BELARUS NEWS AND ANALYSIS

DATE:

30/12/2006

Gazprom says prepares to cut off gas to Belarus

By Dmitry Solovyov

MOSCOW (Reuters) - Russian gas monopoly Gazprom (GAZP.MM: Quote, Profile , Research) said on Saturday it was preparing to cut gas supplies to Belarus from the New Year as talks with Minsk over pricing terms were not encouraging.

The two sides continued haggling on Saturday over terms to end the price dispute that could disrupt supplies to Europe, but Gazprom said the level of the delegation sent by Belarus was too low for any real progress to be made.

"The way the talks are proceeding at this moment prompts us to get ready for a critical development of events," Gazprom's spokesman Sergei Kupriyanov said.

Gazprom has threatened to cut gas supplies to Belarus, one of the transit routes for gas to European consumers, at 0700 GMT on January 1 unless Belarus agrees to pay more for gas, while Minsk has threatened to disrupt transit shipments.

The latest round of gas talks with Belarus ended abruptly late on Friday after Belarussian President Alexander Lukashenko said he would not tolerate Russia's "blackmail" and his nation would rather "go into the bunkers but will not surrender."

The row with Belarus, hitherto a loyal Kremlin ally even as other ex-Soviet republics sought to move out of Moscow's orbit, is part of a wider drive by Gazprom to bring its prices in the former Soviet Union closer to European levels.

The European Commission and Germany have pressed the two sides to reach an agreement quickly to end the dispute out of fear it could have an impact on supplies to European consumers as a similar row with Ukraine did last January.

Belarus, compared with Ukraine however, handles only a relatively small amount of Russian gas to Europe, with supplies going mainly to Germany and Poland.

Gazprom and Germany have said they stockpiled enough gas to cover initial shortages, but Gazprom has warned there might be problems if Belarus bit heavily into transit volumes.

Gazprom on Saturday demanded Minsk send its top negotiator, first deputy prime minister Vladimir Semashko, but Minsk said its officials in Moscow were fully authorized to sign deals and Semashko would fly once Gazprom had replied to Belarus's latest demands.

Gazprom has said it will not change its latest offer and wants Belarus to pay $105 per 1,000 cubic meters from 2007, up from $46 now. It also wants a share of Belarus local pipelines, Beltransgas.

But Belarus wants to pay only $75, of which $30 would be covered by Gazprom's payments for the shares of Beltransgas.

"It is vital that the price of Beltransgas is sufficient to cover a four-year transitional period," Beltransgas deputy director Mikhail Puchilo told reporters.

The gas row has reflected on other industries in the past weeks, with Moscow slapping an export duty on crude oil exports to Belarus, thus threatening to undermine the neighbor's economy by cutting profits of Belarus' state refineries.

Belarus state oil firm Belneftekhim said on Saturday it had scrapped all 2007 deals with Russian firms on imports of around 400,000 barrels per day of oil as those deals were loss-making.

Russian President Vladimir Putin had said Moscow was losing billions of dollars every year by allowing oil firms to send oil to Belarus's refineries, which were then re-exporting refined products to European markets.

(Reporting by Dmitry Zhdannikov in Moscow and Andrei Makhovsky in Minsk)

Source:

http://today.reuters.com/news/articlebusiness.aspx?type=ousiv&storyID=2006-12-30T171824Z_01_L30849731_RTRIDST_0_BUSINESSPRO-RUSSIA-BELARUS-GAS-DC.XML&from=business