Closer ties have emerged between Russia and Ukraine since Viktor Yanukovich was Ukraine’s president in February including agreements on gas pricing.
Now Russian Prime Minister Vladimir Putin has proposed a merger between the two countries’ natural gas companies in a move that would give Moscow control of both nations’ gas transit to Europe.
The deal would hand Moscow control of the major gas pipelines which run through Ukraine to supply Europe, as well as a lock on Ukrainian domestic gas supplies. Owned by the state, Naftogaz is the exclusive importer of Russian gas into Ukraine and about 20% of the EU’s gas needs flow through its pipelines.
Naftogaz’s finances have fallen because it buys gas from Russia at expensive prices and then has to sell it at subsidized prices to Ukrainian consumers. Ukraine’s government is facing the painful prospect of having to cut spending by 20% in the next four months, compared with the same period a year earlier, largely because of the huge bill it will receive for gas imports.