CORRECTED-Australia's AGL says will sell Papua LNG stake

(Corrects first paragraph of April 6 story to show AGL's stake in Papua New Guinea LNG project is 3.6 percent, not 10 percent. Also removes reference to planned gas pipeline to Australia.)

SYDNEY, April 6 (Reuters) - Australian power retailer AGL Energy Ltd (AGK.AX) will sell its 3.6 percent stake in a A$10-11 billion ($9-10 billion) liquefied natural gas project in Papua New Guinea when the Port Moresby government reaches a decision on the project in coming weeks, the company said on Sunday.

AGL saw opportunities in participating in privatisation of the electricity industry in Australia's large New South Wales state, the group's chief executive officer Michael Fraser also told ABC television's Inside Business programme.

Fraser was speaking six months after taking the chief executive position in financially-shaken AGL, which last October cut its 2008 profit forecast by 17 percent because of higher costs and lower margins.

Since taking over, Fraser said AGL had sold A$600 million worth of assets to retain its credit rating.

Sales included the AlintaAGL retail power business in Western Australia, as well as assets in Chile.

"Once we have a positive decision around the LNG project, and we expect that in coming weeks, we will put our interests in PNG (Papua New Guinea) up for sale," Fraser said on Sunday.

Main shareholders in the venture are ExxonMobil (XOM.N) and Australian-listed Oil Search Ltd (OSH.AX). Other shareholders include Santos Ltd (STO.AX), Nippon Oil Corp (5001.T) and Papua New Guinea landholders.

Fraser said AGL would wait to see details of the government privatisation of the New South Wales electricity industry. The structure of the sell-off, which is being buffeted by local politics, has not been finalised but could be worth A$10 billion.

"I certainly believe that the government should be getting out of the retail businesses and the generation businesses," Fraser said on Sunday.

"There are substantial amounts of capital that need to be spent over the next decade. I think the private sector is better placed to do that, but there are challenges for the sale process," he said.

Fraser said he was shaping AGL to give it flexibility in its balance sheet so that it could participate in the privatisation. ($1=A$1.09) (Reporting by Michael Byrnes, editing by Jacqueline Wong)