Austria's biggest and state-controlled oil company, OMV AG, plans to build a giant energy supplier by merging the national utility Verbund, a leading electricity company in the country, local media said on Tuesday.

Following France and Spain, Austria is also seeking to combine domestic energy companies in order to be fit for the competition across the continent after markets open in 2007.

For the merger, OMV would pay a "minor premium" of 12.4 billion euros (15.8 billion U.S. dollars) for Verbund, said OMV, whose main business is refining and exploring oil.

As the leader of the Austrian energy market, OMV had planned to increase oil and gas production by 47 percent and double its refining capacity by 2010 by expanding investment in eastern and southern European countries.

But in these areas, OMV faces more and more competition from Enel SpA of Italy, E.ON AG of Germany and Russia's OAO Gazprom, all at least twice the size of OMV.

The Vienna-based Verbund owns 116 power plants and generates 90 percent of its production in water power plants, which are cheaper to run than coal-or oil-fired plants. The margin of Verbund hit 349 million euros (445.3 million dollars) in 2005, up from 114 million euros (145.4 million dollars) in the previous year.

Analysts believed that the merged OMV-Verbund could not only strengthen its capability for competition, but also reduce instability in profit.

Source: Xinhua