Gazprom, SUEK Value Power Venture

Energy majors Gazprom and SUEK have agreed in principle on the terms of their joint power venture, which they value at $14 billion to $18 billion and may complete by September, a source with direct knowledge of the deal said.

The venture, announced in February 2007, would create the country's largest electricity holding company, which analysts expect to dominate and partly remonopolize the sector after the break up of Unified Energy System.

"The valuation of the joint venture falls between $12 billion and $18 billion, but I think it will be in the neighborhood of $14 billion to $18 billion," the source said. He said a draft of the deal has been put before Gazprom's board of directors.

SUEK, also known as the Siberian Coal and Energy Company, is the country's largest producer of coal, while Gazprom is the world's largest natural gas producer. Last year, they achieved control of roughly one-quarter of the country's power generation, buying up the assets sold off by UES as part of a sector-wide liberalization.

The pooling of these assets would give Gazprom and SUEK control of roughly 40 percent of the fossil fuel-run turbines, as well as a near monopoly on the gas and coal that drive them.

This structure has raised fears among analysts, officials and market participants that Gazprom and SUEK would give their own power stations privileged access to fuel, while starving its competitors and undercutting prices.

The Federal Anti-Monopoly Service has not yet granted its approval for the joint venture, which would give Gazprom 50 percent plus one share and SUEK the rest.