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. Last Updated: 07/27/2016

Gref Says Gazprom Will Get Rosneft

The Kremlin's plan to merge Gazprom and Rosneft has been agreed on in principle and Yuganskneftegaz will remain a separate state-controlled company, Economic Development and Trade Minister German Gref said Wednesday.

"In the first half of the year the task is to conclude the merger and the scheme is worked out in principle," Gref told journalists late Wednesday on the sidelines of a Moscow business conference.

"Rosneft will go to Gazprom and Yugansk will be a separate state company," Gref said, adding that he did not know what the new company would be called.

Rosneft and Gazprom have clashed publicly over the terms of the merger, while officials have made a host of contradictory statements, leading many investors to conclude that a split exists at the highest levels within the Kremlin over the merger, which has been complicated by Rosneft's purchase of Yukos' former main production unit.

The merger -- initially supposed to be concluded last year -- is part of the Kremlin's plan to build Gazprom into an even bigger player on world energy markets, while gaining formal control over the gas giant, the first step to liberalizing ownership of its shares.

Gref's remarks came hours after Sergei Oganesyan, head of the Federal Energy Agency, was quoted by news agencies as saying that the outline of the merger had been agreed on and that the model supported by Gazprom CEO Alexei Miller would be the plan used.

"In all likelihood, it will be the one outlined by ... Miller," the agencies quoted Oganesyan, a former Rosneft vice president, as saying. "Much depends on the Economic Development and Trade Ministry, and if [Gref] confirms that the structure of the deal will be approved in the course of a week, then he knows what he is talking about."

Igor Shuvalov, a senior economic aide to Putin, told reporters in Moscow late Wednesday that the Kremlin wanted the merger to be completed in the first half of the year.

In a wide-ranging speech to the Association of European Business on Wednesday, Gref sought to reassure investors that the government was committed to liberal reforms and that foreigners would not be excluded from the natural resources sector.

Gref's comments came after he brought up investors' concerns about corruption at a meeting with Putin last Thursday at his Novo-Ogaryovo residence.

"We often hear that we need to adjust economic policy in the country because supposedly the liberal reforms have not given the results we expected, but the statistics show exactly the opposite," Gref said. "The more liberal the economic policy, the better the results we have received; the more radical we have been, the better the results; and the economy has thanked us with accelerated growth."

He said there was no ban on foreign companies investing and developing the country's oil fields.

Gref's speech appeared to be at odds with comments made last month by Natural Resources Minister Yury Trutnev, who said only companies with at least 51 percent Russian ownership would be allowed to bid for exploration and development licenses. The Cabinet is set to discuss the draft subsoil law Thursday.

In his speech Wednesday, Gref said the development of the country's natural resources "demand a colossal amount of investment -- hundreds of billions of dollars -- and if we bring in limits on foreigners then we are automatically creating a limit on growth rates. This is completely contradictory.

"There is a provision in the bill about the possibility of deciding to limit foreign participation in strategic deposits, but that is in no way a ban on foreigners wishing to participate in working on natural resource deposits."

Gref said interpretation of the bill turned on what were classed as "strategic deposits," and said he thought it was a "narrow" band of deposits, such as uranium deposits or deposits in certain geographical areas. He said the Sakhalin-3 oil project could not be a strategic deposit, as foreigners had already been allowed to work on Sakhalin-1 and Sakhalin-2.

Fielding questions from major European investors and small businesses, Gref also hammered official corruption and said the government would work to make Russia a better place for foreign investors. He said Putin had asked his ministry to analyze the implementation of laws affecting small businesses, and said Putin had promised that the Prosecutor General's Office would see if there were grounds to go after officials who abuse the law.

Gref said "a framework decision" would be taken on whether to allow Germany's Siemens to take a controlling stake in engineering group Power Machines, the country's biggest producer of turbines for power plants, within two or three weeks.

Some officials have lobbied for the government not to approve Siemens' purchase from Interros, one of the country's biggest industrial groups, citing national security concerns.

In January, a company controlled by Oleg Deripaska, who has good relations with Putin, applied to buy Power Machines. Putin reportedly was aware of Deripaska's offer and supported it.

"There are a host of problematic aspects and we are trying to find a way to solve them," Gref said. "If we find that way then we will offer it to the participants of the deal -- and if not then we need to create the legislative basis."