MOSCOW. (By Doctor of Economics Sergei Kolchin for RIA Novosti)

 At the end of September Gazprom and Millhouse Capital signed a contract for the Russian gas monopoly to acquire a 72.663% stake in Sibneft for 13.091 billion dollars. Earlier, Gazprom had bought 3.016% of Sibneft shares from Gazprombank. As a result, Gazprom has control of 75.679% of Sibneft.

This makes Gazprom a diversified company with assets in gas, oil and energy industries. Its oil output (previously 3 per cent of the total in Russia) will now exceed 10%, and the company is becoming a key player on the Russian oil market. The Federal Anti-Monopoly Service, however, said it saw no reason to invalidate the deal. "There is no company on the oil market whose share exceeds 20%. Even if Gazprom's deal goes through, the company will not dominate the market," explained FAS deputy head Anatoly Golomolzin.

What can be said about Sibneft, the company acquired by Gazprom? In the past, it was among the industry leaders, although its performance in 2005 has been moderate compared with its peers. During the first six months of the year its output did not increase; moreover, Sibneft investors were disappointed, as the press reported. It scaled down 2004 profits by 10.2% (falling short of planned dividends). Recently it posted unsatisfactory production statistics. Sibneft has always been known for its pace of growth. Now it may be the only Russian company to produce less oil this year than last. Yet its proportion of Russia's oil output in 2004 was a substantial 3.4 million metric tons, and, factoring in its stake in Slavneft, increases this figure by 10 million tons.

On the other hand, Sibneft reports show increased earnings for 2004: consolidated financials according to the US GAAP standards published in July 2005, show that in 2004 the company's earnings rose by 32%, compared to 2003, and reached $8.89 billion, and net profits totaled $2.05 billion.

In addition to Sibneft, Gazprom may also acquire Millhouse's other Russian oil assets not directly owned by Sibneft but posted in consolidated reports according to the US GAAP standards. They include 49.5% of Slavneft and its subsidiaries (an equal share is owned by TNK-BP), 36.84% of the voting shares of the Moscow oil refinery and a 49% stake in Sibneft-Yugra.

The alignment of forces in the Russian oil sector is bound to change. But the deal is more interesting from the perspective of current economic policy. Now the state will control nearly one-third of Russia's oil output (Rosneft, state-owned Yuganskneftegaz, Sibneft with half of Slavneft, and Gazprom own production). This is a symptom of reverting to state capitalism. But at the same time Alexei Kudrin and German Gref, leading economic ministers, have protested against the state's further interference in the economy. Whether it is a signal to reassure outside consumers that Russia is as committed to market reforms now as it was in the past, or evidence of differences existing in the upper echelons of power concerning their strategy, is not clear. In fact, western partners show little concern about who will supply them oil and gas - public or private companies. It is more important for them that Russia honors its delivery obligations. Therefore, if this is a signal to the West, it has more political implications designed to influence public opinion. Officials have also stressed that the deal was negotiated according to "transparent market practices", a reference intended to reassure the West.

Gazprom's purchase of Sibneft sent shock waves through the Russian stock market. As soon as the news was confirmed, the Russian Trading System (RST) shot up beyond the 1,000 points mark.

The most drastic changes are expected on the Russian oil and gas market. Very soon its structure will be very similar to the industrialized countries, with two to three transnationals at its core, which will become part of the world energy market and bring substantial dividends to their country's economy.

Gazprom's takeover of one of Russia's biggest oil companies offers some advantages, experts believe, especially to encourage the integration of our oil and gas companies into the world economy. However, Russia's previous merger and takeover experience in oil and gas sector suggests that it is too early to pass a final judgment on the deal.