UPDATE 2-Czech Coal agrees with CEZ on asset swap -sources

                                
 * CEZ to swap Pocerady plant for CSA coal mine
                                
 * CEZ may build new power plant on the site
                                
 
                                
 (Updates with new sourcing, details, background, byline)
                                
 By Jana Mlcochova and Jan Korselt
                                
 PRAGUE, Oct 29 (Reuters) - Privately owned coal miner Czech
Coal is close to a deal with power company CEZ <CEZPsp.PR> to
swap its CSA brown coal pit for one of the utility's power
stations, sources familiar with the talks said on Thursday.
                                
 No deal has been signed but both parties have agreed on the
swap, the sources familiar told Reuters. The proposal calls for
CEZ to lease the Pocerady coal-fired plant to Czech Coal until
2013, when the miner will take full ownership.
                                
 The agreement -- which would be one of the biggest energy
deals in the Czech Republic in the past decade -- would end a
three-year dispute over coal deliveries between the companies.
                                
 In July, International Power said it was selling its Czech
business to the Czech-Slovak investment firm J&T Group for 581
million pounds ($955 million) after costs to help reduce the
British utility's debt.
                                
 CEZ and Czech Coal declined to provide specific details on
any proposed deal.
                                
 The power group, central Europe's largest listed firm, has
been in a dispute with Czech Coal over the price of coal for its
lignite-fired stations.
                                
 The deal calls for CEZ to take over CSA once the agreement
is signed, while the coal miner would get the 1,000 megawatt
Pocerady power plant in 2013 when the current coal delivery
contract expires, the sources said.
                                
 Currently, CSA provides lignite to Pocerady from its mine at
Vrsany.
                                
 Under rules established in the 1990s, the CSA mine's current
reserves will last until 2020. But if the government removed the
limits, new deposits could be tapped at least until 2061.
                                
 The Czech government set the restrictions to mitigate
environmental damage to the country's coal heartland in the
northwest after decades of mining.
                                
 While environmental groups oppose cancelling the limits,
doing so could spur CEZ to build a new plant at the CSA site to
fill the gap left by ageing power plants, one source said.
                                
 Some analysts say that majority state-owned CEZ could
convince the government to lift the restrictions but would only
do so if it controlled the mines.
                                
 In October a government minister urged the Czech Republic to
ease coal mining limits, marking the first time a top official
had openly proposed lifting the restrictions.
 (Reporting by Jana Mlcochova and Jan Korselt, Writing by
Michael Kahn; Editing by Anthony Barker)