Today the Gazprom headquarters hosted a working meeting between Alexey Miller, Chairman of the Company’s Management Committee and Yury Boiko, Ukrainian Fuel and Energy Minister.

The parties discussed the issues related to the Russian Prime Minister’s proposal to merge Gazprom and NAK Naftogaz Ukrainy.

“On April 30 Vladimir Putin, Prime Minister of the Russian Federation made a proposal to the Ukrainian party in Sochi that Gazprom and NAK Naftogaz Ukrainy should merge. Today this proposal has been discussed in detail.

The idea of merging Gazprom and Naftogaz Ukrainy is absolutely pragmatic. It is stipulated by the common development history of the gas industry in our countries, in particular – a single gas transmission complex dating back to the USSR. Therefore, it is natural that the Ukrainian gas transmission system (GTS) upgrade should be closely linked to Russia’s Unified Gas Supply System development.

The GTS was initially set up for the purpose of Russian gas transmission to Europe. As you know, the pipe is a valuable asset in case it is filled with gas.

However, the merger proposal is not related to the idea of creating a trilateral gas transmission consortium embracing Russia, Ukraine and European companies. This proposal is different and more global, it is of a larger scale.

I am sure that the merger of the two companies will become an important step towards the European energy security enhancement and diversification of the routes for Russian gas supply to Europe. Therefore, our plans to construct the South Stream are intact. It is planned that until December 31, 2015 considerable gas transmission capacities will be created for Russian gas delivery via a new export corridor,” said Alexey Miller after the meeting.

Background:

On January 19, 2009 Gazprom and NAK Naftogaz Ukrainy signed two separate contracts:

- purchase and sale contract for the period from 2009 through to 2019;

- contract on volumes, terms and conditions of natural gas transit across Ukraine for the period from 2009 through to 2019.

On April 21 Gazprom and Naftogaz Ukrainy signed addenda to the above mentioned contracts.

The addendum to the gas purchase and sale contract specifies that the annual contracted gas quantity for 2010 is 36.5 billion cubic meters. Pursuant to the document, NAK Naftogaz Ukrainy will pay for gas with the discount equal to abatement in the export duty set for gas supplies to Ukraine by the Russian Government. The abatement will amount to 30 per cent of the gas price but no more than USD 100 per 1,000 cubic meters and will be applied to the supply volumes of 30 billion cubic meters in 2010 and 40 billion cubic meters in the subsequent years. The contract provisions related to mutual penalty sanctions, which have not been used in practice, were abandoned by the addendum signed.

The addendum to the gas transit contract stipulates that 80 per cent of the gas transit fee will be paid by Gazprom before the 6th day of the following month, and 20 per cent – pursuant to the effective transit contract – before the 20th day of the following month.

Following the results of the meeting of the Economic Cooperation Committee under the Russian-Ukrainian Inter-Governmental Commission in  Sochi on April 30, 2010 Vladimir Putin, Prime Minister of the Russian Federation proposed that Gazprom and NAK Naftogaz Ukrainy should merge.