DUBAI World and a local partner have offered to buy Russian utility OAO OGK-1 for 125 billion rubles (US$5.34 billion) to profit from the breakup of the national power monopoly.

State-run Dubai World and energy trader OAO Roskommunenergo signed a preliminary accord to pay US$516 per kilowatt of installed capacity for OGK-1, Marita Nagoga, spokeswoman for national utility OAO Unified Energy System, said yesterday. OGK-1 operates four plants in European Russia and two in Siberia.

The acquisition by Dubai World, which has US$100 billion of assets ranging from ports to casinos, would be the first in Russia's energy industry by a Persian Gulf investor, according to Bloomberg News.

State-run Unified Energy, which has raised about US$34 billion selling generation and distribution assets since 2006, ceases to exist today.

"This deal is a mix of business, social responsibility and internal politics," said Semyon Birg, fund manager with Alfa Capital in Moscow. "OGK-1 will be managed by people close to the government and loyal to the state's course."

Roskommunenergo is chaired by Igor Kozhin, the son of Vladimir Kozhin, who runs the Kremlin's property department. Dubai World Chairman Sultan bin Sulayem declined to comment yesterday.

OGK-1 jumped as much as 21 percent, the most since the shares started trading on March 30, in Moscow yesterday and were 16 percent higher at 2.03 rubles on the Micex Stock Exchange at 11:45am. The Dubai World offer values OGK-1 at 10.6 US cents per share, Birg said.

Power demand in Russia will grow by almost 5 percent a year through 2012, and be 70 percent higher in 2020 compared with last year, Prime Minister Vladimir Putin said. Russia wants utilities to ramp up production.