* If merged, fossil fuel generation would total 65 gigawatts
* Deepening tie-up may lead to industry consolidation (Adds comment, details on LNG purchases)
By Osamu Tsukimori and Aaron Sheldrick
TOKYO, Feb 9 (Reuters) - Tokyo Electric Power Co (Tepco) and Chubu Electric Power Co said on Monday they may combine their fossil-fuel plants under a joint venture they are setting up from April to handle fuel procurement and related businesses.
Should the companies, the biggest and third biggest of Japan's 10 regional power utilities, include all their fossil-fuel stations, the tie-up would oversee almost 68 gigawatts of capacity, making it one of the world's largest power generators.
The rigid boundaries between Japan's regional monopolies are gradually breaking down in the wake of the 2011 Fukushima nuclear crisis. The disaster exposed flaws in the national grid, pushed up prices and led to three of them, including Tepco, owner of the Fukushima plant, to turn to the government for aid.
The growing ties between Chubu and Tepco may prompt mergers in the industry after the government opens up the $63 billion retail market from April 2016, said Tom O'Sullivan, founder of independent energy consultant Mathyos Japan.
"The combination of Tepco and Chubu's thermal power businesses may be indicative of a consolidation trend that might follow the proposed liberalization of Japan's power market," he said.
Such consolidation has occurred in other markets that have liberalized, O'Sullivan noted: "Germany has four power companies, the UK has six, while Japan has 10."
Chubu and Tepco said they agreed to start a comprehensive joint venture from April that will gradually include fuel procurement, investment in gas and other upstream developments, and some areas of power generation to lower costs.
The utilities will continue discussions on including all their fossil fuel-fired plants, Yukio Kani, a Tepco executive officer said at a media briefing.
"We want to set the overall direction toward combining our existing plants by the spring of 2017," he said.
Tepco was saved from bankruptcy by the government in 2012 following the reactor meltdowns at its Fukushima plant north of Tokyo after an earthquake and tsunami in March 2011. The Fukushima nuclear disaster was the world's worst since Chernobyl in 1986.
Fukushima exposed Tepco to tens of billions of dollars of compensation claims and clean-up costs and led to the shutdown of all of Japan's nuclear reactors for stringent safety checks.
That forced operators to import record amounts of coal and expensive liquefied natural gas (LNG) for power generation, contributing to a record run of trade deficits for Japan and forcing two other regional monopolies to seek state aid.
Tepco, the world's second-biggest LNG buyer, currently buys about 25 million tonnes a year. Chubu Electric, the third-biggest LNG buyer, takes in around 14 million tonnes a year.
Writing by Aaron Sheldrick; Editing by Biju Dwarakanath and Tom Hogue