Spain would notify EU of big energy merger - report

MADRID, May 18 (Reuters) - Spain would notify European authorities in case of a mooted merger between energy companies Iberdrola and Gas Natural, Secretary of State for Economy David Vegara said in a newspaper interview published on Sunday.

Media have widely speculated that Iberdrola (IBE.MC: Quote, Profile, Research) could merge with Gas Natural (GAS.MC: Quote, Profile, Research), which launched a failed bid for Endesa (ELE.MC: Quote, Profile, Research) in 2005.

Such a move would create a Spanish energy heavyweight that could fend off a bid by French power firm EDF (EDF.PA: Quote, Profile, Research).

"From the competition perspective, it is a deal for (European) community notitifcation," Vegara said.

Spain has been in a long-running dispute with Brussels over conditions it imposed on a 42.5 billion euro ($65.78 billion) Italian-Spanish bid for Endesa. EDF has admitted holding discussions with Iberdrola shareholder ACS (ACS.MC: Quote, Profile, Research) on a possible takeover but has said nothing further on its intentions.

Spanish media have speculated that EDF has bought shares indirectly in Iberdrola through derivatives.

Vegara said the government had helped ensure greater competition in the electricity sector by implementing virtual power plant (VPP) auctions.

Regarding an 11-percent hike in electricity prices proposed by the energy watchdog for July, Vegara said the government had the last word but that "there has to be a definitive solution to the tarif deficit."

The National Energy Commission estimates that the tariff deficit this year will be 4.84 billion euros.