BELARUS NEWS AND ANALYSIS

DATE:

01/01/2007

Belarus signs last-minute deal to avoid Russian gas cutoff

by Conor Humphries

MOSCOW (AFP) - Belarus has signed a new price deal for Russian gas supplies two minutes before a midnight New Year's eve deadline, narrowly averting a threatened supply cut that would likely have hit deliveries to western Europe.

A new contract includes a roughly fourfold increase in the price of Russian gas supplies to Belarus over the next five years, which coupled with a massive hike in Russian oil import duties could prove a crushing blow to the economy of Belarus, traditionally one of Moscow's closest allies.

Speaking to journalists in Moscow shortly after the deal was signed, Belarussian Prime Minister Sergei Sidorsky did not hide his disappointment.

"The Belarussian side, in a difficult atmosphere on the eve of the New Year, signed an agreement on unfortunate terms," he said Monday.

Gazprom had warned that it would cut off its exports to Belarus on Monday unless the country accepted a new gas supply deal at higher prices. Belarus had threatened to disrupt Russian supplies to Europe which pass through its territory.

This had caused concern in the

European Union, which imports five percent of its gas supplies through Belarus from Russia, and revived memories of gas shortages this time last year caused by a dispute between Ukraine and Russia.

As part of the deal signed on Sunday, Belarus agreed to sell 50 percent of its gas pipeline operator Beltransgaz to Russian gas monopoly Gazprom, according to a breakdown of the deal provided by the Russian company.

In recent years the Belarussian government has strenuously resisted such a sale.

Under Sunday's deal, Belarus will pay 100 dollars per 1,000 cubic meters of gas in 2007, just below the 105 dollars earlier demanded by Russia, but far higher than the 45 dollars charged under the previous contract, Gazprom said in the statement.

Over the five years covered by the contract, the price of gas will climb annually to reach the "market price" charged to western European customers, it said.

Most of Gazprom's EU customers pay over 200 dollars per 1,000 cubic meters of Russian gas.

Coming in the wake of a recently announced hike in Russian duties on oil exports to Belarus, Sunday's deal appears to mark the end of an era of cheap energy supplies from Russia that have subsidized the Belarussian economy since the collapse of the Soviet Union in 1991.

Sidorsky said he hoped to meet his Russian counterpart later Monday to try to negotiate a 50-percent reduction in newly imposed duties on Russian oil imports.

Belarus earns vital income from refining and re-exporting to Europe crude oil purchased from Russia at subsidized rates. Russia is slapping customs duties of more than 180 dollars per ton of crude sold to Belarus, a sudden and massive cost increase for Minsk.

"We are not in a position to pay more than 400 dollars per ton of crude," Sidorsky admitted, adding that he hoped to meet Russian Prime Minister Mikhail Fradkov to discuss proposals for mitigating this cost.

Russian government officials could not immediately be reached to confirm that this meeting would take place.

Speaking soon after the deal in a tense New Year's address, Belarussian President Alexander Lukashenko warned that his country faced a "new economic reality."

In an apparent reference to Russia, Lukashenko spoke of "a blow to our centuries-old friendship" and called on the population to "budget more carefully."

State-controlled gas giant Gazprom defended the deal, saying that it was merely part of a push to replace nontransparent barter deals with market pricing.

Speaking to journalists alongside the Belarussian prime minister, Gazprom CEO Alexei Miller said the deal was signed at 11:58 pm (2058 GMT) on New Year's Eve, ending months of tense negotiations minutes before a year-end deadline.

He said Belarus had "the most subsidized and attractive conditions of any country in the former Soviet Union."

As part of the deal, Russia will pay 2.5 billion dollars for the 50 percent stake in Beltransgaz over the next four years, while the transit price for Russian gas supplies across Belarus would be roughly doubled, he said.

Western governments gave strong diplomatic backing to Ukraine's pro-Western president, Viktor Yushchenko, during the gas row at the start of 2006, but have been less vocal in defending Lukashenko, a political pariah in Europe and the United States.

Gazprom, a state-owned giant that produces a third of the world's gas, has mounted a tough campaign to end Soviet-era subsidies to neighboring countries, as well as expand ownership of infrastructure and other energy businesses throughout Europe.

Critics, including many in western Europe, fear the Kremlin seeks to use Gazprom as a tool to reimpose part of its dominance lost at the time of the collapse of the Soviet Union in 1991.

Source:

http://news.yahoo.com/s/afp/20070101/ts_afp/belarusrussiaenergy_070101103948

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