Belarus Decries 'Gas War' as Gazprom Lowers Supplies (Update1)

By Anna Shiryaevskaya and Maria Kolesnikova

June 22 (Bloomberg) -- Belarus President Aleksandr Lukashenko ordered Russian gas transit to the European Union be halted, accusing OAO Gazprom of starting a "gas war" by cutting flows to his country by 30 percent amid a debt dispute.

Lukashenko demanded Gazprom pay about $260 million in transit fees at a meeting with Russian Foreign Minister Sergei Lavrov today shown on Belarus state television, saying Russia was insulting his country with its demands for cash.

Belarus told Gazprom that it's taking gas meant for customers beyond its borders, said Sergei Kupriyanov, a spokesman for the Russian export monopoly. Gazprom will fulfill its contracts, he told reporters in Moscow.

Russia, which supplies a quarter of Europe's gas via Belarus and Ukraine, has raised concerns it uses energy as a political tool after it cut flows to Ukraine, whose then president sought to join the North Atlantic Treaty Organization, disrupting deliveries to Europe during freezing weather in 2006 and 2009. A threatened gas cut to Belarus in January 2007 was averted by a last-minute accord, more than doubling its price.

"Russia's new gas war is likely to tarnish its image as a reliable energy supplier," Lilit Gevorgyan, a political analyst at IHS Global Insight, wrote in a research note today. "It also highlights the problems for Russia likely to occur in the future due to mixing energy business with foreign policy."

Widening Cut

Gazprom widened the supply cut today from 15 percent yesterday, while seeking $192 million from Belarus for past deliveries, Chief Executive Officer Alexei Miller said on the Gazprom-controlled NTV television channel. As much as 85 percent of daily shipments may be cut, he said.

Gazprom's transit debt is "comparable" to what Belarus owes for supplies because the country refused to sign invoices this year, blocking payments, Kupriyanov said yesterday.

The dispute may affect a maximum 6.25 percent of the European Union's gas supply, European Commission spokeswoman Marlene Holzner said today in Brussels. The EU doesn't expect a decline in its gas supplies, and Russia has assured the EU it will stick to its contracts, she said.

"It is a non-issue given the time of year and the low supply environment," said Adrian Callinan, director of European Gas Trading at London-based Noble Clean Fuels, part of Noble Group Ltd. "It is a localized problem to that region compared with a year ago when it affected the U.K."

Flows of Russian gas through the Yamal pipeline across Belarus remain unchanged, Polish Prime Minister Donald Tusk said today at a news conference in Warsaw.

Strained Union

Belarus was set to carry more than 20 percent of Gazprom's Europe-bound exports of the fuel this year, according to the company. Gazprom may ship fuel via Ukraine, use gas in storage and access spot markets, Kupriyanov said.

Relations between Russia and Belarus are souring as a customs union yoking the two countries and Kazakhstan falters. Belarusian Premier Sergei Sidorsky boycotted a meeting with his Russian and Kazakh counterparts, Vladimir Putin and Karim Masimov, last month. Putin has said the troika will miss a planned July 1 start date, citing Belarus's push for subsidized energy as a stumbling block.

"Lukashenko needs cheap energy to run the uncompetitive economy," Gevorgyan said. "Lukashenko, however, has learned that maintaining his political independence and occasional loud spats with the Kremlin have so far helped him to get favorable deals for his country."

Miller said Belarus has taken no steps toward settling the debt, which arose as it continued to pay for gas at last year's price. Belarus said it paid for May deliveries in full, Interfax reported today. Gazprom's Kupriyanov wasn't immediately able to provide the price of the latest payment.

Ukraine has sufficient capacity to boost transit shipments, Deputy Prime Minister Mykola Azarov told reporters in Kiev today. Russia pledged Ukraine $40 billion in gas subsidies in exchange for an extended lease on a Black Sea naval base in April. Russian-Ukrainian relations have warmed this year since former President Viktor Yushchenko was voted out of office.

--With assistance from Anastasia Ustinova in Moscow, James Neuger and Andrew Clapham in Brussels, Daryna Krasnolutska in Kiev, Nathaniel Espino in Warsaw. Editors: Torrey Clark, Rob Verdonck


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