billion plan to build a huge 585,000-tonnes-per-year aluminium smelter in Qatar, the Norwegian industrial group said.

Norsk Hydro and Qatar Petroleum each hold 50 percent of the project company, Qatalum, which will also build a 1,250 megawatt gas-fired power plant to supply electricity to the smelter.

"The capital investment estimate for the total Qatalum project is approximately $4.8 billion, of which approximately $1 billion is for the power plant," Norsk Hydro ASA said in a statement on Thursday.

The investment figure was raised from an earlier $4.5 billion due, among other reasons, to the weaker dollar. The cost estimate last year crept up from the $3 billion original figure given when the plan was announced in 2004.

Contracts for 80-85 percent of the total expected contract value have already been signed, Hydro said.

The plan includes a possible later expansion of the capacity to 1.2 million tonnes, which could make it the biggest aluminium smelter in the world, and is part of Norsk Hydro's strategy to expand in areas with low energy costs.

"Located in Mesaieed, Qatar, the plant will begin production late 2009 and reach its initial full 585,000-tonne capacity in 2010," Norsk Hydro said.

"Qatalum will be the largest primary aluminium plant ever built in one phase," it said.

It will be a fully integrated primary aluminium plant consisting of a smelter, casthouse, carbon plant and dedicated power plant that will be supplied with gas by Qatar Petroleum under a long-term contract, Norsk Hydro said.

The global primary aluminium market is growing at 4 to 5 percent annually, and the location of Qatalum will allow it to supply customers in Asia and Europe and North America, it said.

101-year-old Norsk Hydro became Norway's industrial flagship thanks to the country's abundant hydroelectricity, which still powers its Norwegian smelters.

But rising energy costs in Norway and especially at its German smelters have forced the company to look abroad to countries with cheap energy, from Russia to Angola, for possible locations of future smelters.

Norsk Hydro is spinning off its oil and gas operations to Norway's Statoil by the end of the third quarter, which will make it a focused aluminium company.

The Qatalum plant will provide more than 1,000 permanent jobs, Norsk Hydro said, and is part of Qatar's economic diversification beyond oil and gas.-Reuters