BELARUS NEWS AND ANALYSIS

DATE:

01/06/2006

Russia/Belarus: Possible Gas Price Hike Could End Warm Ties

By Brian Whitmore

PRAGUE, June 1, 2006 (RFE/RL) -- For more than a decade, Russia's relations with Alyaksandr Lukashenka's Belarus have been a fairly predictable affair. Moscow provided cheap energy, and Minsk returned the favor with absolute political loyalty.

There were even moves to solidify the partnership by forming a union state -- a largely symbolic political marriage with elements of economic and military cooperation. But threats by Russia's state-controlled Gazprom to charge market prices for natural gas may upset the balance of the relationship -- and put at risk the generous social-welfare state that has kept Lukashenka popular despite his autocratic tendencies.

Barely two weeks had passed since authoritarian President Alyaksandr Lukashenka rode to reelection March 19 on promises to maintain economic stability and a social safety net in Belarus.

Then Gazprom made a worrying announcement. After years of generous gas subsidies, it was time for Belarus to face market realities and triple or even quadruple the price it pays for natural gas.

It's a threat Gazprom has made repeatedly with its CIS neighbors -- but with a difference.

Prices Paid For Gas (Per 1,000 Cubic Meters)

Belarus -- $47

Ukraine -- $95

Lithuania -- $105

Armenia -- $110

Azerbaijan -- $110

Georgia -- $110

Moldova -- $110

Latvia -- $120

Estonia -- $120

Western Europe -- approximately $230

When the gas giant earlier this year raised prices for Georgia, Ukraine, and Moldova, it was widely seen as punishment for those countries' pro-Western leanings.

Cheap Gas

Belarus, by contrast, has long been a loyal, pliant ally -- and has routinely been rewarded with cheap gas.

So what happened?

Fyodor Lukyanov, editor in chief of the Moscow-based journal "Russia in Global Affairs," says that Moscow is a little tired of subsidizing Belarus. "They are letting Lukashenka know that Russia will not continue providing subsidies to support his social model forever. This situation is going to end," he says.

Lukyanov and other observers say Moscow has a dual motivation in threatening to raise gas prices for Belarus from the current $47 per thousand cubic meters to as much as $200 per unit.

Pipelines

One is Gazprom's long-term ambition to gain monopoly control over pipelines to Western Europe's lucrative energy markets. The other is an admission by the increasingly confident Kremlin that perhaps the time has come to alter its relations with politically awkward allies like Minsk.

Lukashenka has benefited from cheap Russian gas (CTK) Together, Gazprom and the Kremlin appear to be forcing Lukashenka to choose between two equally unpalatable options: either sell a 50-percent stake in Beltranshaz, the state-owned operator of Belarus's gas pipelines, or pay European market rates for natural gas.

Valery Karbalevich, an analyst with the independent Minsk-based Strategy Center for Political Analysis, says Lukashenka is reluctant to give up significant state property like Beltranshaz. On the other hand, a Gazprom hike will mean higher energy prices for Belarusian families used to paying an average of just $30 a month for utilities.

Either way, Belarus's economy will suffer -- as will Lukashenka's political standing:

"If this economic situation with the gas is not resolved, Lukashenka will be in a very difficult position. All of his social stability is based on the fact that Russia subsidizes him economically," Lukyanov says. "If this stops, the internal situation in Belarus will begin to change. And then we can expect a serious game to begin about who can be the real opposition to him."

Moscow Visit

Belarusian Energy Minister Alyaksandr Azyarets and Beltranshaz chief Dzmitry Kazakou are scheduled to arrive in Moscow on today for negotiations. Minsk has threatened to raise Gazprom's transit fees to transport gas across Belarus. But there appears to be little more it can do to counter the Kremlin pressure.

Yevgeny Volk, director of the Heritage Foundation's Moscow office, says Russia's "economic stranglehold" strategy in Belarus is similar to earlier efforts in Ukraine. But while Ukrainian President Viktor Yushchenko could turn to the West for diplomatic support, Lukashenka's isolationist policies have left him with no powerful outside allies.

Lukashenka and other top officials are currently subject to European and U.S. travel bans following allegations of election violations in the March presidential ballot.

The sanctions come at a difficult time for Moscow, which is seeking to position itself as a global powerhouse during its G-8 and Council of Europe chairmanships this year. Volk says Lukashenka has proved such a pariah, in fact, that Russian President Vladimir Putin may be hoping to distance himself from a potentially embarrassing ally -- or even replace him altogether.

"I believe that Lukashenka irritates the Kremlin more and more because of his policies of suppressing liberties, suppressing opposition," Volk says. "They really cast a shadow on Moscow, which cannot boast respect for human rights either. But the respect for Lukashenka makes Putin and his regime more and more vulnerable to Western criticism."

Source:

http://www.rferl.org/featuresarticle/2006/06/FD976F93-2AF0-4623-B09C-86EB42B8BB45.html