Belarus' Big, Bad Wolf

Tom Balmforth

Belarus' $200 Million Gas Debt Has Elicited a Big Reaction from Russia's Multibillion Dollar Gas Behemoth - What Is Gazprom's Game?

Gazprom tightened its stranglehold over Belarus on Tuesday, as it continued to cut gas deliveries to the former Soviet satellite state and remained on course to terminate supply altogether if Minsk does not pay off its debt of $200 million. Belarus President Alexander Lukashenko hit back by shutting down Russian gas deliveries to Europe transiting through Belarus. But this time Ukraine, Russia's ever-closer partner, has offered its transit system as an alternative route. Lukashenko's trusty trump card now looks weaker, but letting the conflict drag on will still suit him ahead of the 2011 presidential elections.

Minsk this afternoon shut off all Russian gas deliveries to Europe transiting through Belarus as Gazprom cut gas supply to the former Soviet satellite state by 30 percent. The Russian gas monopoly says Minsk owes $192 million in gas bills this year, which Minsk denies. Gazprom says it will slash gas deliveries to Belarus almost entirely if the debt is not honored. Meanwhile Belarus contends that Gazprom owes money on transit fees.

Belarus has refused to pay the price for Russian gas, which has been increased quarterly since January. Instead Belarus continues to pay last year's rate of $150 per 1,000 cubic meters, even though the price now stands at $184.40.

Prime Minister Vladimir Putin has assured European customers that the spat will not have knock-on effects for a Europe, which depends on Russia for a quarter of its gas. "If necessary, we can reroute gas transit to other routes, for instance, to the Ukrainian gas transmission network," he said yesterday, RIA Novosti reported.

No shortfalls have been reported. "Gas flows to the European Union will not be affected," a European Commission spokesperson told AP today.

A fifth of Russian gas destined for Europe transits through Belarus, but the majority - some 80 percent - passes through Ukraine. Gazprom officials have said they are working to prevent disruptions by pumping the gas, which usually transits Belarus, through Ukraine. Conflicts over gas between Kiev and Moscow became a regular occurrence in the winters of Viktor Yushchenko's five year presidency, but his successor, Viktor Yanukovich's tenure has kick-started rapid rapprochement with Russia.

UkrTransGas, a subsidiary of Ukraine gas monopoly Naftogaz, sent a friendly message to Gazprom yesterday when it offered to increase the amount of Russian gas transiting through Ukraine. Today Prime Minister Mykola Azarov said that Ukraine was taking a "neutral" position on the conflict, but reiterated that Ukraine could act as a back-up conduit for Russian gas deliveries to Europe. The UkrTransGas spokesperson said that Gazprom had submitted a request to "create alternative methods for gas transit," RIA Novosti reported.

While Gazprom has a stake in Belarus' pipeline system, Belarus' BelTransGaz gas company holds the controlling stake. In the numerous past gas disputes, Lukashenko has used Belarus' control over its transit system to "blackmail" Russia into compromising on pricing, said Yaroslav Romanchuk, Head of Minsk-based Mises Research Centre.

But with Ukraine now a more reliable partner from the point of view of Russia, Lukashenko's bargaining chip is less valuable. "Now Ukraine is the Kremlin's partner. It is expressing its willingness to increase gas transit and of course Russia will be using this when it argues with Minsk that it must meet its obligations," said Romanchuk.

There may be solid commercial reasons for the Belarus-Russia disagreement, but with both the Moscow and Minsk political elites handling the affair, the political subtext is clear. Minsk has been riled by what it perceived as a Russian hand in the unrest which led to a change of leadership in Kyrgyzstan in April. Former Kyrgyz President Kurmanbek Bakiyev has since been holed up in Belarus in a clear sign of Lukashenko's solidarity with the former CIS leader.

But relations have above all worsened since the two neighboring countries failed to agree on terms for the proposed Kazakhstan-Russia-Belarus Customs Union. The date set for agreement on the union is supposed to be July 1, but so far Minsk has refused to join without receiving generous Soviet-era subsidies on gas and an exemption on duty on car imports.

"Both sides could have settled the problem easily if it had remained business:but unfortunately it has already become a political problem," said Mikhail Krutikhin, an analyst for Rusenergy, speaking to Russia Today, while acknowledging that it was regrettable that Gazprom had decided to cut supply on the anniversary of Nazi German soldiers marching into Belarusian territory in 1941.

But why has Russia's multibillion dollar gas behemoth chosen this moment to chase up a relatively paltry $200 million debt? In an article today, the news site speculates that Gazprom is trying to tighten the screws on Belarus so that it agrees to the conditions of the Customs Union in time for July 1.

Russia's frustration with Belarus' wily president is evident. "In his dealings with Russia, President Alexander Lukashenko is not even a two-faced Janus but rather the mythical shape-shifter Proteus," Dmitry Babich, a Russian commentator, writes for RIA Novosti today. In a televised conversation yesterday between Gazprom CEO Alexei Miller and Medvedev, the Russian president was told that Lukashenko recognized Belarus' debt - albeit not publically - but proposed paying in machinery, equipment or some other goods. Medvedev hit back: "Gazprom cannot accept debt repayments in anything, be it pies or pancakes, butter, cheese or other means of payment."

So what are Lukashenko's interests? Of course, the Belarusian president is not one to be harangued into integrating with Russia on unfavorable terms. But possibly as important for him is the need to have a conspicuous conflict with Russia in order to cast himself as a victim of Russian aggression. With the approach of Belarus' presidential elections, which have to take place by February 2011, the Belarusian premier is keen to shift the blame for Belarus' deteriorating economy onto Russia's foreign and economic policy, and cast his administration as the victim of the former colonial power.

"Lukashenko is using this dispute as a way to start his election campaign and put all the blame for the strained economic situation on Russia. He wants to justify the imminent devaluation, inflation, and the freeze on incomes. He needs a big, bad wolf and the Kremlin fits the bill perfectly," said Romanchuk.


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