SOCHI, Russia - Russian Prime Minister Vladimir Putin, taking advantage of warmer relations with Ukraine, on Friday proposed a surprise merger of Russia's gas giant Gazprom with Ukraine's state energy firm Naftogaz.
Since the election in February of Kremlin ally Viktor Yanukovich as Ukraine’s president, ties with Moscow have rapidly improved with accords on gas pricing and a lease extension for a key Russian naval base in Ukraine’s Crimea.
But Putin’s proposal was Russia’s boldest move yet. It was certain to enrage Ukrainian nationalists and the pro-Western opposition.
It would at a stroke give Moscow control of the major gas pipelines which run through Ukraine to supply Europe, as well as a lockhold over Ukrainian domestic gas supplies.
Owned by the state, Naftogaz is the exclusive importer of Russian gas into Ukraine and about 20 percent of the EU’s gas needs flow through its pipelines.
Naftogaz’s finances have crumbled as it buys gas from Russia at expensive prices and is then forced to sell it at subsidised prices to Ukrainian consumers.
The Gazprom-Naftogaz merger proposal came at a meeting in the Black Sea resort of Sochi of the Russia-Ukraine inter-governmental commission.
Nuclear Cooperation
The head of Russia’s state nuclear corporation, Sergei Kiriyenko, had earlier said both countries were considering creating a joint venture to implement nuclear power projects.
"We spoke about integration in the nuclear sphere. We are ready to do the same in gas. I propose to merge Gazprom and Naftogaz of Ukraine," Putin told the meeting.
A spokesman for Ukraine’s Prime Minister described Putin’s comments as "impromptu", Interfax reported, but gas industry sources said the proposal was serious and not an off-the-cuff remark.
"Ukraine’s Prime Minister Mykola Azarov states that the idea to merge (Naftogaz) and Gazprom was not discussed and not even raised (at the meeting)," Interfax Ukraine quoted spokesman Vitaly Lukyanenko as saying.
"The idea expressed by the Russian prime minister was impromptu. So, we will discuss impromptu proposals and look into concrete proposals," he said.
Gazprom spokesman Sergei Kupriyanov told Reuters that Putin’s proposal was "interesting" and Gazprom was ready "to work on it".
"Obviously, the synergy effect is there, how it will be realised we will see", he said.
Gazprom shares fell 2.5 percent to 170 roubles after the news and some analysts were sceptical.
Chris Weafer, chief strategist at Russian brokerage Uralsib, said it would be "an impossible merger".
"I think that the two companies are different animals in terms of size and transparency," he said. "I don’t think that Ukraine would agree to a merger."
Weafer said Gazprom’s size meant it would completely dominate any joint company. "And that would be unacceptable to the Ukrainian public," he added.
Gazprom’s CEO Alexei Miller said the firm was ready to consider an asset swap with Naftogaz in business segments ranging from exploration to sales.
"In reality, that’s the question of a merger of the two companies," he said. Putin also said that Russian bank VTB may issue a $500 million loan to Ukraine’s government.
