Malaysia's Cahaya Mata Sarawak (CMS) and global Anglo-Australian miner Rio Tinto today signed an agreement to study building what could be one of the world's largest aluminium smelters.

But the project is running into controversy, with the smelter expected to tap power from the Bakun Dam being built on Borneo island which activists have dubbed an environmental disaster.

The cost of the smelter was not disclosed but industry sources have indicated a figure of around US$2 billion (RM6.93 billion).

The study will take 12 to 18 months, covering technical, operational, environmental, social and economic analysis of the proposed smelter.

The smelter, to be known as the Sarawak Aluminium Company, would be situated in Similajau and expected to commence operation by the end of 2010.

It would have an initial production capacity of 550,000 tonnes per year, rising to 1.5 million tonnes in time.

"This is a very positive development for Rio Tinto Aluminum and an important step in our plans to develop new greenfield aluminium smelting capacity," Rio Tinto Aluminium chief executive Oscar Groeneveld said in a statement.

He said the project could provide nearly 5,000 direct and indirect jobs, as well as help boost Malaysia's overall economy.

"CMS and Rio Tinto Aluminium are committed to develop the project to world class environmental and community standards," Goeneveld said.

Cheap power from Bakun

CMS chairman Syed Anwar Jamalullail said his firm's experience as Sarawak's leading nfrastructure development company would complement technical expertise to be provided by Rio Tinto.

CMS, a Sarawak conglomerate with interests in banking, financial services and construction, is linked to Sarawak chief minister Abdul Taib Mahmud's family.

Electricity for the smelter is expected to come from the Bakun Hydroelectric Dam. The dam, currently under construction, has met with strong criticism because up to 10,000 tribal residents were forced to relocate.

Environmentalists said Rio Tinto's plan to tap power from Bakun was meant to cover up for the dam project's failures.

"From our point of view, by allowing the Rio Tinto project to go ahead, it is just like trying to cover up one natural disaster with another," said Colin Nicholas, coordinator Sarawak's Centre for Orang Asli.

"Another big project like this will see more green forestry being wiped out and that itself is another disaster," Nicholas told AFP .

Rio Tinto Aluminium is part of the Rio Tinto Group and owns and manages mining, refining and smelting assets mainly situated in Australia and New Zealand.

The group is set to become the world's largest aluminium producer through its recent US$38.1 billion takeover of Canada's Alcan Inc.