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UPDATE 2-Vattenfall to hold power grid sales talks

(releads, adds EU Commission)

FRANKFURT, July 25 (Reuters) - Vattenfall Europe [VATN.UL] will go ahead with the sale of its high-voltage power grid in Germany and has lined up possible buyers in response to EU calls to ease access for competitors, the company said on Friday.

“Vattenfall Europe will approach potential investors for its transmission unit Vattenfall Europe Transmission (VET) over the next few days,” Germany’s fourth biggest utility said in a statement.

“The background to this decision is the months-long political debate about the separation of distribution network ownership from power production.”

In Brussels, Energy Commmissioner Andris Piebalgs welcomed the move, saying it would help bring more competition and choice.

“Vattenfall’s announcement is perfectly in line with the letter and the spirit of the Commission’s third Energy Market Package, that we hope will be adopted during the French Presidency”, said Piebalgs.

Vattenfall said it aimed to conclude the process in the first half of 2009, with Citigroup C.N acting as agent for the transaction which might fetch 900 million euros ($1.41 billion).

The company, the German arm of the Swedish state-owned Vattenfall group, is following sector leader E.ON EONG.DE which surprised markets earlier this year with plans to sell its own high-voltage grid to appease the EU in a cartel case.

Germany's big four utilities, which also include RWE RWEG.DE and EnBW EBKG.DE, had resisted pressure from the EU for years to give up their networks.

Chief executive Tuomo Hatakka said in the statement that Vattenfall would only sell to long-term investors who guaranteed substantial investment and free access for rivals.

VET, which had sales worth 3.3 billion euros last year, commands 9,500 km of power transmission lines in eastern Germany with links to Denmark, Poland and the Czech Republic.

LOSSES

Regulatory pressure has shaved off generous earnings from the network business to encourage more competition and efficiency and help consumers, although the regulator recently introduced more benign conditions from next year.

“Investors find the price and anticipated earnings crucial. There is still much uncertainty about future network earnings allowed by the regulator,” said WestLB analyst Peter Wirtz.

In January, Vattenfall had said the unit would post losses this calendar year under the tightened regime.

Parties either reportedly or openly interested in German grids include Britain's investors 3i QPE.LIII.L, National Grid NG.L and Terra Firma, Macquarie MWG.AX, Deutsche Bank subsidiary RREEF and Allianz ALVG.DE.

The big four German utilities are also in long term talks about setting up one company that groups all high-voltage power grids and may involve foreign companies and financial investors.

In a separate issue the EU Commission on Friday declined to comment on other cases beyond E.ON, where a comptition case is underway, which had led to its E.ON’s decision to sell its grid.

The EU in 2006 raided German utility companies on the grounds of suspected irregularities in the wholesale power and balancing power markets. Since then it has upheld the possibility of opening antitrust cases, which could interfere with sales transactions.

Commission spokesman Jonathan Todd said E.ON’s commitments were being studied but he would not be drawn on any other investigations.

For a factbox on German power grids click on [ID:nL5620898]

Reporting by Vera Eckert, David Brunnstrom, Tom Kaeckenhoff, Madeline Chambers

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