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. Last Updated: 07/27/2016

SUEK Deal Faces State Scrutiny

The Federal Anti-Monopoly Service said Friday that it may block the joint electricity venture between Gazprom and SUEK as the two fossil fuel giants may trump competition in the field of power production.

"Although these companies are both in the energy sector, they have varying portfolios, and it is possible that combining them will bring about vertical integration," said Andrei Tsyganov, deputy director of the Federal Anti-Monopoly Service.

Gazprom and the country's biggest coal producer, SUEK, announced last month that they will pool their electricity assets into a single holding company.

At the time, estimates from Aton Capital said the holding would control at least 25 percent of the country's energy production, and would be worth $12 billion, making it by far the biggest power holding in the country. Moreover, Gazprom and SUEK jointly control almost 60 percent of the fossil fuels used to make electricity.

Taken together, these conditions suggest vertical integration, a system in which one firm controls the production, distribution and sales of a specific good. In the West, this practice is generally viewed as illegal as it does not give nonintegrated competitors a fighting chance.

In some cases, however, as with Russia's state-owned "natural monopolies," this structure is allowed. As stated on its web site, Gazprom's goal is to become an energy company "spanning the entire production chain" for everything from gas to oil to electricity.

But since 2003, power utility Unified Energy Systems has been working, with state support, to break up its own monopoly and bring competition into the power sector. UES chief Anatoly Chubais has called the Gazprom-SUEK venture a "major mistake for the government," and a product of the Kremlin's policy of state-controlled capitalism.

Tsyganov said Friday that an investigation into the venture is ongoing, and that "there are legal measures at our disposal that allow us to block this venture."

He declined to say how long a decision would take.