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UPDATE 2-Norilsk hit with $178 mln Russia pollution suit

(Adds Mitvol, analyst comments, background)

MOSCOW, Feb 27 (Reuters) - Mining firm Norilsk Nickel GMKN.MM was named in a 4.35 billion rouble ($178 million) pollution suit filed by Russia's environment agency on Wednesday in its largest ever claim against a metals company.

The subject of rival merger proposals by Kremlin-linked billionaires, Norilsk denied the charges and said it would appeal.

Stemming from the alleged pollution of rivers in Siberia, Rosprirodnadzor agency said its deputy head, Oleg Mitvol, had lodged the claim with the Krasnoyarsk regional arbitration court.

Mitvol’s previous comments have raised concern about growing state involvement in Russia’s natural resources sector and his role in enforcing Kremlin policy.

The outspoken official led a 2006 campaign against Royal Dutch Shell's RDSa.L Sakhalin-2 oil and gas group. Pressure subsided after the group agreed to sell control to Russian state gas export monopoly Gazprom GAZP.MM for $7.45 billion.

“I hope the court will make a balanced decision based on detailed studies of the material with which they are presented and oblige companies to uphold environmental law and stop the escape of untreated waste into rivers,” he said in a statement.

Mitvol told Reuters the government wanted to raise fines for environmental violations to international standards.

“We are continuing to take samples and the sum of the fine will be recalculated,” he told Reuters by telephone.

Norilsk, 320 km (200 miles) inside the Arctic Circle, is ranked among the world’s 10 most polluted places by the New York-based Blacksmith Institute.

Norilsk Nickel, a $57.3 billion company which mines a fifth of the world’s nickel, has pledged a large portion of its $1 billion annual investment to 2011 will be invested in reducing sulphur dioxide emissions and other ecological improvements.

The company disputed the agency’s findings. “We are going to appeal,” a company spokeswoman said.

NORILSK MERGER?

Norilsk is currently the subject of two possible merger proposals as its two billionaire owners, Mikhail Prokhorov and Vladimir Potanin, split their assets in a public divorce.

Aluminium giant United Company RUSAL, majority owned by Oleg Deripaska, has agreed to buy Prokhorov’s stake. Norilsk is also studying a proposal to merge with the assets of iron and steel baron Alisher Usmanov.

Analysts said the environmental case was probably not connected with these events, and that Norilsk would be able to pay any fine should the court uphold the charges.

“The total effect will be immaterial compared with Norilsk’s current market capitalisation of more than $50 billion,” said Dmitry Smolin, mining analyst at UralSib Financial Corp.

Mitvol said the recommended fine applied to tests undertaken to December 2007 at Norilsk’s Taimyr division, where most of its production takes place.

He said the Baikal Pulp and Paper Mill had paid a fine of similar size.

Rosprirodnadzor proposed that Coca-Cola Co KO.N convert the pulp mill into a bottling plant.

Norilsk's Moscow-traded shares fell 1.3 percent to trade at 7,207 roubles at 1442 GMT, broadly in line with a 1.2 percent drop in the MICEX metals and mining index .MCXMM.

Rosprirodnadzor also filed a 141 million rouble ($5.8 million) river pollution claim against the Eurasian Energy Company, a subsidiary of steel maker Evraz Group HK1q.L.

Evraz declined to comment.

Additional reporting by Aleksandras Budrys

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