Cartel office watches Gazprom power appetites

By Olga Popova and Gleb Bryanski

MOSCOW (Reuters) - Russia's anti-monopoly regulator said it was closely watching gas export monopoly Gazprom's appetites in the power sector but will allow it to buy regional generator TGC-1 (TGKA.MM: Quote, Profile, Research, Stock Buzz).

TGC-1, one of over a dozen new regional power companies created under sector reforms to create a competitive electricity market, supplies Russia's second largest city of St Petersburg.

The cartel office earlier allowed Gazprom to take control of Moscow's utility Mosenergo, saying the gas giant was the only firm able to manage it.

"We will most likely allow Gazprom to purchase TGC-1 on the same ground that we allowed its purchases in Moscow," Igor Artemyev, head of the Federal Anti-Monopoly Service, told the Reuters Russian Investment Summit.

Gazprom has gradually built up its stake in Mosenergo, a firm supplying electricity to 10 million Muscovites, after an explosion at an ageing substation caused a blackout that brought the capital to a standstill in 2005.

The Anti-Monopoly Service has received substantial powers after legal changes last May. It may now fine firms for up to 15 percent of their revenues for anti-monopoly violations.

Artemyev, a former opposition politician, is walking a tightrope, trying to pursue his anti-monopoly agenda in a business environment dominated by influential state-controlled firms whose boards are packed with top officials.

APPETITE COMES AS YOU EAT

Power monopoly Unified Energy System (UES) EESR.MM is being broken up, with generators being spun off seeking fresh capital from strategic investors. By laws, no firm can acquire over a third of assets within one of two existing price zones.

"It is very important for us to observe the one-third rule, although it is a lot and Gazprom does not ask so much. Nevertheless I cautiously watch their appetite, since I understand that your appetite grows as you eat," he said.

Gazprom, which extracts 90 percent of Russia's gas and controls the pipeline network, is eyeing the power sector, the main consumer for its gas at home, where domestic gas prices are set to rise over the next few years.

Once UES is wound up next year, Gazprom may emerge as a dominant player in the utilities sector with controlling or blocking stakes in a number of spinoffs.

"We objected in the past and continue to object (to Gazprom's presence in the energy sector)," Artemyev said, adding he would have preferred to see a tender on TGC-1 but stability in the region was more important.

Other major players in the utilities sector include KES, the utilities vehicle of billionaire Viktor Vekselberg and Norilsk Nickel (GMKN.MM: Quote, Profile, Research, Stock Buzz), owned by business partners Vladimir Potanin and Mikhail Prokhorov.

Artemyev said the new laws gave his service powers it needed to introduce fair competition in Russia and said stable prices for petrol of late were the first result of his office's work.

"We are moving very fast. Three years ago firms could simply spit on us. Our work did not make sense. Now everything is clear. We feel very confident when we deal with companies that do not have political clout," he said.