Russia starts cutting gas to Belarus in debt row

By Dmitry Zhdannikov

MOSCOW, June 21 (Reuters) - Russia cut gas supplies to Belarus by 15 percent on Monday, pressing its neighbour to pay mounting debts and raising fears of disruptions in deliveries to Europe.

Relations between the two have soured since they failed to agree unified customs rules and Belarus gave refuge to ousted Kyrgyz President Kurmanbek Bakiyev despite Moscow's support for the new Kyrgyz leadership.

Russia supplies a quarter of Europe's gas needs and uses Belarus, which borders European Union member Poland, as one of two key transit routes or oil and gas to the continent.

Previous pricing disputes with Minsk have led to oil supply cuts, with Poland and Germany being affected most.

A similar standoff with Kiev halted the much larger Russian gas supplies across Ukraine for almost two weeks in January 2009, leaving many Europeans without fuel during a cold snap.

Russia's President Dmitry Medvedev told gas monopoly Gazprom to cut supplies from Monday, the Kremlin's press office said. Gazprom said it had started implementing the order.

"The debt has not been redeemed and starting from 10 am, June 21, a regime of 15 percent reduction of Russian gas supplies to Belarus has been imposed," Gazprom head Alexei Miller said on state television channels.

He said flows could be cut by as much as 85 percent.

Russian gas transit via Belarus amounts to one tenth of Europe's needs, much smaller than the transit via Ukraine.

"While a lengthy suspension of transit through Belarus could cause supply problems for Europe, we do not anticipate any major supply disruptions over the summer months, as a result of reduced European demand, and available spare supply capacity through Ukraine," said Alexander Burgansky of Renaissance Capital brokerage.

"At the same time, we believe the crisis is likely to be over by autumn, judging by the timeline of similar disputes in the past," he added.


Western politicians have repeatedly accused Russia of using its energy might as a tool of intimidation against its smaller neighbours and have called on the continent to diversify away from Russian deliveries.

The gas cuts to Belarus come days after Russia's top investment conference in St Petersburg, where Medvedev said the country was changing its ways, modernising and becoming more appealing to global investments.

Gazprom said earlier this month that Belarus has been paying $150 per 1,000 cubic meters, instead of the $169.20 that Gazprom charged in the first quarter and $184.80 in the second, which created a debt of $192 million.

Miller said on Monday that Belarus admits having the debt.

"But it proposes to pay it with machinery, equipment and a series of other products," Miller said. His spokesman Sergei Kupriyanov told Reuters that talks with Belarus were continuing but there was no sign of progress so far.

Gazprom has said it has the capacity to reroute the European gas supplies away from Belarus, and that the impact of the cuts would be less severe due to lower summer-time needs.

Weak industrial demand in the economic crisis and plentiful supplies of liquefied natural gas (LNG) has also reduced demand for Russian pipeline gas.

Prices were stable to slightly lower in European gas markets on Monday, in contrast to a rise in prices seen during Russia's rows with Ukraine in January 2009.

(Additional reporting by Toni Vorobyova and Daniel Fineren in London; Editing by William Hardy)


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