Gazprom Naftogaz merger proposal gets discussion going

Moscow’s proposal to unite some of the assets of Russia's Gazprom with Ukraine's Naftogaz has triggered a wave of reaction from both sides.

Russian Prime Minister, Vladimir Putin’s proposal to unite Russia's Gazprom with Ukraine's Naftogaz has provoked hot debate, and many observers say it's the start of a long story.

Ukraine may prove unwilling to give up a key asset, and the idea may not have much to recommend it to Gazprom – says Chris Weafer, Chief Strategist at Uralsib.

“On the financial side there's a lot of doubt about Naftogaz's financial position, its debt position – I don't expect Gazprom would welcome having to take that responsibility for that. Instead though I think that what Prime Minister Putin was doing was flying a kite with introducing almost the extreme of what may happen in order to provoke the debate and get the process going.”

Konstatin Simonov, Head of the National Energy security fund says, however, a merger could benefit not two, but three interested parties – Russia, Ukraine and the European Union.

“Ukraine will continue to be a transit country for many years – a serious profit for Ukraine, which gives it about 3 billion dollars a year. Russia gill get a secure and cheap way to export about 140 billion cubic meters of gas to Europe. While Europe will get rid of the transit problems.”

Where analysts agree, however, is that merger is the wrong word: Gazprom is so much bigger, that it would either acquire Naftogaz – or the proposal will turn out to be a bargaining chip, for Russia to achieve joint ownership of Ukraine's pipeline network. Something it suggested back in 2006.