Russia still sees a merger of gas monopoly Gazprom and state oil firm Rosneft as the only way to liberalise its energy sector, a minister was quoted as saying on Thursday, despite clouds gathering over the deal. Deputy Economy Minister Andrei Sharonov told Vremya Novostei newspaper that the merger was Russia's best hope of getting a majority stake in Gazprom and letting foreigners take minority stakes with no risk to Russia's control of the strategic sector.

The merger has stalled after Rosneft bought Yugansk, the core unit of the bankrupt oil firm Yukos, a purchase that a US court barred Gazprom from being a party to.

With no merger, the liberalisation of Gazprom shares looks difficult, Sharonov said.

"In theory it (liberalisation) could (happen), if we find a way of increasing the state share to a majority," said Sharonov. "But so far we haven't found a way of doing that."

Using public money to increase the state's share of Gazprom from the current 39 percent was out of the question, he added.

"If we start to buy up shares, the price will go shooting up, if that kind of demand appears. At the very least, it would be foolish. So using equity to increase the state's stake is the only way - or one of the few ways - to solve the problem."

Sharonov said although putting the government in control of a monopoly ran counter to the idea of market liberalisation, it would mean a more liberal market in the future and a boost for Russian stocks and the economy as a whole. "In this case, the end justifies the means," he said.

Copyright Reuters, 2005