WRAPUP 1-RWE teams up with Gazprom, sells grid

Thu Jul 14, 2011 10:50am EDT

* To exclusively negotiate energy projects with Gazprom

* Agreement applies to Germany, UK, Benelux countries

* Pact might secure natural gas supplies to RWE

* Sells German long-distance grid for 1.3 bln eur

* Shares reverse losses, trade 0.4 pct higher

By Peter Dinkloh

FRANKFURT, July 14 (Reuters) - German utility RWE agreed to sell its high-voltage power grid and teamed up with Gazprom for power projects, trying to overcome severe hits to its profit from the economic crisis and a German tax.

RWE, Europe's fifth-largest utility, secured exclusive talks with Russian gas monopoly Gazprom that could lead to a gas and coal power joint venture in Germany, Britain and the Benelux countries.

The Essen, western Germany, based utility also agreed to sell a 75 percent stake in its long-distance power grid Amprion to a group of financial investors, RWE said on Thursday.

Commerzbank , which helped arrange the buyers' consortium, said the purchase price was 700 million euros ($998 million).

RWE has been hit by loss-making gas contracts and weak power prices, and is under threat from a German tax on nuclear fuel that came into effect this year.

Ratings agency Standard & Poor's lowered the credit rating of Germany's biggest producer of power in June to "A-", its lowest rating in the A category, and predicted the company's finances would weaken further as RWE faces falling profits over the next three years.

As part of its deal with Gazprom, the world's largest natural-gas company, RWE has for three months exclusive rights to explore energy projects in the five countries under a memorandum of understanding signed on Thursday.

"This memorandum of understanding could secure a safe and competitive natural gas supply to RWE," the company said.

"It can furthermore provide for potential partnerships in coal and gas fired power plants in and outside of Germany."

RWE, Europe's fifth-largest utility, is sticking to its participation in the Nabucco gas pipeline, a project competing with Gazprom's South Stream gas pipeline, it said.

The shares reversed earlier losses and were up 0.3 percent at 35.99 euros at 1414 GMT.

"The news so far released should be positive especially (because) the talks regarding a joint venture for Germany, UK and Benelux might lead to competitive gas supply which has been a major problem for RWE so far," said Markus Huber, the head of German sales trading at ETX Capital.

"It can be assumed that Gazprom might still be interested in taking a stake in RWE and that further JV will be agreed on."

German magazine Der Spiegel reported on the weekend that RWE's CEO is considering bringing Gazprom on board as an investor as it seeks ways to bolster its balance sheet.

POWER GRID SALE

The utility is the third German utility to sell its power grid as regulation diminishes returns from the networks.

Chief Executive Juergen Grossmann has said he plans to sell 8 billion euros of assets, but people with knowledge of the matter told Reuters that he had also considered giving up control of the utility and merging it with Spanish peer Iberdrola .

The sale of RWE's power transmission unit Amprion values the whole business including debt at 1.3 billion euros, slightly higher than the so-called regulatory asset value, which is what the grid regulator uses to calculate the permitted returns for the grid.

The buyer consortium for the the 11,000 kilometre grid network consists of Munich Re (MUVGn.DE), Swisslife , Talanx and a German pension fund for doctors, RWE said.

Commerzbank's Commerz Real unit will temporarily take a 13 percent stake in the Amprion grid to sell it on to other investors.

Even though it is selling a majority, the German utility wants to retain operational control of the network after the sale, sources familiar with the matter told Reuters.

Germany is revamping its power supply after the nuclear meltdowns in Fukushima. Within months of the disaster, the country decided to phase out nuclear power by 2022, reversing last year's decision to let nuclear plants run decades longer.

It might cost as much as 80 billion euros to expand the German power grid to connect new power generation facilities to replace its 17 nuclear power plants faster than planned, the German grid regulator said in April.

($1 = 0.702 Euros) (Reporting by Peter Dinkloh; Editing by Jon Loades-Carter)