July 13 (Bloomberg) -- Alcan Inc. probably will build a $2.5 billion smelter on South Africa's southeast coast after the company concluded electricity-price talks with the country's power utility, the Industrial Development Corp. said.

``The main issue was the electricity price and that has been resolved,'' IDC Chief Executive, Geoffrey Qhena, told reporters today in Johannesburg. ``Alcan has put a lot of resources into this, which is why we are confident it will go ahead.''

The IDC, South Africa's state-owned development bank, will buy a 15 percent stake in the smelter, Qhena said. Alcan will decide whether to proceed at an October board meeting, Qhena said. Alcan spokesman Alexander Christen said the company is still working on the feasibility study.

Alcan, along with rivals Alcoa Inc., Norsk Hydro and Corus Group Plc, is looking to expand in locations where energy costs are lower than in North America and Europe. Electricity accounts for about a third of the cost aluminum production.

South Africa's state-owned power company Eskom Holdings Ltd., which has been in talks with Alcan, is the world's lowest- cost electricity provider, Fani Zulu, a company spokesman, said by phone from Johannesburg.

``We've given Alcan a quotation, within a framework agreed to by government and the National Electricity Regulator,'' Zulu said. ``Alcan is reviewing that quotation.''

Cheap Power

Alcan, Alcoa, Norsk Hydro and Corus may shut as much as 600,000 metric tons of capacity in western Europe between 2006 and 2009 as they seek cheaper power, Mark Fraser, an analyst at CRU International, said in Reykjavik on June 14.

Three of Alcan's nine smelters in Europe are ``endangered'' by power costs that may rise twofold when contracts expire this year, Richard Evans, Alcan's executive vice president, said in an interview in Reykjavik on June 14. The smelters are located in the Netherlands, Switzerland and France.

Alcan's shares fell 28 cents, or 0.9 percent, to $31.77 at 3:31 p.m. in New York.

Should the project go ahead, construction may begin at the end of 2005 and production in 2008, Alcan said in a statement issued Nov. 18. It expects the Coega facility to have a capacity of about 660,000 metric tons of aluminum a year.

It may build the Coega smelter using some elements of its untested AP50 technology, Evans said on June 14. Alcan's AP30 technology has been used in 80 percent of all aluminum projects built outside of China in the last 15 years, Evans said.

Tax Incentive

The South African government said on Jan. 25 that Alcan would have to reapply for tax incentives originally granted to Pechiney SA, the French aluminum producer it bought in 2003.

The IDC, which owns a 25 percent stake in BHP Billiton's Mozal aluminum smelter in Mozambique, will invest in industrial projects at Coega, to create jobs in one of South Africa's three poorest provinces. South Africa's unemployment rate of 26.2 percent is the highest of 68 countries tracked by Bloomberg.

Lionel October, the deputy director general in South Africa's trade and industry ministry, was not immediately available when contacted on his mobile phone.

To contact the reporter on this story: Stewart Bailey in Johannesburg asguazzin@bloomberg.net

Last Updated: July 13, 2005 15:36 EDT