UPDATE 2-Russia IES to own supply chain, sell $1 bln in assets

(Rewrites to add quotes, details on vertical integration, dividends)

By Simon Shuster

PERM, Russia, July 9 (Reuters) - Russia's IES, a utility set to dominate the power business in 18 regions, is ploughing ahead with plans to control the power supply chain, and will raise $1 billion from the sale of non-core assets, its president said.

IES, an investment vehicle of billionaire Viktor Vekselberg, bought up several billion dollars in utility assets broken off from former electricity monopoly Unified Energy System during Russia's sweeping power reforms of the last two years.

It is now consolidating these assets into what analysts have warned is a new regional monopoly, which may skew the level playing field the reforms had sought to create.

IES strategy, said Mikhail Slobodin, is to bring the supply chain under one roof -- from turbine construction and generation to the distribution and sale of power to end consumers.

"We are in heat production, power generation, grids, communal systems. Who else is there but us (in these regions)?" said Slobodin late on Tuesday. His comments were cleared for publication on Wednesday.

Only Gazprom (GAZP.MM), Russia's gas export monopoly, bought up more UES subsidiaries. Before being liquidated on July 1, UES sold off some $35 billion in assets, the only large-scale privatisation allowed by former president Vladimir Putin.

The stated aim of the privatisation was to create a free and competitive market for power, where dozens of firms compete in the production, distribution and sale of energy.

Although endorsed by the government, these aims were not adequately codified in Russian law, UES officials and analysts have said.

"In other people's opinion (the strategy) might break the principles of the reform, but we are not violating any laws ... And I can tell you that right now we have the business model that everyone is trying to copy," said Slobodin.

STREAMLINING THROUGH SALES

IES, also known by its Russian acronym KES, has effective control of regional generators TGK-5 (TGKE.MM), TGK-6 (TGKF.MM) and TGK-9 (TGKI.MM), as well as a roughly 30 percent stake in TGK-7 (TGKF.MM), which Slobodin said it would soon control.

Together these firms have more than 15 gigawatts of generating capacity, providing power and heat to 18 neighbouring regions that cover a huge swathe of European Russia and the Ural mountains.

It also owns a 75 percent stake in Russian Communal Systems, Russia's main provider of services such as water, garbage collection and electricity, and most of the power grids surrounding its generators.