BELARUS NEWS AND ANALYSIS

DATE:

Thurday, December 29, 2005

Gazprom wins Belarus victory

By Judy Dempsey International Herald Tribune

BERLIN Gazprom has gained control of a transit pipeline that crosses Belarus into Europe, giving the Russian state-owned energy company a tighter grasp over a route used to send its gas to European markets.

Under the terms of the deal signed Tuesday, Gazprom will own the Belorussian section of the Yamal-Europe network that transmits 10 percent of Russian gas exports to Europe. The agreement comes after several failed attempts by Gazprom to wrest control of the state-run Beltransgaz network from the Belarussian president, Alexander Lukashenko.

The opaque deal, for which no value was given, is being paid for with gas priced below market rates, as well as barter and debt relief. Belarussian officials could not be reached for comment.

Gazprom said in a statement that it would sell gas to Belarus for $46.68 per 1,000 cubic meters, or 35,300 cubic feet, while Belarus will charge Gazprom transit fees of 75 cents per 1,000 cubic meters per 1,000 kilometers, or about 620 miles. Gas sells in Europe for more than $210 per 1,000 cubic meters, and European transit fees are nearly $2.30 per 1,000 cubic meters per 1,000 kilometers. Gazprom has said repeatedly that it is planning to end gas subsidies to former Soviet states.

Alexander Ryazanov, deputy chairman of Gazprom's management committee, said Belarus had been given a special offer "because Russia and Belarus were in the process of establishing a common union state, which implies using common standards when drafting financial and economic parameters of the two countries."

By ceding control of the pipeline, Belarus, a country of 10 million people between Poland and Russia, may have given up its last leverage over Russia.

"Gazprom has achieved something it wanted for several years," said Eugeniusz Smolar, director of the Center for International Relations in Warsaw. "As Russia's main foreign policy instrument, Gazprom wanted to weaken its dependence on Belarus as a transit country, exactly what it is trying to do with Ukraine."

Lukashenko, an authoritarian president who has crushed dissent since he was first elected in 1994 and who will run for re-election in March, had refused to sell the Beltransgaz pipeline to Gazprom in 2003, despite enormous pressure from his Russian counterpart, Vladimir Putin.

Putin initially threatened to raise gas prices to Belarus. When Lukashenko still refused to sell, Gazprom cut deliveries in February 2004. Because of the clumsy way in which the deliveries were stopped, gas supplies to Germany and the Netherlands were also interrupted, forcing energy companies there to dip into their into their storage depots to make up for their shortfalls.

Toms Baumanis, director of the independent Latvian-Atlantic council, which promotes closer ties among countries of the former Soviet Union and the European Union and the North Atlantic Treaty Organization, said Belarus had all but sold out to Russia.

"Russia now controls much of Belarus," Baumanis said. "It seems that Lukashenko has opted to go with Putin and not introduce reforms, despite some pressure from the U.S. and EU to do so. It seems he was afraid of the contagion of the revolutions in Georgia and Ukraine."

As Belarus and Russia clinched a deal, Gazprom said it intended on Jan. 1 to increase its gas price to Ukraine to $230 per 1,000 cubic meters from $50 as part of its policy to end subsidies.

Ukraine's prime minister, Yuri Yekhanurov, confirmed Gazprom's offer, but said, "The Ukrainian side has considered the question, and views the price as unacceptable. This constitutes direct economic pressure on Ukraine."

Energy Minister Ivan Plachkow said Wednesday that Ukraine was prepared to pay $80 per 1,000 cubic meters during the first quarter of next year.

Russia had earlier suggested linking the level of the price increase to Gazprom taking a stake in Naftogaz, Ukraine's state-owned gas pipeline network. But Ukraine ruled out such an offer since it would lose its main leverage over Gazprom. Nearly 80 percent of Russian gas exports have to cross Ukraine.

Political analysts said Ukraine's refusal to give Gazprom a stake in its transit pipeline may have hardened Gazprom's negotiating position over the price increases.

Nicolai Petrov, political analyst at Carnegie Moscow Center, said Gazprom was determined to gain greater control over its deliveries to Europe.

"Gazprom dislikes depending on Ukraine," he said, "which is why Gazprom has started to diversify the routes through which it exports its gas."

Gazprom, supported by the German companies BASF and E.ON Ruhrgas, started work this month on the North European Pipeline, which is meant to allow Russia to deliver gas directly to Europe by sending it under the Baltic Sea.

Once completed, that link will be capable of shipping 55 billion cubic meters per year of gas to Europe, still well short of Europe's gas needs. About 170 billion cubic meters of Russian gas are sent to Europe through the Ukraine and Belarussian pipelines. Gazprom also recently built the Blue Stream Pipeline, linking Russia with Turkey through the Black Sea.

Rosneft plans large IPO

Rosneft, the Russian state-owned oil company, hopes to raise up to $20 billion when it places up to 30 percent of its shares on Russian bourses and in London next year, Reuters reported from Moscow, citing sale documents.

The company wants to secure a listing on the Russian RTS and MICEX exchanges in April and begin the London part of the initial public offering on June 26, the documents said.

Rosneft's public offering is likely to become Russia's largest ever and will be part of a complex Kremlin scheme to secure greater control over strategic energy resources in the world's second-largest oil exporter.

Source:

http://www.iht.com/articles/2005/12/28/business/gazprom.php