Gazprom, Sibur Get Go-Ahead to Merge

The Anti-Monopoly Ministry has approved a merger that will significantly strengthen the positions of two major players in the natural-gas sector and further weaken those of the country?s independent natural gas producers.

The ministry?s deputy head, Andrei Tsiganov, said Sunday that the ministry had granted natural gas monopoly Gazprom permission to enlarge its stake in the Siberian Urals Petrochemicals Co., or Sibur, from 18.5 percent to a controlling stake of 51 percent.

The Sibur holding was founded in 1995 and consists of nine gas-refining factories in western Siberia, the Perm gas refinery, and the Yaroslav and Omsk tire companies. The company?s 1999 earnings exceeded 3 billion rubles ($107.4 million).

Sibur produces 40 percent of the nation?s output of liquefied petroleum gas, or LPG. LPG is also a byproduct of refining crude oil.

The Anti-Monopoly Ministry?s announcement merely formalized an agreement reached by Gazprom and Sibur in May, according to which Gazprom increased its stake by 30 percent. The two companies have a long history of collaboration on gas projects. Each year, Gazprom purchases 10 billion cubic meters of liquefied gas from Sibur for use by electric power stations.

Gazprom deputy director Alexander Pushkin has a seat on Sibur?s board.

A final decision on the merger will be made Thursday by Gazprom?s board of directors.

"It is of course a strategic feat for Gazprom," said Steven Dashevsky, an analyst with Aton brokerage. He predicted that the merger will strengthen both companies.

By acquiring Sibur, Gazprom will effectively control the processing of natural and liquefied gas from production to processing to retail.

The government is seen as unlikely to move soon to strip the monopoly status of Gazprom in several areas of the energy sector.

The merger gives Gazprom control of the gas market from production to retail.

The merger coincides with an announcement made by Prime Minister Mikhail Kasyanov on Monday that the government has postponed plans to restructure Gazprom until next year. The state holds a stake of about 38 percent of Gazprom.

Oil companies, which supply natural gas to Sibur for processing, have long accused Sibur of monopolizing the market for refined natural gas. None of the nation?s oil companies has its own gas-processing facilities and are consequently obliged to participate in an unprofitable relationship with Sibur.

Natural gas producers have complained that they must sell their product to Sibur for refining at very low prices that do not correspond to the value of the gas after it has been refined.

Anti-Monopoly Minister Ilya Yuzhanov told Kommersant that he saw no legitimate grounds for compelling Sibur to pay higher prices for deliveries pf natural gas and warned that it would lead to Sibur?s bankruptcy.

The ministry has imposed conditions on the completion of the merger that are intended to prevent Gazprom from establishing complete control over Sibur. Specifically, the ministry intends to distribute a blocking stake of 25 percent plus one share among oil companies.

Spokesmen for state oil firm Rosneft and the nation?s No. 1 oil firm LUKoil, however, told Vedomosti newspaper that the acquisition of small stakes in Sibur would not strengthen the position of natural gas producers.

Dashevsky agreed, saying "the transfer of equity stakes will not lessen Gazprom?s hold over Sibur."

Gennady Krasovsky, oil and gas analyst of the NIKoil brokerage, believes that the merger could be a "useful measure" by Gazprom in its efforts to cover the difference between its natural gas production and demand.