BELARUS NEWS AND ANALYSIS

DATE:

29/01/2010

Russia-Belarus oil war over, oil flow to Europe to be smooth

By Itar-Tass World Service writer Lyudmila Alexandrova

The oil war between Russia and Belarus is over. Russian Prime Minister Igor Sechin on Wednesday signed agreements with his Belarussian counterpart Vladimir Semashko that buried Belarus's hopes for greater tax-free supplies of oil from Russia.

Three days of talks between Russia and Belarus on the terms of crude supplies ended with the conclusion of a package of contracts. The two sides inked agreements on the supplies of crude and tariff calculation methods, a balance for 2010, and also a joint statement on the guarantees of uninterrupted transit to Europe.

The two countries agreed to compromise, but by and large Russia emerged the winner in the dispute that began last year. Its negotiators have secured 2.5 billion dollars of incomes for the budget, analysts have calculated.

Both sides said that the concluded agreements would guarantee a steady flow of oil to Western Europe through Belarus.

"The Russian and Belarussian sides confirm their commitment to the principles of international energy security and they guarantee stable terms of oil transit through the territory of the Russian Federation and the Republic of Belarus," the two deputy prime ministers said in their joint statement.

However, there have been no official reports yet of what exactly the governments of the two countries agreed on.

President Dmitry Medvedev asked Sechin if Russia had not sacrificed any of its interests.

"The agreements accommodate the interests of Russian companies that are involved in oil supplies to Europe," Sechin said. "But we agreed to some concessions in view of our special relationship with the fraternal republic and the people of Belarus."

The dispute between Russia and Belarus erupted last December when Minsk refused to accept Russia's terms of oil transit for 2010. Before, Belarus paid a mere one-third of the tax for the Russian oil it imported. It refined a large amount of that low-price crude and re-sold it to Europe in the form of oil products at free market prices. This business yielded about one-third of the Belarussian export revenues.

The latest agreements have now shattered the hope of the state-run Belarussian refineries they will make as much money on refining low-price Russian crude as they did in 2009, and the search for new investors for them is an urgent need.

On January 1 this year Russia was prepared to provide no more than 6.3 million tonnes of crude duty-free - precisely the amount Belarus needs for domestic consumption. As for the other 15.2 million tonnes Minsk used to purchase for reselling, Russia asked Belarus to pay the full export tax.

Naturally, Minsk kept insisting it would like the benefit to stay unchanged, because, it recalled, both countries this year were to become members of a common customs space. Otherwise, the Belarussians warned they would raise the oil transit tariff more than ten times.

In the end an agreement was forged. Both parties agreed to compromise. Russia persuaded Belarus to keep the amount of tax-free oil supplies unchanged at the previous level of 6.3 million tonnes (Minsk had pressed for at least eight million tonnes). But at the same time Moscow agreed to a certain rise in the transit tariff - not so radical as Belarus had originally demanded, though.

The Russian oil transit fee will go up by 11 percent. Before, Minsk had warned that if its demands were ignored, it would raise the transit fee from 3.9 dollars per tonne to 45 dollars per tonne. In the end the transportation tariff will not exceed 4.5 dollars per tonne.

But Belarus is hoping that as early as the end of this year the amount of tax-free crude for it will increase proportionately to the real growth of its economy as at October 1, 2010, Semashko said. The Belarussian government forecasts that the country's GDP this year is to go up by 11-13 percent.

Besides, Minsk is determined to press for the abolition of export taxes as of July 1, 2010 - the day when the common customs territory of Belarus, Russia and Kazakhstan will go effective, Semashko said.

"Proceeding from the current arrangement the Russian budget in the current oil price situation misses 1.5 billion dollars in incomes," analyst Denis Borisov, of the Bank of Moscow, told the daily Vedomosti. If the Belarussian terms were accepted, Russia's losses would exceed four billion dollars, he said. And in case of no concessions to Minsk the deal would yield 6.1 billion dollars for the Russian budget, he said.

"The Belarussian position was a very harsh one. We agreed to make a number of compromises in view of the special relationship with the fraternal republic and the people of Belarus," Sechin said about the situation. He also added that the Russian proposals were pegged to the stabilization of the tariff of transiting oil to West European consumers.

"We are aware of our responsibility in this sense, and we are glad that this decision concerns the goal of achieving stable supplies, and this is precisely what the European consumers are expecting from us," Sechin said.

Source:

http://www.itar-tass.com/eng/level2.html?NewsID=14766690


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