The merger - expected to take place in stages - is aimed at "forming a single network of oil and oil products via the pipelines and protecting the economic interests of the Russian federation".

The process will start with the total privatization of Transnefteprodukt and an increase in the capital of Transneft, which is quoted on the stock exchange and 75 percent owned by the state.

The process will end with a share swap against new Transneft shares.

The Russian state's share in the new entity will be unchanged at 75 percent plus one share.

Transnefteprodukt, which controls around 19,000 kilometers of pipeline in former Soviet countries like Kazakhstan, Ukraine and Belarus is currently 100 percent owned by the government.

According to its internet site, it employs 15,700 people and its main customers are Gazprom Neft, Yukos and Lukoil.

Transneft owns more than 43,000 kilometers of pipeline and carries 93 percent of crude the oil produced in the country.

It is partly quoted on the stock exchange, while the Russian state holds all the voting rights in the company. - Source: Mosnews.com