Mumbai: State-run National Aluminium Co Ltd will enter into a memorandum of understanding (MoU) with the Indonesian government next month for setting up a smelter on Sumatra island.

The aluminium smelter, proposed to be set up in South Sumatra province, will involve total investment of $3 billion. The smelter will have an annual production capacity of 250,000 tonnes in the initial phase, Putu Suryawirawan, director of metal industry at Indonesia''s industry ministry, said.

The smelter capacity will be more than doubled to 500,000 tonnes a year in the next phase, he added.

"Nalco will conduct a feasibility study on the project," the Indonesian official said, adding, that alumina required for the smelter will be supplied by Nalco''''s parent company in India.

Nalco will also build a coal-fired power plant that can generate a total of 750 megawatts of electricity from the plant''''s 3 units.

The power plant would need coal linkages assuring supplies of 4.5 million tonnes per year, the official said.

Nalco owns bauxite mines with annual production of 4.8 million tonnes per year and alumina processing plants with output of 1.575 million tonnes per year.

The company also owns an aluminium smelter, producing 345,000 tonnes of aluminium.

Nalco, which has surplus raw stock, is planning to sell 25,000 tonnes of alumina through a spot tender this month. Bids are likely to be made in the first half of the month.

Nalco had already sold 30,000 tonnes of alumina for $376.10 per tonne.