Russia has announced plans to bring gas giant Gazprom directly under government control, scrapping a much-delayed merger with state oil firm Rosneft.
Gazprom no longer needs to merge with Rosneft
The merger, announced last September, would have been Russia's biggest yet.
But the government says it now intends to acquire control by paying cash for Gazprom shares, while also selling off part of Rosneft to raise money.
Analysts said managers at both firms had strongly resisted the merger, forcing a major government re-think.
The deal ran into difficulties after Rosneft controversially acquired Yuganskneftegas, which had been the main production unit of former leading oil producer Yukos until it was seized and auctioned off by tax officials.
Gazprom said in a statement that the Russian government would increase its stake from the current 38% to more than half the company by purchasing stock at market prices.
"It is planned that the deal will be carried out before Gazprom's annual general meeting... on 24 June," the statement said.
The economy ministry said it would raise the cash by borrowing from international financial institutions, then recoup the money by putting less than 50% of Rosneft on the market.
Buying the necessary stake in Gazprom would cost between $6.5bn and $8bn, analysts estimate.
The deal to bring Gazprom back under state control also paves the way for restrictions on foreign ownership of its shares to be lifted.
The Russian Government had insisted on owning a majority stake in Gazprom before allowing foreigners to buy domestic stock in the company.
Also on Tuesday, Gazprom announced that first-quarter sales for 2005 were 37.5% up on the same period last year to 328.3bn roubles ($11.7bn).