Russia’s Medvedev cosies up to Ukraine with visit

* Medvedev’s visit to Kiev marks improvement in ties

* But Yanukovich may stake out limits in relations

* Ukraine cool on Gazprom-Naftogaz merger

By Denis Dyomkin and Yuri Kulikov

KIEV, May 17 (BestGrowthStock) – Russian President Dmitry Medvedev
started a two-day visit to Ukraine on Monday which will test the
new close relationship between the two powers and stake out its
limits.

Medvedev’s first official visit to Russia’s ex-Soviet
neighbour takes place as ties markedly improve under President
Viktor Yanukovich’s leadership after turning sour with his
pro-Western predecessor.

Yanukovich appeared to tilt Kiev’s policy firmly towards
Moscow last month when he extended the lease of the Russian navy
in Ukraine’s port of Sevastopol until 2042 in return for cheaper
gas — a move that caused an outcry among his opponents.

And his opposition to membership of the U.S.-led NATO
military alliance, ardently pursued by ex-president Viktor
Yushchenko, has endeared him to Moscow, too.

Yanukovich’s pro-Russian moves have re-invigorated the
political opposition around his old rival, former prime minister
Yulia Tymoshenko.

The Ukrainian nationalist group, Svoboda, said it planned to
demonstrate near the city centre in protest at what it said was
the sell-out of the country’s sovereignty.

SIGNING AGREEMENTS

On arrival on Monday, Medvedev was to head to meet
Yanukovich at the Kiev’s Tomb of the Unknown Soldier and —
unusually — was then due to attend a ceremony at a memorial to
victims of the Great Famine of 1932-33.

The pro-Western Yushchenko, to the anger of Moscow, sought
international recognition of the famine as genocide by Soviet
dictator Josef Stalin, though Yanukovich has shied away from
this line.

Medvedev and Yanukovich are expected to sign agreements on
border demarcation, nuclear cooperation, aircraft development
and may discuss Moldova’s rebel region of Transdniestria, which
borders Ukraine, and European security issues.

But Yanukovich, who says he also sees European integration
as a priority for Ukraine, has been cool to a proposal from
Moscow for a merger between Ukraine’s energy holding Naftogas
and Russia’s state gas giant Gazprom (GAZP.MM: ).

Ukraine is eager to retain control of a network that serves
as a conduit for 80 percent of Russian gas supplies to the
European Union and has dwelt on the fact that Russian Prime
Minister Vladimir Putin made his merger proposal off-the-cuff
with no advance warning to Kiev.

Yanukovich, to Moscow’s irritation, has suggested the EU
should be involved in any talk of a merger. And, asked about the
issue last Thursday, Yanukovich said only Ukraine’s fully equal
participation in such a joint venture could be envisaged.
“Fifty-fifty — that would be the only way,” he said.

The Yanukovich leadership is rather pushing for creation of
a consortium involving the European Union as well as Russia to
modernise the ageing pipelines.

Medvedev has urged Ukraine to be cautious in seeking to join
the EU, given the bloc’s current economic woes. “If the
Ukrainian people want to push for EU membership, that is your
choice,” he said.

“In any case I would carefully track what happens in the EU
because one should aim towards things that are good and calm.
And now our European colleagues still need to cope with those
difficulties they are experiencing, including the euro zone.”

While the chance of a gas merger looks remote, progress on
nuclear cooperation is likely.

Putin has separately suggested unifying assets in some
projects of the nuclear energy industry and said Russia might
lend $5-6 billion to its ex-Soviet neighbour to build two new
nuclear reactors at its Rivne and Khmelnytsky plants.

Investment Research

(Writing by Richard Balmforth; Editing by Matthew Jones)

Russia’s Medvedev cosies up to Ukraine with visit