BELARUS NEWS AND ANALYSIS

DATE:

26/12/2006

Gazprom Will Leave Belarus without Gas

// Russian monopoly threatens to cut it off on New Years

Gazprom has officially entered into the same situation with Belarus as occurred with Ukraine last year. The monopoly has warned that the contract to supply that country with gas expires on December 31, and called its negotiating position irresponsible. Both Gazprom and Russian authorities had been saying that the two sides would be able to reach an agreement. However, they prepared themselves in advance for the shutoff of the Belarusian gas by stocking up the needed volumes of gas in German and Baltic reservoirs.

Yesterday evening, Gazprom official representative Sergey Kupriyanov disavowed the assurances given by both sides that an agreement would be reached by yearend and announced a firm position. "The current contract for supplies of natural gas to Belarus expires in six days. Belarus's negotiating position is irresponsible and threatens the country's energy supply," he told information agencies and Kommersant. Somewhat later, the state ITAR-TASS news agency indicated directly, citing a high-placed Gazprom source that "the Belarusian side is placing Russian gas supplies to it under threat as of January 1, 2007." Thus Gazprom has begun preparations to turn off the gas to Belarus, as it did to Ukraine on January 1 of this year.

Until now, Moscow and Minsk have shown complete readiness in both official statements and unofficial comments to come to an agreement on gas supplies. Russian President Vladimir Putin even announced the plan for a transition to market prices for gas supplies to Belarus with compensation for part of the cost with Beltransgaz assets at the CIS summit in Minsk on November 29. Negotiations have been going on behind closed doors since then and participants have refused to make any comments on them. However, a Kommersant source in Gazprom had said that "all principle questions" had been agreed on. It was assumed that Minsk would sign an agreement for the market price of $200 per 100 cubic meters of gas for 2007 and pay $80 per 1000 cu. m. and make up the difference with a share in Beltransgaz. Interfax news agency estimated, citing a source in the Belarusian government, that 50 percent of Beltransgaz is worth $2.5 billion. That would correspond to the $120 difference in the price for 1000 cu. m. of natural gas for one year.

Final negotiations were to have taken place on Friday, but they were rescheduled for Monday, and Belarusian Energy Minister Alexander Ozerets stated that "the process of forming a joint venture would take all of the first quarter of 2007." But that was not a forewarning of things to come. Even yesterday in the middle of the day Gazprom was expecting to sign the necessary documents by the end of the year and form the joint venture at a leisurely pace next year.

A source close to the negotiations told Kommersant, however, that Belarusian Deputy Prime Minister Vladimir Semashko did not show up for a meeting with Gazprom head Alexey Miller. Instead, he phoned in his rejection of the agreement. "Today the Belarusian side again stated that it does not intend to buy Russian gas for a price higher than has been set for Smolensk Region," a Gazprom source told Kommersant. In 2007, the fee for Smolensk will be 1427 rubles ($54.20) per 1000 cu. m. Belarus paid the same price this year for gas as it did last year, that is, $46.68 per 1000 cu. m., which is the same as the wholesale price in the Russian regions it borders on. But the main thing that Russian authorities objected to in that statement was Minsk's demand to share gas supply contracts and to from a joint venture with Beltransgaz. That is stipulated in the interstate agreement on the development of relations in the area of natural gas signed in April 2002. It is stated in that agreement, however, that the joint venture was to be created by July 1, 2003. Since the joint venture does not exist, the Russian side unilaterally disavowed that clause in August.

Although the scenario for shutting off the gas to Belarus looks identical to what happened with Ukraine last year, Gazprom is much better prepared for this crisis. Belarus was shut off from the gas supply in 2004 and the monopoly is well aware of the consequences of the move. At that time, Minsk (as Kiev did this January) used gas intended for Kaliningrad Region, Lithuania and Poland for its own needs. This year, Kommersant has learned, Gazprom pumped extra gas into underground reservoirs in Germany (for use by Poland) and the Baltic countries. That is, the monopoly prepared for this turn of events without officially acknowledging the seriousness of the problem.

But Gazprom executives still have a chance to celebrate the New Year peacefully. Kommersant has learned that Semashko intends to fly to Moscow today. It is possible though that he will only receive the official ultimatum.

The History of the Russian-Belarusian Gas Conflict

In April 2002, Gazprom agreed to supply Belarus with gas at $29 per 1000 cu. m. in exchange for the establishment of a joint venture around Beltransgaz by June 2003. The joint venture was not founded. Gazprom assessed the company at $600 million, while Minsk put a value of $5 billion on it and demanded that the deal be link with increased gas supplies at domestic market prices. Then Gazprom announced a price of $50 for 2004. Russia stopped gas supplies during negotiations on January 1, January 24 and February 18, 2004. After that, Belarusian President Alexander Lukashenko accused the Kremlin of "terrorism" and demanded that the government sign an agreement "on Putin's conditions." Belarus began paying $46.68 for gas and Gazprom did not receive a share in the Beltransgaz gas transport system.

In March 2005, Gazprom announced more price hikes, and Putin promised on April 4 that they would be maintained. On December 19, the prime ministers of the two countries agreed that Gazprom would supply Belarus with 21 billion cu. m. of gas in 2006 at $46.68 per 1000 cu. m. Minks received 19.1 billion cu. m. at that price in 2005.

On March 30, 2006, Gazprom head Alexey Miller announced that the price of gas to Belarus would be raised to "a level corresponding to the European." On June 8, that price was stated as $200. To compensate for the price jump, it was suggested that Belarus sell Gazprom 50 percent of the shares in Beltransgaz, based on an assessment of it of $1.5-2 billion. Lukashenko stated that the company costs $17 billion.

The problem was expected to be solved on December 15 when Putin and Lukashenko met in Moscow. But that meeting ended without result and the Belarusian leader left Russia immediately.

Agreements between Gazprom and the Countries of the Former USSR

On April 6, 2006, Gazprom announced that a 25-year agreement had been signed with Armenia on strategic partnership in gas and energy projects. Under the agreement, Gazprom receives control over all the pipeline projects in the country and promises uninterrupted supplies in exchange. In 2006, Armenia received gas for $110 per 1000 cu. m. and it is counting on receiving advantageous prices for the coming years.

On October 24, 2006, Moscow concluded negotiations with Ukraine on 2007 gas supplies. Kiev will buy no less than 55 billion cu. m. of Central Asian gas for $130 per 1000 cu. m. According to the media, the low price was in exchange for a number of political concessions.

Georgia and Azerbaijan have bee refusing Gazprom's offer of $235 per 1000 cu. m. and are counting on meeting their demand with gas from the Azeri Shah Deniz deposit. On December 22, after a technical problem arose at the deposit, Georgia and Gazprom announced the conclusion of three contracts for gas supplies in 2007 of 1.1 billion cu. m. at $235 per 1000 cu. m. Azerbaijan is expected to make a decision very soon.

Negotiations between Gazprom and Moldova are officially completed. On December 20, Moldovan President Vladimir Voronin announced that Russian gas would be bought in 2007 for $170 per 1000 cu. m., just $10 higher than it is paying now. Voronin said that the small price increase was due to joint projects that Chisinau proposed to Gazprom and RAO UES of Russia.

Gazprom is not commenting officially on negotiations underway with Lithuania, Latvia and Estonia. Sources in those countries say that the price for Russian gas in 2007 will be $210-260, with Lithuania receiving gas at the lower end of the range and Estonia at the higher. In 2006, those countries received gas for $120-150 per 1000 cu. m.

Natalia Grib

Source:

http://www.kommersant.com/p733273/Gazprom_Beltransgaz_Belarus/