Medvedev rules out gas deal with Ukraine

Conceding that the merger proposal was not accepted by the Ukrainian side, Dmitry Medvedev said: “We are not talking about just a merger,” but also of “joint ventures” and other “partnerships” similar to those that exist between Gazprom and European energy companies.
The visit by Mr Medvedev, who stressed the need for further integration in other industries apart from gas, where both nations play a critical role in the supply to Europe, is being closely watched in Brussels and Washington to gauge how fast and far Moscow will succeed in luring its southern neighbour in under the leadership of Viktor Yanukovich.
Since taking over as Kiev’s president three months ago, the Kremlin-friendly Ukrainian leader has swiftly revived friendly relations with Russia that went sour under his predecessor. In April, he prolonged the stay of Russia’s navy at a Ukrainian port in return for lower natural gas prices and has entertained Russian offers to merge strategic industries that were united in Soviet days.
But Mr Yanukovich, who has pledged to preserve Kiev’s European Union membership ambitions while steering Kiev on a balanced path between west and east, sent clear signals late last week that there were limits reviving friendly relations with Russia.
On Friday, he balked at an April 30 impromptu proposal made by Vladimir Putin, the Russian prime minister, saying that Kiev would only accept a merger between Gazprom and Naftogaz if it was “50/50.” Made in joking fashion, the counteroffer by Mr Yanukovich was seen as a de facto refusal of the Russian offer.
Considering the much larger size of Gazprom, analysts said the Ukrainian would in a merger be entitled to less than a 10 per cent stake. Moreover, in merging Naftogaz into Gazprom, Kiev could lose management control over its strategic gas transit pipeline, which has been used for years as leverage in talks with Moscow.
Asked during a televised interview with Ukrainian journalists about Mr Yanukovich’s position, the Russian president said: “I am not hurt by the refusal, because I haven’t discussed the issue with President Yanukovich yet.”
Russia has long coveted control over Ukraine’s pipeline, which pumps the lion’s share of Russian gas to Europe. But the recent comments by Mr Yanukovich and Mr Medvedev indicate that the Ukrainian side is not eager to surrender it.
In contrast, Mr Yanukovich has urged Russia to drop the costly and yet-to-be-built South Stream gas pipeline project, that would bypass Ukraine pumping Russian gas across the Black Sea to the Balkans and further European markets. Modernizing Ukraine’s pipeline is the cheaper and more reliable options, according to Mr Yanukovich, who has called Moscow and European companies to join Ukraine in forming a consortium to invest, modernizing it and secure long-term transit contracts.
Separately, Mr Medvedev said that Moscow sought the closest of ties with Kiev, but insisted it would not object should its southern neighbour continue seeking membership in the European Union. Citing their joint “history,” he insisted that both nations would remain close.

"The Financial Times"