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Russia's gas monopoly Gazprom and largest coal producer SUEK have dropped
Russia's gas monopoly Gazprom and largest coal producer SUEK have dropped plans to merge their electricity and coal assets worth $16 billion, but signed a strategic cooperation deal, the companies said in a joint news release.

SUEK, which supplies one third of coal used by Russian power plants, was to hold an additional share issue giving state-controlled Gazprom a majority stake in its equity capital in exchange for energy assets owned by Gazprom subsidiaries. The companies earlier applied to the anti-monopoly service for permission.

"Gazprom's subsidiaries have withdrawn their application to the Federal Anti-Monopoly Service for permission to buy 50% plus one share in SUEK," the companies said.

The companies cited uncertainty on the electricity market undergoing reform, which is preventing an accurate valuation being made of the new company's potential market value, as well as differences over the management's make-up.

Russian media reports also said President Dmitry Medvedev, former Gazprom board chairman, had withdrawn his support for the deal fearing it could be seen as part of the Kremlin's drive to consolidate control of the energy sector.

The government pledged to scale down its role in business at an annual investment forum in St. Petersburg at the weekend.

The deal, discussed since the start of 2007, had been criticized by the then economics minister, German Gref, as harmful for competition. Anti-monopoly authorities had also been concerned about the plans.

But Gazprom and SUEK are set to coordinate coal supplies by the Siberian producer to Gazprom's power plants in a bid to cut the plants' natural gas consumption, joint investment in new plants and coal production, and purchases of electricity assets in Russia and abroad, the news release said.

Experts quoted by business daily Kommersant said the cooperation pact was designed to compensate for abandoning the merger.


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