BELARUS NEWS AND ANALYSIS

DATE:

27/12/2006

Russia-Belarus gas dispute escalates

By Arkady Ostrovsky in Moscow

Gazprom, Russia's state-controlled gas giant, on Wednesday warned that its spiralling price dispute with Belarus could disrupt supplies to Poland, Germany and Lithuania following an implicit threat by Belarus to stop the transit of Russian gas.

Gazprom and Belarus exchanged strongly-worded threats on Wednesday which echoed Russia's stand-off with Ukraine a year ago when Moscow turned off gas supplies to Kiev, interrupting transit to Europe.

Gazprom said that unless a new deal is signed in the next four days it will turn off gas supplies to Belarus from January 1, while Belarus said it would stop the transit of Russian gas to Europe. Analysts said Gazprom's reputation could suffer further from the dispute.

"We are inter-dependent. If I don't have a domestic gas supply contract, Gazprom won't have a transit deal," said Vladimir Semashko, deputy prime-minister of Belarus.

Gazprom admitted it would not be able to fully compensate its European customers if Belarus started siphoning off gas from the pipeline, which transports 20 per cent of its gas to Europe.

Alexei Miller, Gazprom's chief executive, told Russia's state television channel: "Gazprom has today sent letters to its partners in Lithuania, Poland and Germany about the gas supply situation occurring with Belarus."

Belarus currently pays Russia just $46 per thousand cubic meters of its gas - the same as Russian domestic customers and five times lower than European levels.

Gazprom initially threatened to raise prices for Belarus to $200, wiping out a multi-billion subsidy that helps sustain Alexander Lukashenko, its authoritarian leader, in power.

However, Gazprom subsequently agreed to drop its price to $105 per thousand cubic meters, with a caveat that Belarus pays $75 in cash and the rest in shares of Beltransgaz, the country's gas pipeline and distribution network.

Belarus accepted the price of $75 per thousand cubic meters and reluctantly agreed to sell 50 per cent of Beltransgaz to Gazprom. But it wants Gazprom to pay up front $2.5bn for its stake in Beltransgaz.

Gazprom says it is "no Santa Clause" and would not make any more concessions. But the Russian company is in a difficult position, partly induced by its own policies towards Ukraine and other former Soviet republics over the past year.

If Gazprom turns off gas supplies to Belarus, disrupting supplies to Europe, its reputation for unreliability would suffer further. If it caves in to Belarus's demands, however, it would lose face at home, while also displaying a selective approach to different political regimes in the former Soviet Union.

Russia has been blamed for using gas pipelines as a weapon against west-leaning Ukraine and Georgia. In contrast to both those countries, Belarus has no ambition to join NATO or the European Union. But while Mr Lukashenko has been labelled "Europe's last dictator" by the US and is widely considered a pariah in Europe, he ahs adopted a tough line in gas negotiations with Russia, giving Gazprom a taste of its own medicine.

While Mr Lukashenko has little to lose in terms of his reputation, "the damage caused to Gazprom's status as a reliable gas supplier may theoretically be greater than last time round [with Ukraine]," Deutsche UFG, a Russian arm of Deutsche Bank, said on Wednesday.

Gazprom said it would deliver all contracted gas to the Russian border with Belarus, which could allow it to shift any blame for disruption onto Belarus. But "this would unlikely be of comfort to European consumers, who may miss 1/5 of their Russian gas imports," Deutsche UFG said.

Source:

http://www.euro2day.gr/articlesfna/26176389/

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