The Interfax news agency quoted Deputy Economy Minister Andrei Sharonov as saying Wednesday the state will pay $7.15 billion for 10.74 percent of Gazprom - a price slightly below current market prices.

Importantly, and a week before Gazprom's annual general meeting, Sharonov claimed the energy minister and the state property agency had agreed to buy Gazprom shares at that price.

Previously, the lack of agreement among state agencies over the Kremlin's plans for Gazprom confused market-watchers and frustrated foreign investors.

In September 2004, Russian President Vladimir Putin announced the state would increase its current 39.4-percent stake in Gazprom to more than 50 percent.

With state of control of the company, foreign investors (who own approximately 20 percent) would then be allowed to trade Gazprom shares legally. Once this happens, the gas giant could emerge an international heavyweight to rival South Korea's Samsung.

This has been the plan since September 2004. However, getting there has been rife with political risks, some say personal ambitions, others say just plain greedy bureaucrats, and incompetence.

Russia's last remaining state-owned oil company was to be the vehicle the Kremlin would use to increase its stakes in Gazprom. The plan was to sell Rosneft to Gazprom for 10.74 percent of shares in the company.

Estimating the value has never even easy and without consensus from state and market watchers.

However, when Rosneft suddenly became the owner of Yukos' largest production - Yugansk - in lieu of a huge tax payment, Rosneft future became a legal nightmare for the Kremlin.

To solve this problem, the Kremlin came up with a complicated financial scheme that pleases investors, limits political risk and keeps the managers of Rosneft on board.

First a special state-inspired vehicle was created -- Rosneftegaz -- designed to be the temporary owner of Rosneft and to take out loans to acquire the Gazprom stake.

Second, the state will later float Rosneftegaz shares in an initial public offering to repay the borrowed money.

Third, despite lingering legal issues surrounding the forced seizure of Yugansk last year, international investment heavyweights have been invited to provide bridge financing and financial services. ABN AMRO and Barclays Bank are believed to be interested in providing both.

The market consensus is that the deal will finally sail through by next week, though transacting and financing it could take until early next year.

For the Kremlin, this complicated procedure is well worth the effort. Gazprom pumps enough natural gas a year to supply 80 percent of the U.S. market and supplies Europe with much of its annual gas needs.

Gazprom is also at the center the Kremlin's plan to reassert state control on the energy sector. With Rosneft and Yugansk under it roof, Gazprom will dramatically increase its presence in the oil sector and is expected to continue acquiring other oil assets.

Gazprom will essentially become a global energy giant and the most valuable instrument in the Kremlin's diplomatic toolbox.

To make Gazprom the global energy player the Kremlin desires, it simply must regain the trust of foreign investors.

Liberalizing Gazprom's share arrangement in such a way that protects minority shareholders is the signal investors are waiting for. Putin also would like to see some of the $9.5 billion that left Russia last year on the back of the Yukos saga to return.

The Kremlin's ambitious plans for Gazprom is also an opportunity to bury the Yukos affair. There is no doubt minority shareholders (and large ones) in Yukos were shortchanged with the forced backup and de facto bankruptcy of the company. Strictly observing the rights of minority shareholders in Gazprom as the "ring fence" is abolished is a top Kremlin priority.

If the Kremlin's plans come to fruition, Gazprom will essentially be transformed into "Kremprom" and foreign investors will not be able to ignore or, quite possibly, be wary of it.

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