BELARUS NEWS AND ANALYSIS

DATE:

15/01/2007

Russia's "Gas War" against Belarus

Only Armenia and Moldova Submitted to Moscow's Energy Blackmail

In connection with the situation surrounding Russian gas supplies to Belarus the US administration again accused Russia of using its energy resources as a "political lever".

"Very clearly, they [the Russians] are trying to use their energy resources as a political lever and most especially with those neighbor states," US State Department Spokesman Sean McCormack told journalists during January 4 th 2007 press briefing. "We saw it with Ukraine last year. We saw it with Georgia. We see it with Belarus now. And it's a lesson about the importance of maintaining and developing multiple sources of energy supply as well as multiple means to convey those energy supplies."

Late at night on December 31, 2006 after long negotiations and rough accusations against each other Belarus and Russia - considered sister nations - signed an agreement according to which starting with January 1 st , 2007 Belarus would pay $100 per 1,000 cubic meters of Russian gas instead of the $47 it paid before. The Russian side expected $105 per 1,000 cubic meters emphasizing that Minsk could pay off partly with its energy enterprises - in this case with gas pipeline. That is, like Armenia and Moldova.

Russian energy giant Gazprom threatened that if Minsk doesn't sign a new agreement before January 1, 2007 it will turn off its pipelines. In response Minsk threatened that in such case it will use the gas supplied to Europe through the territory of Belarus. We remind you that 20% of Russian energy supplies to Europe pass through Belarus.

The gas price increase was followed by a riposte from Minsk: Belarusian concern NefteKhim officially informed the Russian TransNeft company that as of January 1, 2007 the government of Belarus imposed export duty for oil transported through its territory via oil-pipelines. The export duty was set at $45 per one metric ton of oil.

Furthermore, president Lukashenko has declared that Minsk would charge Moscow for the Russian military base stationed in Belarus as well as for the transit of Russian goods through its territory. We remind you that a year ago when Russia decided to raise the price for the gas supplied to Armenia from $56 to $110 for 1,000 cubic meters some journalists and political circles proposed to charge Russia for its military base stationed in Gyumri. The absurdity is that not only does the Russian side not pay Armenia anything but Armenia pays for the utilities for the base - such as electricity, water, phones, etc. Armenian officials hurried to declare that Armenia could not charge Russia for its military base since it was stationed in Armenia at Yerevan's request.

Throughout the course of 2006 Russia waged "gas wars" against its CIS partners. Moscow explained that crises with its neighbors were unavoidable since the energy giant Gazprom had decided to alter its policy and to supply the formerly Soviet republics with gas at the international market prices.

Gazprom's, that is to say Russia's, first battle was with Ukraine. Since 80 percent of the Russian "blue fuel" supplied to Europe passes through the territory of Ukraine, negotiating new prices for gas with Kiev was a priority for Moscow. But the Russian side was unable to reach its strategic goal and take control of the Ukrainian gas pipeline system. In other words, in contrast to Armenia and Moldova Russia doesn't control the gas pipelines passing through the Ukrainian territory. Despite the fact that instead of $96 paid before Russia demanded $230 per 1,000 cubic meters of gas as a result of negotiations the price was fixed at $130 per 1,000 cubic meters - which isn't a bad price if one takes into consideration that European countries pay for the Russian gas two or three times higher price.

Unlike oil there are no international market prices for gas; prices are fixed through bilateral negotiations. Russia charges Turkey, for example, much less for gas than any other country. Moreover, a few days ago Russia increased the volumes of gas supplied to Turkey after Iranian oil minister Kazem Vaziri Hamaneh announced that the Islamic Republic would temporarily stop supplying Turkey with gas due to some "internal problems".

Obviously, just a few years ago the CIS member states, including Armenia, were buying Russian gas at a very low price and it is natural that Gazprom is increasing the price now. When the United States, European countries and CIS member states criticize the Russian gas policy toward neighbouring states they, first of all, have in mind not the prices but the fact that Russia uses its energy resources as a political lever.

A few weeks ago after complex negotiations new gas price was fixed between Gazprom and Georgia. After failing to find gas in other countries president Mikhail Sahakashvili was forced to agree to pay $235 for 1,000 cubic meters of gas - the highest price in the territory of CIS.

