Yanukovych, who is considered pro-Russian, reacted to an offer by Russian Prime Minister Vladimir Putin to merge Gazprom with Ukraine's state-owned energy company Naftogaz.

"On the issue of a merger deal with Gazprom, 50-50 would be interesting for us, but it's clear that won't happen because Gazprom would never agree," Yanukovych told the BBC. "A merger under any other conditions is impossible."

Ukraine is a key energy transit country for the European Union. Nearly 80 percent of Russian gas exports to Europe are sent through Ukraine, satisfying one-fifth of the continent's demand.

On Thursday, Ukraine's Foreign Minister Konstantyn Gryshchenko had already lowered hopes for such a deal.

"We've said we will look into it, but obviously there would be major difficulties in full integration of the two companies. We are not about to abandon control of Naftogaz," he told the Financial Times. "We would only enter into agreements that would serve our interests, and that would have built-in guarantees of control over assets that are on our territory and are an important element of our overall economic development."

The offer is nevertheless a sign that ties between Ukraine and Russia are improving, also because the new government in Kiev scrapped plans by the previous government to modernize the gas sector exclusively with the European Union.

In the past years, gas conflicts between Russia and Ukraine temporarily halted supplies to Europe, damaging Kiev's reputation as a reliable transit country.

Yanukovych is eager to modernize the gas sector, but he does not have the $500 million to $600 million to do so. Ukraine's economy is in shambles and the national budget overstretched.

Asked whether Gazprom would get some sort of control over Ukraine's grid, Yanukovych replied:

"Only in return for investment by Russia and Europe in the reconstruction of the existing gas transport system. Such investors would get a share of the property. But full Russian control? No, that's empty words."

The EU is willing to help but only if Ukraine increases market transparency, privatizes Naftogaz (which owns the gas grid) and raises gas prices for domestic consumers to avoid inefficiencies.

Yanukovych has previously indicated he might hand the Ukrainian gas network to a consortium comprised of Ukrainian transit companies, Russian state-controlled energy giant Gazprom and Western European energy companies to safeguard Ukraine's role as a key transit country.

Observers say Ukraine needs to open up the gas sector to foreign investors or risk an unstable network that is unable to supply Europe.

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