UPDATE 2-Fortum buys emissions credits from Russia's TGC-1

(Adds details, quotes, MOSCOW to dateline)

By Sakari Suoninen and Simon Shuster

HELSINKI/MOSCOW, Feb 20 (Reuters) - Finnish utility Fortum (FUM1V.HE: Quote, Profile, Research, Stock Buzz) has signed a pioneering deal to buy more than 5 million carbon dioxide (CO2) emissions credits from Russian electricity producer TGC-1 (TGKA.MM: Quote, Profile, Research, Stock Buzz), Fortum said on Wednesday.

After two years of delays, the Russian government last month put in place the legal mechanisms for companies to create carbon credits in Russia, which has the potential to become the second biggest source of the credits after China.

Fortum's deal with TGC-1 is the first to take advantage of these mechanisms.

The market value of the credits -- to be created under the Kyoto Protocol's Joint Implementation (JI) scheme -- is about 70 million euros ($103 million), making it the largest such deal in Russia, Fortum said in a statement.

Fortum said the deal covers around half of its annual emissions of the greenhouse gas carbon dioxide.

Under the Protocol's JI and Clean Development Mechanism (CDM) programmes to fight climate change, those in rich countries can invest in emissions-cutting projects in developing and former communist nations and count the cuts as their own.

The Russian utility will reconstruct hydropower plants, expand and renew its combined heat and power generation plants and improve the efficiency of its district heating network.