Kiev Is Cool to Putin's Gas-Merger Proposal

His remarks signaled that Ukraine's leadership, after a flurry of agreements with Moscow during its first three months in office, is pondering limits on how far it will accommodate the country's powerful neighbor, especially in the sensitive field of energy.
The politically audacious proposal last week caught the government in Kiev off guard. "It was an unexpected step," Mr. Yanukovych told reporters, according to his press service. "It does not mean that this question will be considered by Ukraine and resolved."
After years of strained relations, Ukraine is ready for closer ties with Russia, he added, but "our main policy is the protection of national interests."
Analysts say a merger would allow Russia's OAO Gazprom, the world's largest gas firm, to gobble up its much-smaller Ukrainian counterpart, Naftogaz, dominate Ukraine's domestic gas supplies and control a lucrative pipeline network that delivers one-fifth of Europe's gas.
The proposal, raised by Russian Prime Minister Vladimir Putin, stirred outrage among Ukraine's nationalist-led opposition just days after parliament erupted in a brawl while narrowly ratifying a 25-year extension of Russia's naval base lease in Crimea. Ukraine, battered badly by the economic downturn, got sharply lower prices for Russian gas in return.
Chris Weafer, chief strategist at UralSib Capital, a Moscow investment bank, said Mr. Putin apparently realizes that the merger proposal will not prosper but is paving the way for a more politically viable joint venture that would control Ukraine's pipelines.
"Putin was most likely 'flying a kite' with the suggestion of a full merger, to gauge the reaction in Kiev and Brussels and as a distraction in order to make Plan B, a joint venture...more palatable," he said.
Mr. Yanukovych, in his first comments on the merger proposal, said Wednesday that the European Union should be part of any talks if Ukraine decides to consider it. European officials are wary of Russian influence in Ukraine, and Mr. Yanukovych has indicated he wants them to counterbalance it.
But the European Commission, the EU's executive arm, declined Thursday to get involved. Guenther Oettinger, its commissioner for energy, said after meeting in Brussels with Ukraine's energy minister that any merger decision "has to come from Kiev and Moscow." European officials, he said, would limit themselves to checking whether details of any merger comply with EU energy laws.

"The Wall Street Journal"