BELARUS NEWS AND ANALYSIS

DATE:

26/12/2006

Russia threatens gas shut-off in Belarus

By YURAS KARMANAU
ASSOCIATED PRESS WRITER

MINSK, Belarus -- Residents of Belarus' capital stocked up on warm clothes and electric heaters as fears rose Tuesday that Russia is about to cut off the natural gas on which the country depends.

Russia says Belarus must pay more than twice as much for gas next year - and even more later - and turn over a half-share in its pipeline system, a major transit route to Europe, if it wants to avoid a New Year's gas shut-off.

The dispute bears strong echoes of last year's crisis between Russia and Ukraine, which caused ripples of concern in Western Europe, whose supplies of Russian gas were briefly disrupted.

But in that case, Russia's price demand was seen as political pressure against a Western-leaning government; this time it is against a country whose longtime leader has close ties with Moscow.

Belarusian opposition leader Alexander Milinkevich suggested Gazprom's demands are aimed at forcing President Alexander Lukashenko to cede control over the pipeline network and other attributes of sovereignty in exchange for continued Russian support for his authoritarian regime.

"Through energy pressure, the Kremlin is trying to force Lukashenko to integrate according to the Russian scenario, which is extremely dangerous for Belarus," Milinkevich told The Associated Press.

Anna Kuprilko, a 48-year-old tractor factory worker whose sister lives in Ukraine, was among those shopping for a heater Tuesday.

"My sister told me about Ukraine's experience, and I want to keep myself secure," she said. "My family is prepared for the worst."

Talks Tuesday between Belarus and Russia failed to resolve the issue and a senior official of Russia's natural gas monopoly Gazprom said a cutoff was certain without an agreement.

"In the absence of a contract, there is not and cannot be a basis for the delivery of gas to any country or any consumer in the world," Gazprom's export division chief Alexander Medvedev said.

Lukashenko said the talks on Russian supplies were "very difficult" and urged energy saving. "In the conditions of pressure on Belarus one must know how to live within one's means and economize, especially on energy," he said.

Medvedev said a shut-off would not affect the 30 percent of Russian gas deliveries to Europe that transit Belarus. Russian gas provides a quarter of Europe's consumption.

Much of the Russian gas destined for Poland and Germany, among other countries, goes through a pipeline that is already owned by Gazprom but is under the day-to-day control of the Belarusian pipeline network, Beltransgaz.

"The issues of transit and supplies are not linked and will not be linked," Medvedev said. But he also raised the possibility that Belarus would seek to siphon gas meant for European customers, saying that gas "will be delivered to the Russia-Belarus border. How the Belarusians will conduct themselves I don't want to guess, but I hope it won't come to that."

The price dispute with Ukraine in early 2006 resulted in temporary supply reductions to European customers, raising concerns about Russia's reliability.

Medvedev said Gazprom had scrapped its initial demand that Belarus begin paying $200 per 1,000 cubic meters of gas in 2007. Under what he called a final offer, Belarus would pay $105 next year - well below world market prices, but more than twice the $47 it now pays.

The price would consist of $75 in cash and $30 in shares of Beltransgaz, he said. It would increase annually at the same rate as prices for Russian industrial consumers, reaching a market-style European price - minus the transit cost and export duties, which will be exempted - in 2010.

Gazprom would pay for a half-share in Beltransgaz by allowing Belarus to pay $30 per 1,000 cubic meters in shares over the next four years.

The increasing price would be a severe blow to Belarus' Soviet-style state-run industries, whose financial health - and, in turn, a portion of Lukashenko's popularity - depends on cheap gas.

Russia had supplied gas to ex-Soviet states at below-market prices for years after the 1991 Soviet collapse, but now wants to sell all its gas at world prices.

Westward-leaning Georgia agreed Friday to pay $235 per 1,000 cubic meters, or $6.71 per 1,000 cubic feet, for its Russian gas imports under threat of a gas freeze on New Year. U.S. natural gas futures settled Tuesday in New York at $6.11 per 1,000 cubic feet.

Azerbaijan insisted Tuesday that it would do without Russian gas in 2007, with First Vice-Premier Yaqub Eyubov dismissing Gazprom's demand that it pay $235 - up from $110 - as "absurd." He said Baku was in talks with neighboring Iran over potential supplies.

Moldova, now paying $160 per 1,000 cubic meters, has agreed to a deal under which it will pay $170 next year and more every year until it reaches average European prices - minus the transit fees - in 2011, Medvedev said. Moldova will pay part of the price by handing over shares in gas concerns including its distribution system, he said.

Belarus, under the authoritarian Lukashenko, has been one of Russia's closest allies in the region. The countries signed a loose union treaty in the mid-1990s and no visas are needed for land travel between them.

While Russia has supported Lukashenko in the face of severe Western criticism, it has appeared uneasy over his heavy-handed suppression of opposition and irritated at his insistence that small and poor Belarus can only be unified with Russia on an equal basis.

Relations have been tense under Russian President Vladimir Putin, who angered Lukashenko by floating an integration plan under which Belarus would essentially become a Russian province.

Associated Press writers Steve Gutterman in Moscow and Aida Sultanova in Baku, Azerbaijan contributed to this story.

Source:

http://seattlepi.nwsource.com/business/1310AP_Belarus_Russia_Gas_War.html