BELARUS NEWS AND ANALYSIS

DATE:

26/12/2006

Belarus Gets Ultimatum: Price Hike or Gas Halt

By ANDREW E. KRAMER

MOSCOW, Dec. 26 — Gazprom, the Russian energy monopoly, threatened today to halt natural gas supplies to Belarus if that country did not agree to a large price increase by New Year’s Day.

The strong Russian position suggests that Moscow is becoming aggressive in energy pricing even with countries that have been close allies.

Belarus now has the cheapest gas in the former Soviet Union, other than Russia itself. Gazprom, the world’s largest energy company by volume of reserves, is insisting that Belarus pay more than double its current price, though it would remain below what richer countries in Europe pay.

Gazprom warned that Belarus was behaving "irresponsibly" in the talks over pricing and a Russian demand to surrender equity in a key export pipeline, saying such resistance was putting Belarus’s energy supply at risk.

The threat came almost exactly a year after Gazprom cut off fuel supplies to Ukraine, another key transit country for Russian energy exports, causing intense supply jitters in Western Europe. After widespread criticism, Gazprom turned the gas back on after three days.

In the energy markets now, the Kremlin is dictating terms with greater assertiveness than it has at any time since the collapse of the Soviet Union. Gazprom already owns one of the two major export pipelines that run through Belarus and is negotiating for a share in the second, a move that would tighten the company’s bear hug on European supplies.

Gazprom said exports to Poland and Germany through the pipelines are not at risk, even if Belarus were to be switched off. The company spokesman, Sergei V. Kupriyanov, said Gazprom has been stockpiling gas in underground reservoirs in Western Europe to ensure uninterrupted supplies.

"Responsibility for what has taken shape today lies with the Belarusian side," Gazprom’s chief executive, Aleksei B. Miller, today told a Belarusian delegation led by a first deputy prime minister, Vladimir I. Semashko. “Gazprom and the Russian Federation met you halfway on all issues.”

Gazprom's tough negotiating suggested an unraveling of the special relations between Russia and Belarus, which are joined in a loose coalition called a union state. Russia is one of the last allies in Europe of the Belarusian dictator, Aleksandr G. Lukashenko.“The demand shows Putin is abandoning any myth of the union state,” Lilia Shevtsova, a senior associate at the Carnegie Moscow Center, said. “Lukashenko is desperate and backed into a corner.”

Gazprom's final asking price for gas in Belarus, between $105 and $110 per 1,000 cubic meters, is still among the lowest offered to Russia’s neighbors. Gazprom says it is intent on raising prices throughout the former Soviet Union, putting an end to a decade of subsidies.

Gazprom said Belarus wanted to pay rates in line with those paid in the neighboring Russian province of Smolensk, or about $40 for residential consumers and $54 for industrial customers, citing a treaty related to the union state. Mr. Semashko, the Belarusian delegation leader, left talks in Moscow today without a deal. “We still have time until the 31st of December,” he said.

Gazprom has slowly increased prices in neighboring countries while trading special deals for footholds in the local distribution business or access to export pipelines essential to its hugely profitable business.

Source:

http://www.nytimes.com/2006/12/26/world/europe/27belaruscnd.html

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