Sahakashvili declared beforehand that $235 was not an economic but a political price and that Tbilisi would not pay such a price and was even prepared to refuse to buy the Russian gas. But after it became clear that Georgia could not expect to get gas from the neighboring countries, Iran, Azerbaijan and Turkey, it was forced to accept the Russian offer. In principle, Georgia could get gas from Iran through the territory of Azerbaijan this winter as it did a year ago, when the pipeline supplying Georgia was damaged in North Caucasus. However, this year the United States made it clear to Sahakashvili that it would not tolerate Iran-Georgia cooperation because of the problems the Islamic Republic had with the international community.

The Georgian president immediately went to Turkey in the hope of getting a portion of the gas to be supplied to Turkey from the Azerbaijani Shah Deniz deposit. Georgian Prime Minister Zurab Noghaideli went to Azerbaijan with the same mission. Though it was difficult, Tbilisi succeeded in reducing its dependence on the Russian energy recourses and this year Georgia will export gas from Azerbaijan (800 million cubic meters) and Russia (1.1 billion cubic meters). Sahakashvili described the decision of Azerbaijan to supply Georgia with gas this winter as a "gesture of genuine friendship and brotherhood". During his meeting with the students of the Tbilisi State University Georgian president stated that Azerbaijani president Ilham Aliyev had made a "historic decision" and that "not many leaders would adopt such a decision". Sahakashvili also stated that the decision to supply Georgia with gas from the Shah Deniz deposit was "very important for Georgia which has not only been under a trade and transport blockade since 2006 but, in fact, was condemned to energy death by the Russian side."

Azerbaijan which until the full operation of the Shah Deniz deposit depends on the Russian gas as well stated that it was not prepared to pay $235 per 1,000 cubic meters of Russian gas. "Why is Russia selling gas to Ukraine for $130 per 1,000 cubic meters, to Armenia for $110 but we are supposed to pay $235?" the president of the Azerbaijani state oil company, Rovnaz Abdulayev was reported saying. At the turn of the year Ilham Aliyev stated that he refused to buy Russian gas. The Azerbaijani thermoelectric power stations use Russian gas to produce electricity. But since Azerbaijan refuses to buy Russian gas it intends to use its oil and fuel oil reserves for producing electricity but it means, as Aliyev stated, that Azerbaijan will reduce the volumes of oil imports to the international markets through the Baku-Novorossiysk oil pipeline via territory of Russia.

As a matter of fact only Armenia and Moldova among the CIS member states have agreed to all the terms set by Russia for supplying gas. The Moldovan government have partly handed country's gas pipeline system over to Russia and now pays $170 per 1,000 cubic meters and more than 80 percent of the Armenian energy enterprises are now the property of Russia and in exchange for this "good deed" pays $110 per 1,000 cubic meters of the Russian gas.

On March 31, 2006 the government of Armenia and Gazprom signed an agreement on cooperation in the energy sphere for 25 years. According to the agreement up until January 1, 2009, the price for gas was set at the level of $110 per 1,000 cubic meters. Russia also bought the 5 th energy unit of the Hrazdan thermoelectric power station and the first 40-kilometer section of the Iran-Armenia gas pipeline currently under construction.

Some political and business circles in Armenia insist that our country's energy independence is seriously threatened. The reason is not that it is Russia that owns 80 percent of Armenia's resources but that they belong to one country, which happens to be Russia, and that this include the systems of energy production, distribution and supply. In other words, Armenia is dependent on one center and it is meaningless to talk about alternative energy sources. In fact, the Iran-Armenia gas pipeline becomes of little significance as well since it could have not only ensured the energy independence of Armenia but also be a transit route for Georgia.

Thus, we can state that Armenia's energy security is in the hands of Moscow since one way or another almost the entire energy infrastructure of our country belongs to Russia. The only enterprise that still belongs to Armenia and provides for 10 percent of Armenia's energy needs is the Vorotan thermoelectric power station but it cannot be ruled out that Russia will buy that as well.

Tatul Hakobyan

Source:

http://www.hetq.am/eng/politics/0701-gas.html