Gazprom, Billionaire Vekselberg to Merge Power Utilities

OAO Gazprom, Russia’s gas export monopoly, and billionaire Viktor Vekselberg agreed to merge electricity assets, forming a utility that may control 25 percent of the country’s generating capacity.

The combined utility will compete on the scale of international companies such as EON AG and Electricite de France SA, Gazprom Chief Executive Officer Alexei Miller said today at a signing ceremony in Moscow.

Vekselberg’s Renova Group, one of the biggest investors in Russia’s power market through its IES Holding unit, will have a blocking stake of at least 25 percent plus one share in the combined utility, the billionaire said at the ceremony. Gazprom will hold no more than 75 percent.

“IES is one of the biggest gas consumers and Gazprom is the biggest gas supplier, so the synergy is obvious,” Vekselberg said.

Gazprom, the world’s biggest gas producer, aims to become a leader in the power market to bolster cash flows amid growing electricity demand in Russia and volatility in the European gas market. The company is also looking to build or acquire generators in Europe.

Gazprom Energoholding, the gas producer’s power unit, plans to acquire IES Holding and be the base for the merger, according to today’s agreement. The deal may be completed by the end of this year, after meeting antitrust demands, Vekselberg said. The utility plans to seek a listing, he said.

‘Serious Threat’

Russia’s competition watchdog sees the tie-up as “undesirable” because Gazprom already holds many power assets, RIA Novosti reported, citing Igor Artemyev, the head of the Federal Anti-Monopoly Service.

The tie-up “puts competition on the Russian electricity market under a very serious threat” because IES Holding was one of the few privately owned generating companies in Russia, Alfa Bank said in a research note late yesterday.

The antitrust service opposed a planned merger between Gazprom and OAO Siberian Coal Energy Co., known as SUEK, and the deal fell through in June 2008, the same year Russia broke up the state-controlled utility, OAO Unified Energy System. EON and Enel SpA (ENEL) bought assets at auctions during the preceding period of restructuring, which was designed to bring in private investors, spur upgrades of aging plants and boost competition.

Gazprom Energoholding owns four generating companies in Russia, with installed capacity of about 37 gigawatts, accounting for 17 percent of Russian capacity, Miller said on June 30. IES Holding owns four utilities with 16 gigawatts of capacity, as well as sales companies in Russia’s Urals and Volga regions.

“Gazprom has reached a very good pace of commissioning new capacity and this year will build more than RAO UES in its entire history,” Miller said today.

To contact the reporter on this story: Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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