KIEV, Aug. 1 – Russian President Dmitry Medvedev cancelled his trip to Ukraine on Sunday after President Viktor Yanukovych refused to merge Naftogaz Ukrayiny and Gazprom, Kommersant newspaper reported Monday, citing a source.

Medvedev was expected to arrive in Sevastopol, the home of Russian Black Sea naval fleet in Crimea, to celebrate Russian Naval Day, according to a report by the Sevastopol city government.

Russia has pushed since April 2010 for the merger, which would amount to acquisition of Naftogaz by Gazprom, but Ukraine has refused, citing energy security concerns.

“Because we believe this is not beneficial for us, we were told there will be no visit” by Medvedev to Sevastopol, the source at the Ukrainian Foreign Ministry told Kommersant.

A source at the Medvedev’s administration confirmed the account, but added that the Russian president was still open for contacts with Yanukovych, the newspaper reported.

A source at the Russian foreign affairs ministry told Kommersant that Yanukovych may visit Sochi of Russia in early August for a meeting with Medvedev.

Ukraine and Russia have been drifting towards a standoff over natural gas issues after Moscow has refused to lower gas prices, while Kiev has refused to merge Naftogaz and Gazprom, analysts said.

The gas price is expected to increase to about $450 per 1,000 cubic meters in the fourth quarter, and that will force the Ukrainian government to revise its budget to increase state subsidies offsetting higher gas prices, analysts said.

The gas price hike may also lead to depreciation of the Ukrainian currency, the hryvnia, since demand for hard currency is expected to rise in the fall as Naftogaz seeks to convert hryvnias to U.S. dollars.

The cancelling of the visit underscores a major cooling in relations between Ukraine and Russia over the past seven months, which is reflected in the frequency of their meetings.

Medvedev and Yanukovych met only one time so far this year, on April 26, compared with 11 meetings in the course of 10 months in 2010.

“Taking into the account the current status of Russian-Ukrainian relations, we are interested in any contacts between the presidents, irrespectively of whether they will end up with signing any documents or not,” the source at the Ukrainian foreign ministry said.

Russia last month threatened to impose restrictions on imports of steel from Ukraine in response to Kiev’s plans to reach an agreement with the European Union on free trade.

Russia, which invited Ukraine to its Customs Union with Belarus and Kazakhstan, has recently restricted imports of meat and dairy from Ukraine, citing quality standard concerns. (tl/ez)