BELARUS NEWS AND ANALYSIS

DATE:

04/01/2007

Belarus: How Hard Could Gas Price Hike Hit Economy?

By Jan Maksymiuk

January 4, 2007 -- By more than doubling the price of natural gas supplies to Belarus in 2007, Moscow has stripped Minsk of a lavish and much-needed subsidy.

Cheap gas -- along with duty-free Russian crude oil refined and reexported by Belarus -- was largely responsible for the country's official two-digit economic growth during the past several years.

But on December 31, 2006, in Moscow, Belarus and Russia's state-controlled gas monopoly Gazprom signed a new deal, securing Russian gas supplies to Belarus and Russian gas transit across Belarus for 2007-2011.

Under the contract, Belarus is to pay $100 for 1,000 cubic meters in 2007 compared with $46.68 in the previous 2 and 1/2 years. The gas price for Belarus is to gradually increase to the European market level by 2011.

So will the gas price hike put an end to the "economic miracle" in Belarus?

Beltranshaz Sale

Since Belarus imports some 20 billion cubic meters of Russian gas per year, at first glance it doesn't look good. The country's gas bill in 2007 will be higher by some $1 billion compared to last year.

But this financial burden will be significantly alleviated by the money Gazprom is to pay Belarus this year for its 50 percent stake in Beltranshaz, Belarus's gas pipeline operator. Gazprom agreed to pay $2.5 billion for half ownership of Beltranshaz by equal installments during the following four years.

And, additionally, Belarus has increased the price of Russian gas transits via its territory from $0.75 in 2006 to $1.45 for 1,000 cubic meters per 100 kilometers for the following five years.

Belarusian independent economic expert Leanid Zlotnikau argues that the gas-price hike will not hit Belarus so hard.

"Taking into account this year, the losses of our economy will amount to $500 million," Zlotnikau says. "Taking into account only this and nothing more, these are not big losses, because our gross domestic product amounts to some $32 billion-$34 billion."

Beltranshaz company headquarters in Minsk (TASS)Beltranshaz company headquarters in Minsk (TASS) Tatsyana Manyonak, a Minsk-based journalist focusing on economic issues, also says that in 2007 the government will be able to cushion the blow.

"Now it is necessary to revise all budget figures, all investment programs. But the Belarusian government had foreseen this situation. Therefore, in late 2006 it created a Fund of National Development, into which some $600 million had to be paid until the end of last year," Manyonak says.

Incremental Rise

But economists say in subsequent years, when the gas bill becomes much heavier, Belarus may find itself in trouble.

Another economic expert from Minsk, Leanid Zaika, estimates the new gas price could at least double inflation in Belarus in 2007: "This [price hike] may affect prices and increase the inflation rate from 5-6 percent to 12-14 percent, or even higher. All will depend on whether the new expenses will be covered entirely by economic entities."

The government has already announced that the main brunt of the gas price increase will be taken by corporate consumers, which will now have to pay $150 per 1,000 cubic meters of gas. Their electricity and heating bills will also grow by more than 50 percent this year.

As regards individual consumers, the government predicts that an annual increase in their housing and utility payments will amount to some $5-$6 in 2007.

Refining Crude Oil

But Zaika says that there is a more unpleasant development in store for the Belarusian authorities than the gas price hike and the forced sale of Beltranshaz to Gazprom.

In December, the Russian government slapped a duty of $180.7 per ton on crude oil exported to Belarus as of January. Russia claimed it was losing billions of dollars every year by allowing its firms to send duty-free oil to Belarus's two refineries in Navapolatsk and Mazyr, which then reexported refined products to Europe.

Belarus halted crude oil purchases from Russia as of this month and has proposed to split between Minsk and Moscow profits from its exports of refined Russian oil on a 50-50 basis if Moscow lifts the duty.

The proposal has most likely been rejected by Moscow because on January 3 Belarusian President Alyaksandr Lukashenka imposed a transit fee on Russian oil of $45 per 1 ton.

Belarusian President Lukashenka has criticized Russian actions over gas (RFE/RL)Belarusian President Lukashenka has criticized Russian actions over gas (RFE/RL) If Moscow has its way regarding crude oil exports to Belarus, Zaika estimates that Belarus's losses may be much heavier than those linked to gas.

"We will be stripped of that part of the revenues that were received in the form of duties on refined oil, taxes on profit, and excises. The budget revenues will be less by some $200 million every month at the minimum," Zaika says.

With Belarus's 2007 consolidated budget revenues projected at some $19 billion, such a financial loss could cast doubt on the officially projected economic growth of 9 percent and inflation of 7 percent in 2007.

Searching For Options

After signing the gas deal in Moscow, Belarusian Prime Minister Syarhey Sidorski said the country will have to hunt for resources in order to maintain economic development.

But Belarus has no gas or oil or coal deposits.

To avoid paying for Russian energy supplies with strategic assets like Beltranshaz, one of Belarus's only options might be to reform the country's economy. That would mean privatization of the major industries and could mean reforming the country's collective farm system.

It could also mean tapping into the human resources that are being restricted by the country's Soviet-style political and economic management.

More economic freedom could mean more political freedom --something many Belarusians would welcome.

(RFE/RL's Belarus Service contributed to this report.)

Source:

http://www.rferl.org/featuresarticle/2007/01/2a27a802-8363-4821-81a7-f3b069603e82.html