KIEV, March 21 - President Viktor Yanukovych on Monday supported the idea of selling a stake in the national energy company Naftogaz Ukrayiny at an IPO as part of a plan to make the company more transparent.

He said the plan would stabilize Naftogaz financially and allow the company to go ahead with investment projects in order to increase domestic oil and natural gas extraction.

The comment is a setback for Russia, which has been persistently seeking to merge its natural gas giant Gazprom with Naftogaz in order to create an entity that would de-facto control Ukrainian gas pipelines.

“We have to raise funds from international and domestic markets for the financial stabilization of Naftogaz and realization of its investment projects, create a transparent and effective vertically integrated company,” Yanukovych said addressing a government economic meeting, according to his press service.

“If we have to give up part of the company and sell some shares of the company at international stock exchanges, we have to go for it,” Yanukovych said.

The comment is the first clear support from the president towards the idea of launching the IPO of Naftogaz, which is currently 100% owned by the government. The idea was earlier expressed by Energy and Coal Industry Ministry Yuriy Boyko.

Yanukovych’s support towards the IPO plan is a setback for Russian Prime Minister Vladimir Putin, who has a year ago suggested and pressed for merging Gazrom with Naftogaz Ukrayiny.

The merger, which would give the Ukrainian government about 6% stake in the combined company, would de-facto allow Moscow to control Ukrainian pipelines moving gas from Russia to markets in Europe, industry analysts said.

Ukraine moves about 100 billion cubic meters of Russian gas to markets in the European Union, which is about one fourth of Europe’s annual demand.

Ukraine is expected to earn about $2.7 billion from moving Russian natural gas to markets in Europe in 2011, up from about $2.6 billion earned in 2010, according to Naftogaz officials.

Despite running a profitable business of shipping Russian gas to Europe, Naftogaz has been facing serious financial difficulties over the past several years and has been increasingly relying on the government’s subsidies due to unprofitable domestic gas market operation.

The government due to political reasons for years has been refusing to hike domestic gas prices to market levels and has been forcing Naftogaz to sell Russian gas to Ukrainian households at a discount.

Although the government increased domestic gas prices 50% from August 1, 2010, it has been again seeking to postpone another price hike that is due on April 1.

The government repeatedly injected capital into Naftogaz to help the company pay for Russian gas imports over the past several years.

Naftogaz reported 680.2 million hryvnias, or $85 million, in profits on sales of 59.6 billion hryvnias, or $7.45 billion, in January through September 2010, according to company data. The sales rose 13.5% on the year in the period.

The figures have been calculated according to Ukrainian accounting standards that differ from western accounting standards.

In 2010 Ukraine’s transit of Russian gas to Europe increased by 2.8% year-on-year to 95.4 billion cubic meters, up from 92.8 billion cubic meters shipped in 2009, according to Naftogaz. (sb/ez)