Gazprom is joining forces with Russia's biggest coalminer to create a new energy giant, combining electricity generation and coal resources.

The joint venture with Siberian Coal Energy Company (Suek) will comprise power generation assets recently acquired by Gazprom and Suek as well as the miner's vast coal assets, which supply a third of the coal used in Russia's power stations.

The revamped Suek will eventually float in an international public offering, but Gazprom will dominate the company after the merger, owning 50 per cent of the stock plus one share. Gazprom nominees will account for 5 of the 11 board seats and a Gazprom representative, Vladimir Rashevsky, will lead Suek as director-general.

Dmitry Medvedev, Gazprom's chairman and President Putin's chosen heir as candidate for president in next weekend's election, said the Suek deal was “good for the country”.

However, the emergence of a new Russian energy titan controlled by Gazprom aroused concern yesterday in Moscow. Analysts suggested that the Gazprom-Suek combination was a step backwards from the liberalisation of Unified Energy System (UES), Russia's power grid. Alexander Kornilov, an analyst at Alfa Bank in Moscow, said: “It is completely contradictory to the reform principles.”

The break-up of UES into competing units via the spin-off of its generating assets into separate companies was overshadowed by Gazprom's aggressive bidding for shares in the former UES generators.

The merger of Gazprom's UES investments combined with Suek's former UES generators will create a new electricity colossus with power generating capacity of 35 gigawatts - 15 per cent of Russia's output.

— Gazprom said yesterday that it would cut gas exports to Ukraine on Monday in its continuing dispute with its neighbour over $1.5 billion in arrears for non-payment of gas bills.

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