UPDATE 2-Slovak gas firm sees price cut, inflation to ease

(Adds analyst comments)

By Martin Santa

BRATISLAVA, Oct 31 (Reuters) - Slovakia's dominant natural gas distributor has proposed cutting its prices to households in 2007, Prime Minister Robert Fico said on Tuesday, a move that could make it easier for Slovakia to prepare for euro adoption.

The reduction in gas prices could help bring down consumer price inflation, which is the main obstacle for Slovakia's plan to enter the euro zone in 2009.

Fico said distribution and transportation company SPP had proposed cutting prices for households by an average 3.07 percent from the start of next year.

"After years of improper increases in gas prices, this is the first step leading to stabilisation of the price," Fico told a news conference after a regular government meeting.

Fico also said the cabinet was preparing tighter regulation rules for the energy market, with which he "hoped to help citizens more and more" in the future. He did not elaborate.

High global energy prices have helped to fuel Slovakia's consumer price inflation, which was running at 4.5 percent in September, but benchmark oil prices have fallen around 25 percent since mid-July.

Fico's leftist government, which won power from a centre-right coalition in a June election, has promised to protect the poor against rising energy costs and has stepped up pressure on utilities in recent months.

SPP, run by a consortium of Gaz De France <GAZ.PA> and Germany's E.ON Ruhrgas <EONG.DE> through a 49 percent stake and management rights, was allowed to raise prices for households by 4.3 percent as of November, much less than its original request for a 15 percent increase. The state holds 51 percent in SPP.

"Lower gas prices would help the central bank in its fight against inflation before entering the euro zone," said Lucia Steklacova, the senior analyst at ING Bank in Bratislava.

The central bank (NBS) sees inflation averaging around 2.5 percent in spring 2008, when Slovakia will be assessed on whether it can adopt the euro the following year.

The Slovak monetary authority estimates the inflation ceiling for euro entrants at 2.8 percent in spring 2008.

The NBS has raised the main two-week repo rate by 175 basis points this year to fend off inflation risks from energy costs and fast economic growth.

Most analysts in a Reuters poll last week had predicted the NBS to raise the two-week repo rate by 25 basis points to 5.0 percent at its monthly meeting later on Tuesday.

But some market watchers said the expected reduction in gas prices added to their argument that the NBS would wait with another rate hike for November or December.

((Writing by Peter Laca, editing by Ian Jones; Reuters Messaging: peter.laca.reuters.com@reuters.net; +40 21 315 8320))

Keywords: UTILITIES SLOVAKIA GAS