* Ups provisions for Russian business
* Cuts provisions by $380 million overall, boosting Q3 net
* ABB sees Q3 net profit at around $1 billion
* Shares down, underperform sector
(Recasts, adds details, background, analyst comment, shares)
By Katie Reid
ZURICH, Oct 19 (Reuters) - Switzerland's ABB is rethinking its business model in Russia and raising provisions there again as tough trading conditions and a tax dispute weigh.
The world's biggest supplier of transformers for electrical grids however also said on Monday that a $380 million reduction in overall provisions will help boost its third-quarter net profit to a much larger than expected $1 billion.
It was too early to say whether ABB would pull out of Russia all together, but the group was looking at all options, a spokesman for the engineering group said on Monday.
"The overall impact of the financial situation in Russia has had a triple-digit-million dollar financial impact on ABB over the past several quarters," the ABB spokesman said.
"Most of this had been provisioned for in previous quarters, but now we have to increase provisions again," he said.
Demand for ABB's products has crumbled in Russia with sales falling 50 percent in the first six months of the year due to a drop in spending on infrastructure in the recession-hit country.
Russia accounted for $1 billion of ABB sales in 2008, while the group posted sales of $35 billion.
ABB also said it was having to hold back money to deal with a tax dispute in Russia.
"On the tax issue in Russia, we have been a victim of local circumstances. We have been left exposed to significant VAT and income tax adjustments," he said.
By 1210 GMT, shares in the group were trading 0.9 percent lower at 21.62 Swiss francs, underperforming a 1.6 percent rise in shares of French rival Schneider and a 0.5 percent rise in the DJ Stoxx European industrial goods and services index.
Q3 NET GETS ONE-OFF BOOST
ABB said on Monday its bottom line would get a one-time boost in the third quarter as the group was able to cut provisions by $380 million after setting aside $850 million last December for charges linked to compliance, tax and restructuring measures.
The group is now forecasting a net profit of around $1 billion in the third-quarter, compared to analysts' average forecast of $571 million for the period, according to Thomson Reuters I/B/E/S and ahead of the $675 million posted in the previous quarter.
The company posted net profit of $927 million in the third quarter last year.
"This is clearly good news from the company, particularly as we had cautiously estimated that provisions could have to be boosted by a few hundred million dollars rather than lowered," Helvea analyst Alessandro Migliorini said.
"It would therefore appear that ABB is making good progress in cutting costs even though it is still at a relatively early stage of its cost-cutting programme," he said.
Earlier this month, Chief Financial Officer Michel Demare told Reuters that ABB's cost-reduction programme could deliver more than the $2 billion in savings it is targeting.
ABB said its provisions had been mainly impacted by changes in the amount it had set aside for alleged anti-competitive practices, including the European Commission's power transformer decision earlier this month.
The commission fined ABB, which sells power equipment to utilities as well as to oil and gas companies, 33.8 million euros ($50.43 million) for taking part in a power transformer cartel.
ABB is due to publish third-quarter figures on Oct. 29. ($1=.6702 euros) (Reporting by Katie Reid; Editing by Hans Peters)