Norilsk Nickel's (GMKN.MM: Quote, Profile, Research) plan to transfer its energy assets to a new $7 billion company was thwarted on Friday when the single largest shareholder, billionaire Mikhail Prokhorov, declined to back the proposal.

Prokhorov, who is selling his 25 percent-plus-one-share stake in the world's largest nickel miner, abstained from voting at an extraordinary shareholders meeting to decide the fate of energy assets including power generating firm OGK-3 (OGKC.MM: Quote, Profile, Research).

"We are going to abstain from voting and, without our stake, the vote will not pass," Prokhorov told reporters before the meeting.

Afterwards, Norilsk Chairman Andrei Klishas confirmed the spin-off had not been approved: "The decision was not taken."

The result preserves Norilsk's direct ownership of the energy assets ahead of the possible sale of Prokhorov's stake to United Company RUSAL, which has been diversifying into the energy sector to generate power for its aluminium smelters.

Prokhorov has given first right of refusal to ex-partner Vladimir Potanin as the two businessmen break up one of Russia's most fruitful and long-running partnerships. But Potanin must find $15.7 billion before Prokhorov's offer expires next week.

Should he decline, Prokhorov will sell to UC RUSAL, the world's largest aluminium producer and the crown jewel in the empire of a third Russian billionaire, Oleg Deripaska.

Prokhorov reiterated on Friday he would prefer to sell to UC RUSAL. He declined to disclose details of the RUSAL deal to Potanin due to a confidentiality agreement.

Asked whether he would block any subsequent plan by Norilsk to sell the energy assets should the company fail to spin them off, Prokhorov said: "This is a question to ask the new owner and we will know the new owner very soon".

WHAT NEXT?

Norilsk unveiled plans in March to spin off its non-core electricity assets and list the new company, EnergoPolyus, in May 2008. It has said the company would be worth $7 billion minus 15 billion roubles ($614.3 million) of transferred debt.

Wholesale power producer OGK-3, which Norilsk acquired for $4.6 billion, was to form the core of EnergoPolyus. Controlling stakes in several territorial generating companies, known locally as TGKs, was to have formed much of the rest.

"The plans to buy control of the TGKs did not pan out and Prokhorov decided that, without these stakes, the spin-off idea no longer made sense," a source close to OGK-3, who spoke to Norilsk managers this week, told Reuters before the vote.

Norilsk owns 65.15 percent of OGK-3 as well as 27.69 percent of TGK-14 (TGKN.MM: Quote, Profile, Research), 7.37 percent of TGK-1 (TGKA.MM: Quote, Profile, Research) and under 2 percent of OGK-5 (OGKE.MM: Quote, Profile, Research) and TGK-5 (TGKE.MM: Quote, Profile, Research).

Norilsk Chief Executive Denis Morozov said after the meeting: "Even though the number of supportive votes is insufficient, we still believe this project is one of the best ways of developing Norilsk Nickel's non-core energy assets".

But if UC RUSAL were to succeed in gaining control of a large share in Norilsk, the spin-off of power assets would be unlikely to proceed, said Igor Vasilyev, electricity analyst at Troika Dialog.

"The main interest in buying generating assets is ensuring electricity supplies for itself," he said, referring to RUSAL.

KM-INVEST SPLIT

Prokhorov also said that, on Dec. 19, he would offer Potanin the chance to split assets jointly owned within the KM-Invest firms, which include a further 8 percent stake in Norilsk and a 7.5 percent stake in gold miner Polyus Gold (PLZL.MM: Quote, Profile, Research) (PLZLq.L: Quote, Profile, Research).

He said he would offer either to sell all assets and divide the proceeds, to buy out Potanin's stakes, or to sell his own stakes to his ex-partner on the same conditions.

Prokhorov said his offer, if accepted, could see the assets split by July 1, 2008. His share is worth about $5.5 billion.

If his offer is declined, Prokhorov said he would start dismantling the firm through the courts. This could take years.

Source: Reuters UK