Russian gas giant Gazprom and the Siberian Coal and Energy Company, SUEK, have officially called off their merger.

They were unable to agree on how a joint company, responsible for energy assets worth $US 16 billion, would be managed.

Gazprom and SUEK are the main suppliers of fuel for power generation in Russia. Both also own major generation assets in the sector.

The proposed venture would have jointly controlled 40% of Russia’s power generation assets. It had been seen as one of the major risks for liberalisation of Russia's electricity market.

Aleksandr Kotikov, a senior analyst at Troika Dialog, said: “The joint venture might have been forced to sell a number of assets so as not to exceed certain limitations in terms of the market power in Russia. It complicated the deal.”

The official reason given was the uncertainty over the dynamics of the electricity and capacity market, the extent of investment programmes, and the development of network infrastructure that could impede the joint company to become a strong market player.

The subsidiaries of Gazprom are now withdrawing their requests to the Russian Federal Antimonopoly Service (FAS) relating to the acquisition of 50% plus one share in SUEK.

Russian President Dmitry Medvedev, who is a former Gazprom chairman, is also reported to have changed his mind about the deal, which could have been viewed as further state expansion into the energy sector.

Gazprom is being regarded as the bigger loser as a result of the deal's cancellation.

“Having coal from SUEK, Gazprom would have a chance to replace gas-fired power plants by coal-fired power plants, in order to have more gas for exporting,” said VTB analyst Dmitry Skryabin.

SUEK and Gazprom, though, have signed a co-operation agreement guaranteeing fuel supplies to their power stations.