Russian energy giants Gazprom and SUEK have agreed on the main terms for merging their power and coal assets into a holding company that would eventually sell shares to the public.
Analysts said the joint venture would create a giant that would partly re-monopolise the sector, undermining liberal reforms aimed at making it more open and competitive since 2003.
"In the future the companies plan to hold a global international initial public offering," a joint statement said.
It did not give a value for the holding company, but sources close to the merger said today it will be worth $15 billion-$16 billion.
Gazprom chairman Dmitry Medvedev, who is widely expected to win Russia's presidential election on Sunday, praised the merger and said it had been a long time coming.
"This is not a surprise but the result of a fairly serious cooperative process," he said.
But the strength of the new firm and its lobbying power raised fears among some local analysts.
"Of course this worries us. It is completely contradictory to the reform principles, and could really hurt [the sector's] attractiveness to foreign investors," said Alexander Kornilov, senior analyst at Alfa Bank in Moscow.
The total generating capacity of the pooled companies will be 30.5 gigawatts, or about 15 per cent of Russia's total electricity production, the Gazprom-SUEK statement said.
Analysts estimate they will control more than 40 per cent of the generation assets being sold off by former monopoly Unified Energy System (UES) as part of the reforms.
The other strategic investors buying up these assets, which include Germany's E.On and Italy's Enel, each control only one large power producer, while the Gazprom-SUEK venture would control at least four.
To keep their turbines running, these investors will also depend on Gazprom for fuels like coal and natural gas, over which Gazprom and SUEK will have a near monopoly in Russia.
Gazprom's merger with SUEK must still be approved by the Federal Anti-Monopoly Service, which is widely expected to give the green light this year.