Russian move to cut Belarus's gas supplies fuels anxiety in rest of Europe

* David Teather and agencies

*, Monday 21 June 2010 19.02 BST

Woman chops wood, Belarus Russia's decision to cut gas supplies to Belarus means more people like this woman in Dvorischi outside Minsk will be forced to resort to chopping firewood. Photograph: Alexey Gromov/AFP/Getty Images

Russia today cut natural gas supplies to neighbouring Belarus in a dispute over what Moscow claims are escalating debts, raising fresh fears about supplies to the rest of Europe.

The dispute comes amid strained relations between the two countries and again demonstrates Russia's willingness to turn off the spigot, whether it be for commercial or political means.

Russia said it had reduced supplies to Belarus by 15% and warned that flows would be cut by as much as 85% if Minsk failed to agree to repay it $190m (?128m).

Belarus, however, claims that Russia owes it $217m in transit fees, for transporting gas through its pipelines to Europe.

Russia supplies about a quarter of Europe's gas, and commentators have for some time been warning against an increasing reliance on it for the continent's energy needs. Previous standoffs with both Belarus and Ukraine have resulted in supply interruptions that have been felt in Poland and Germany. The most serious, with Ukraine, lasted for almost two weeks in January 2009 during a bitterly cold winter.

The order to begin reducing supplies to Belarus came from President Dmitry Medvedev, in order to "protect the interest of the Russian state", the chief of state-controlled monopoly Gazprom, Alexei Miller, said on television.

Miller attempted to assuage concerns that the quarrel would affect other parts of Europe and said the company can channel gas supplies normally running through Belarus to the transit pipeline crossing Ukraine. Russian gas transit via Belarus amounts to one-tenth of Europe's needs, much smaller than the transit via Ukraine. Miller added that gas consumption during the summer months is relatively low and that pipelines are not filled to capacity.

A European Commission spokesman said Brussels was closely following the situation but expects "all the contractual obligations" for gas to be supplied in Europe "to be fulfilled".

The relationship between Russia and Belarus soured after Minsk gave refuge to the ousted Kyrgyz president Kurmanbek Bakiyev, despite Moscow's support for the new leadership. Bakiyev has been accused of stirring up the ethnic unrest in Kyrgyzstan that has killed up to 2,000 people, charges he has denied.

There have also been difficulties in agreeing a customs union between Russia and Belarus that was supposed to come into force at the beginning of July.

"Gazprom is a hostage to politics and has to do what it is told to do," Valery Nesterov, a gas analyst at Troika Dialog in Moscow told Bloomberg News.

Russia is demanding that Belarus pay $187 per 1,000 cubic metres of gas but Belarus is challenging recent price increases and claiming it should be charged just $150. Moscow said Belarus could be $500m in the red by the end of the year at the current rate.

Belarus's President Alexander Lukashenko insisted last week that his country owed Russia nothing, saying it was "unacceptable to treat an allied state like that".

But in his televised address, Miller said Belarus admitted it was in debt to Russia and had proposed to pay "with machinery, equipment and other products", an offer Medvedev said was unacceptable. "Gazprom cannot accept debt repayments in anything, be it pies, butter, cheese or any other means of payment," the Russian president said.

At a press conference Belarus's first deputy prime minister, Vladimir Semashko, said the standoff would be resolved within two weeks and that Minsk might have to borrow to cover the payment. "We will pay, maybe not today, may be during two weeks we will find the possibility. We will borrow, but we will pay."

Belarus relies heavily on Russia for its energy needs and Moscow threatened to cut supplies at the start of 2007, only averted by an eleventh-hour agreement more than doubling the fuel price.

There are plans to build new pipelines to Europe alongside partners including E.ON and EDF that would bypass Ukraine and Belarus.

Alexander Burgansky of Renaissance Capital said the dispute could become a wider problem if it drags on but added that was an unlikely outcome.

"We do not anticipate major supply disruptions over the summer months," he said, "as a result of reduced European demand and available spare supply capacity through Ukraine."


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