* Tentative bids of 1.2-1.5 bln eur submitted - sources
* Binding bids to be submitted by end-May - sources
* Difficult market conditions could weigh on price-sources
* E.ON shares extended losses, down 2.1 percent
By Arno Schuetze and Christoph Steitz
FRANKFURT, April 12 E.ON's waste burning unit could be a hard sell due to overcapacity in the industry, according to banking and industry sources who revealed early bids of 1.2-1.5 billion euros ($1.6-$2.0 billion) but expect them to be revised lower.
U.S.-based Foster Wheeler, Singapore's Sembcorp , Morgan Stanley Infrastructure, Swedish private equity group EQT, German construction group Papenburg and German utility MVV have all placed tentative bids within that range for E.ON's Energy from Waste unit, investment banking sources said.
Germany-based water and environmental service company Remondis is also in the running, one source said, adding the company was teaming up with municipal utilities in the bidding process.
But binding bids are expected to be lower, the sources said.
One of them said that some bidders will have placed high initial bids to stay in the running and get access to the company's books. The due diligence is currently ongoing.
"I expect final bids at around 1 billion euros," the source said.
E.ON Energy from Waste generated revenues of 544 million euros in 2011 with its 18 waste incinerators in Europe - most of them located in Germany - with an annual capacity of about 4.0 million tonnes.
But the market is suffering from overcapacity, after Germany encouraged the construction of incinerators in the 1990s to slash the use of landfills.
These plants now compete for shrinking waste volumes as recycling rates rise. Incineration companies therefore have to pay more for the refuse they use as fuel while power prices are falling. In Germany less than 1 percent of electricity comes from waste.
"Put two and two together and you can see that this is not a lucrative business. This also gives you an idea about how difficult it is to sell assets in this environment," an industry source said.
E.ON - which has hired Barclays and Royal Bank of Scotland to manage the sale process - is expecting binding bids for the unit by the end of May, two sources said.
The sale of Energy from Waste is part of E.ON's wide-ranging 15 billion euros disposal programme to streamline its activities, as the group is struggling with the impact of Germany's decision to shut down all nuclear plants by 2022.
E.ON's Chief Executive Johannes Teyssen in March confirmed that it has initiated the sales process for the unit. A company source said that E.ON was also considering splitting up the unit to sell it in parts.
Sources with knowledge of the deal said that EQT has hired Deutsche Bank as an advisor, while Goldman Sachs is advising MVV and Credit Suisse is advising Sembcorp.
"Sembcorp will have no problem financing this deal," one source said, adding Singapore banks will be more than willing to lend to the company.
"The project is still at a preliminary stage and no binding agreement has been signed," Sembcorp said.
E.ON, Remondis, Credit Suisse, Morgan Stanley, EQT, Deutsche Bank and Goldman Sachs, MVV declined to comment.
Papenburg and Foster Wheeler were not immediately available for comment.