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. Last Updated: 07/27/2016

City, Rosneft to Challenge Gazprom

Mayor Yury Luzhkov has ordered City Hall to form a 50-50 venture with state-owned oil giant Rosneft to help circumvent Gazprom's growing influence over the city's gas and electricity supplies.

Luzhkov's directive, signed Monday and posted on City Hall's web site Tuesday, calls for the new company to arrange supplies of natural gas into the capital from producers independent of state-controlled Gazprom. It also calls for the venture, Moscow Gas, to build power plants to produce electricity independent of local monopoly Mosenergo, which Gazprom has accumulated more than 25 percent of, allowing it to block strategic decisions.

The document offered few other details, in particular why Rosneft, which is in the process of being folded into Gazprom, would suddenly decide to go head-to-head with its future parent company.

A spokesman for Rosneft, Vladimir Voyevoda, declined to comment, and neither City Hall nor its Fuel and Energy Department could be reached.

Gazprom spokesman Sergei Kupriyanov, meanwhile, appeared skeptical about the project. "It's too early to talk about. There are no blueprints of any kind, and there is still no company," he said. "Gazprom has always been -- and always will be -- the main supplier of gas to Moscow."

Energy analysts polled Tuesday were surprised, and perplexed, by Luzhkov's plan.

Fyodor Tregubenko of Brunswick UBS said the plan did not make much economic sense since all the major consumers of gas in Moscow already have long-term contracts with Gazprom. "Maybe it is some kind of politics," he said.

The merger of Rosneft and Gazprom, approved by President Vladimir Putin in September, was billed as the best way for the government to increase its stake in Gazprom to a controlling 51 percent, a prerequisite to ending the ownership restrictions on the gas giant's stock that have long been derided by investors.

But those plans began to unravel with the confiscation and sale of Yuganskneftegaz, the main production unit of once-mighty Yukos. Rosneft's legal problems have grown by the day since it announced in December that it had acquired Yugansk, but so has Rosneft's insistence that the terms of the merger with Gazprom be revised to reflect its new status as Russia's second-largest crude producer.