BELARUS NEWS AND ANALYSIS

DATE:

04/04/2006

Russia/Belarus: Is A Gas War Brewing?

Radio Free Europe

By Roman Kupchinsky

At a meeting with Belarusian officials on March 30, Aleksei Miller, the CEO of Russia's state gas monopoly Gazprom, announced that in 2007 Belarus will be charged European rates for Russian gas. That could mean the country paying up to five times as much -- something that could seriously affect the Belarusian economy, which has long depended on cheap gas imports. Could this be the start of a new gas war?

Only a few weeks after being reelected, Belarusian President Alyaksandr Lukashenka could now face a gas war with Russia.

Things looked much rosier in December 2005. Russia and Belarus signed a one-year contract for 2006 gas deliveries at $46.68 per 1,000 cubic meters. In return, Belarus agreed to complete on schedule its section of the Yamal-Europe pipeline, which will transport gas to Germany via Poland. Belarus also agreed to resolve problems regarding the leases for land on which Russian compressor stations are to be built.

Meeting with Lukashenka in Sochi on December 15, 2005,Russian President Vladimir Putin backed Lukashenka in the forthcoming presidential election. Putin was optimistic about ties with Belarus.

New Deal

But the spirit of bonhomie wasn't in existence on March 30 when Miller met with Belarusian Energy Minister Alyaksandr Ageyev and Dimitry Kazakov, the head of Beltranshaz, the Belarusian state company that owns and operates the country's gas-pipeline network.

Miller gave them advance notice that in 2007 Belarus will be charged European rates for Russian gas deliveries. Western European buyers of Russian gas now pay approximately $230 per 1,000 cubic meters.

The official reason for this was later explained by the Russian ambassador to Belarus, Aleksandr Surikov, who said that the price increase was needed in order for Russia to be accepted into the World Trade Organization, Belapan news agency reported on March 31.

Some analysts have suggested that Gazprom's announcement could be meant to lessen criticism of Russia's use of gas as a tool of foreign policy prior to Group of Eight (G-8) industrialized countries' summit in July. The topic of energy security will top the agenda at the meeting. Russia, which is currently the chair of the G-8, could then say it is being even-handed in its gas-pricing policy and is selling to friend and foe alike at "European prices."

Belarus Reaction

Syarhey Zvanko, head of the Department for Russia and the Union State in the Belarusian Foreign Ministry, reacted cautiously to the news that Gazprom might raise prices in 2007. He explained on March 31 that, according to a Belarusian-Russian agreement, "economic entities in both countries are to enjoy equal conditions and a price policy accord that entitles Belarus to gas deliveries at the rate charged for consumers in Russia's fifth price zone," Belapan reported.

Gazprom sells gas to its domestic customers on the basis of 11 regulated geographical price zones. The price for 1,000 cubic meters of gas in the fifth zone, including VAT, in March was $46.72 for nonresidential consumers and $36.52 for residential users. Overall, prices in the zones vary from $28.65 in the first zone to $54.81 in the 11th. This unwieldy system was designed to prevent a "payments crisis," after Gazprom was faced with nonpayment of gas bills from domestic consumers in the early 1990s.

Belarusian Leverage

Does this mean the era of cheap gas for Belarus is now coming to an end?

Valery Karbalevich, an analyst with the independent Minsk-based Strategy Center for Political Analysis, thinks probably not. He says the Belarusian authorities do not seem to be overly concerned as they know that the country offers Russia a transit route to its European markets and there is very little Gazprom can do to impose its will.

Karbalevich says if the price is pushed up, the Belarusian authorities could just take as much Russian gas as they need to satisfy the country's requirements, as Ukraine has done.

"If Russia refuses to supply the gas, he [Lukashenka] will simply take the gas being transported to Europe and all the problems will be settled," Karbalevich says.

He adds that Russia has very few possibilities to pressure both Minsk and Kyiv until a pipeline under the Baltic Sea, which will bypass Belarus and Ukraine, is completed by the end of this year.

Gas War With Ukraine

Belarus's current gas contract with Russia was signed at the height of the Ukrainian-Russian "gas war." The low price for Belarus was used by Western critics as proof that Russia was raising gas prices for Ukraine as part of a policy to punish the new, pro-Western Ukrainian leadership, while subsidizing its friends in Belarus.

Lukashenka then tried to counter Western critics who claimed that his country was getting cheap gas for political reasons.

"Belarus gets Russian gas cheaply not for friendship's sake," Lukashenka told the Russian newspaper "Rossiiskaya gazeta." "We do not ask Russia to sell us gas for a song," he said. Lukashenka added that the transit of Russian gas through Belarusian territory costs one-fifth to one-third less than that through Ukraine.

Russia pays Belarus $.75 per 1,000 cubic meters per 100 kilometers for transporting gas via the Beltranshaz pipeline and $0.46 per 1,000 cubic meters per 100 kilometers along the Yamal-Europe pipeline.

Trunk Pipelines

Another important factor is the ownership of the trunk pipelines running through Belarus. One pipeline was built in Soviet times and is owned by the Belarusian state.The second,the Yamal-Europe pipeline, will be completed by the end of this year and is currently running at reduced capacity. This pipeline belongs to Gazprom, but the land on which it is built belongs to the Belarusian state and is leased to Gazprom on a long-term basis.

Jan Maksymiuk, RFE/RL's Belarus and Ukraine analyst, says that Moscow has pushed Minsk to give up control of the Belarusian gas-pipeline network.

"Moscow unambiguously indicated that it wants control over Beltranshaz, the state-run operator of Belarus's gas pipeline network. Lukashenka, who promised in 2002 to set up a Belarusian-Russian venture to run Belarusian gas pipelines, backed down on his decision in 2004," Maksymiuk says. "That provoked an angry response from Gazprom, which even cut off Belarus's gas flow for one day."

Belarus owes Gazprom $120 million for gas debts run up since the 1990s. A substantial price increase for 2007 gas deliveries could place Belarus in a difficult position and might force it to relinquish control over Beltranshaz to Russia in return for a cheaper gas price and the cancellation of the debt.

This could further upset the already shaky foundations for a union between the two countries. It could also raise European concerns over reliable gas deliveries through the Yamal-Europe pipeline.

Source:

http://www.focus-fen.net/index.php?focus=analys&a=2&aid=7857&acat=5