Merger Proposed for Troubled Norilsk

The Russian government Friday proposed merging the main production unit of the troubled industrial giant Norilsk Nickel with a local gas producer and told the plant to make an additional share issue to pay off its debts.

A government commission on nonpayment, chaired by First Deputy Prime Minister Vladimir Potanin, approved the drafting of a presidential decree that would authorize the merger, Interfax reported.

Pyotr Mostovoi, head of the Federal Bankruptcy Agency, told the meeting that Norilsk Combine, the main unit of non-ferrous metals giant RAO Norilsk Nickel, should merge with another local enterprise, Norilskgazprom.

Mostovoi said "this is the only efficient way to solve the problem of arrears of both enterprises" because Norilskgazprom sells over 90 percent of its gas to Norilsk Combine, according to Interfax.

He said the merger would require an additional share issue by the Norilsk production unit, with proceeds from the sale earmarked for paying off debts and developing new gas fields in the region.

Norilskgazprom, a major tax debtor to the federal budget, is an independent local producer that is not part of either the metals smelter or powerful Russian gas monopolist Gazprom.

"This decision [about the merger] is a tough one, but we have no way out, so we'll succumb," Alexander Khloponin, Norilsk's director general, was quoted by Reuters as saying

Potanin's secretary Larisa Zelkova said in an interview that all documents related to the merger should be drafted within a month.

"It's a fairly complex process. It took two months to prepare the paperwork for AvtoVAZ," she said, referring to the crisis-hit Russian car producer, which is set to undergo a similar restructuring next month.

Norilsk now has total debts of 1.7 trillion rubles ($305 million), 500 billion rubles of which are unpaid federal taxes.

Norilsk's spokesman Sergei Vetchinin said the government proposals partly coincided with a recovery program put forward by the company's new management -- installed last year after a takeover by powerful Uneximbank.

He said the program included a proposed share swap between Norilsk Combine and the gas producer, as well as a possible cut in local gas tariffs.