BELARUS NEWS AND ANALYSIS

DATE:

29/09/2006

Belarus says energy row may end affair with Russia

By Andrei Makhovsky

MINSK, Sept 29 (Reuters) - President Alexander Lukashenko threatened on Friday to sever all Belarus's relations with its main ally Russia if Moscow sharply hiked gas prices for Minsk.

Lukashenko is isolated by the West over his poor track record on human rights. But Russian President Vladimir Putin was one of a few world leaders who congratulated Lukashenko on his re-election for a third term in March, denounced as fraudulent by Western governments, opposition and independent observers.

But amid the official displays of "brotherly love between the two Slav nations", Russian gas giant Gazprom (GAZP.RTS: Quote, Profile, Research) has threatened to quadruple gas prices for Belarus from next year.

Gazprom says it will impose higher prices if Minsk does not cede control of its gas pipeline network. Minsk has repeatedly rebuffed the offer.

Belarus pays some $47 per 1,000 cubic meters of Russian natural gas, while Gazprom wants to boost prices to about $200, saying concessions on pipeline ownership would cut this tariff.

"A price hike to such levels would mean full severance of all ties, particularly in the economy," Lukashenko told Russian journalists at a news conference broadcast live by state radio.

"We will survive, but you will lose the last ally. You will simply lose face."

Russia's relations with its other neighbours Ukraine and Georgia have soured after "people's revolutions" there propelled to power pro-Western leaders declaring European Union and NATO membership as their ultimate strategic goals.

LUKASHENKO'S POINT

Lukashenko, whose nation of 10 million borders fledgling NATO members Poland, Lithuania and Latvia, says Belarus protects Russia's western flank from the advancing Alliance.

Besides political arguments, Belarussian officials have also repeatedly defended the low gas prices set for the country, saying that Minsk ensures stable and uninterrupted supplies of Russian gas to Europe via its territory.

Gazprom sells about 22 billion cubic metres (bcm) of gas to Belarus every year and ships another 30 bcm, mainly to Germany and Poland, across its territory.

Larger amounts of gas are transited via Ukraine. But Gazprom was locked in a row with Ukraine at the start of the year, which briefly halted gas supplies and affected its European customers.

The dispute with Ukraine was settled after Kiev accepted a nearly two-fold rise in gas prices. But talks over next year's supplies are still continuing.

Lukashenko said he was ready to swap a 50 percent stake in state firm Beltransgas managing the pipeline network for the right to extract at least 10 bcm of gas in Russia annually.

"Let us take one of your gas deposits and extract 10 billion cubic meters. We will buy from you another 12 billion cubic meters," he said. "You want market prices for gas, then buy 50 percent of Beltransgas at market price."

Belarus estimates Beltransgas's market value at about $5 billion, while Gazprom values it at just around $500 million.

Minsk and Gazprom have agreed earlier this year to pick Dutch bank ABN AMRO (AAH.AS: Quote, Profile, Research) to value the assets.

Source:

http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-09-29T145343Z_01_L29858389_RTRIDST_0_ENERGY-BELARUS-GAS.XML&rpc=66&type=qcna