BELARUS NEWS AND ANALYSIS

DATE:

26/12/2006

Gazprom may shut gas valve for Belarus, if price talks fail

MOSCOW, December 26 (Itar-Tass) -- The Russian natural gas giant Gazprom has warned neighboring Belarus it will stop supplying fuel as of January 1, if Minsk proves reluctant to take a more constructive position at price talks.

Analysts believe the reasons for this are not so much economic as those rooted in Belarus's reluctance to be more cooperative in such matters as the creation of a Union State, which has continued for the past ten years.

Originally, Gazprom would like the price to grow four-fold, from the current heavily subsidized level of US$46.68 per 1,000 cubic meters to 200 dollars. Otherwise, the gas giant made it clear it will not hesitate to revive the scenario of a year ago, when Kiev's reluctance to compromise caused suspension of Russian gas export to Ukraine. Ukraine then resorted to unauthorized tapping of pipelines carrying gas to consumers in Western Europe.

Gazprom's spokesman Sergei Kupriyanov on Monday said Belarus insisting to have Russian gas on the same terms as Russia's Smolensk Region (for US$54.2 per 1,000 cubic meters) "jeopardized its own energy supply." The current gas supply contract expires on December 31.

Kupriyanov also recalled that Belarus was the only one of all former Soviet republics that was trying to keep very favorable gas prices unchanged.

Gazprom argues that the price it has charged for gas supplied to Belarus so far is tantamount to heavy subsidizing - unacceptable in relations between equitable partners - and even to operation at a loss. Such a price is unable even to compensate for gas production and transportation costs.

Days ago Gazprom signed a contract to sell gas to Georgian companies at an economically reasonable price of US$235 per 1,000 cubic meters.

On Tuesday, Gazprom softened its stance demanding Belarus pay US$105 per 1,000 cubic meters of gas, also well below world market prices.

The demanded price would consist of US$75 in cash and the remainder in shares of Belarus' natural gas pipeline network. But reportedly, this new offer has been rejected by Minsk as unacceptable and the talks failed again.

Gazprom CEO Alexei Miller back last March warned that the prices of gas for Belarus would go up as of 2007 to the European level. To compensate for the surge Belarus was invited to sell to Gazprom a 50-percent stake in the Belarussian pipeline company Beltransgaz for 1.5-2 billion dollars. Belarussian President Alexander Lukashenko stood adamant insisting Beltransgaz was 17 billion dollars worth.

The Belarussian gas pipeline company, 100-percent owned by the state, is the monopoly gas carrier and provider at home. Russian gas flows to the West across Belarus through the Yamal-Europe pipeline.

However, something suddenly went wrong in the negotiating process and Belarus's deputy prime minister canceled his meeting with Alexei Miller. Then there followed a harsh statement by Gazprom's spokesman Sergei Kupriyanov.

On Tuesday evening, though, the gas giant's Deputy CEO Alexander Medvedev said Gazprom has agreed to sell gas to Belarus for 105 dollars per 1,000 cubic meters. In exchange Belarus would be asked to pay 75 dollars in cash, and the remaining share, with Beltransgaz assets. Belarus itself has now estimated it at 5 billion dollars (although in Gazprom's opinion the Belarussian company costs 3 billion dollars at the most). This arrangement would be effective till the end of 2010.

Rises in the price of Russian gas would be pegged to price hikes for Russian consumers, which is fully in line with relations of alliance between Russia and Belarus, Medvedev said. He also remarked that the price of Russian gas would allow Beltransgaz to sell the fuel to Belarussian consumers at a profit.

Prime-Tass quotes Medvedev as saying the transit gas traffic through Belarus to Europe was liable to the operation of a separate agreement and in no way depended on gas supplies to Belarus proper.

"There are the terms of transit and no pre-requisites exist for their revision," Medvedev said.

Whatever further progress in the negotiations, Gazprom had made very thorough preparations beforehand. The company had pumped extra amounts of gas into underground gasholders in Germany (also meant for Poland), and in the Baltics.

Next year Minsk plans to purchase from Gazprom about 20 billion cubic meters of gas of the 30.5 billion cubic meters the Russian company is to export to all CIS consumers, says the daily Vedomosti.

"The expected rise in the price of gas and Moscow's intention to tax the export of oil to Belarus would affect that country more than Western sanctions," says the daily Nezavisimaya Gazeta.

Should gas prices grow four-fold, "Lukashenko's positions would certainly weaken," the chief of the Belarus Department at the Russian Institute of the CIS Countries, Alexander Fadeyev told Itar-Tass. "If the march of events proves really bad, he may even lose power, because his rule relies on the country's relative economic prosperity. There is nothing else to support him."

"For Lukashenko such an upsurge in gas prices would mean a social and economic crisis, collapse of 'the Belarussian economic miracle' and probably, loss of power," says the on-line periodical NEWSru.com.

It looks like Russia may agree to make life easier for the Belarussian leader only if Lukashenko reconsiders his negative attitude to Moscow's proposals for further integration, such as the introduction of the Russian ruble as a common currency. So far Lukashenko has been saying that Belarus would never cede even a tiny part of its independence.

Ten years after Russia and Belarus declared they would be building a Union State integration processes are slow-going and the solution of such key tasks as the adoption of a common Constitution and introduction of a common currency looks as remote as it was a decade ago.

The reasons for Moscow's firm position are not only economic, says Vladimir Zharikhin, a Deputy director of the CIS Countries Institute.

"What we expect of Minsk is clarity. Either we go ahead with building the Union State or we do not," he told Itar-Tass. "Such a state cannot be built on the economic basis alone. There must be a common political space, but Lukashenko stays defiant."

The analyst argues that the Belarussian leader has addressed Russia with a whole list of unacceptable conditions.

"The way he sees it, Russian territory is the territory of the Union State, while Belarus is a sovereign Belarussian territory. He wants to have Russian gas at a price consumers pay in Smolensk, but to sell Beltransgaz at world prices."

"In reality, Lukashenko has no intention to unite in earnest, and Moscow is pretty bored with this uncertainty," Zharikhin said.

Source:

http://www.tass.ru/eng/level2.html?NewsID=11119490&PageNum=0