BELARUS NEWS AND ANALYSIS

DATE:

31/12/2006

Russia hours from cutting Belarus gas

by Sebastian Smith

MOSCOW (AFP) - Russia has edged closer to cutting gas supplies to neighbouring Belarus as talks in Moscow on a price dispute entered their final hours, prompting fears of energy disruptions in western Europe.

Gazprom spokesman Sergei Kupriyanov said marathon negotiations over the weekend had so far failed.

"We continued negotiations by telephone and through exchange of faxes with our Belarussian colleagues until one in the night, but we did not get any result," he said Sunday on Russian NTV television. "Right now, we still have no contract."

Kupriyanov was speaking 24 hours before a Gazprom deadline of 0700 GMT Monday for Belarus to accept a price increase for Russian gas imports from the current 45 dollars per 1,000 cubic metres to 105 dollars, about a third of which would be paid in shares in Belarus' pipeline network.

However, in a potentially positive development, Belarus' first deputy prime minister Vladimir Semashko was in Moscow on Sunday "to take part in the negotiations," according to his spokesman in Minsk. Gazprom has previously said that without Semashko's presence no deal was possible.

If Gazprom cuts supplies -- as it did briefly in a similar price dispute with Ukraine last January -- many of Belarus' 10 million people may start the New Year in chilly conditions, while the country's industrial base will take a strong blow.

There are also concerns in the

European Union that the row will impact on Russian imports, 20 percent of which transit through Belarus, meeting about five percent of EU natural gas needs.

Late Saturday Semashko announced that the two sides had agreed to a price of 100 dollars per 1,000 cubic metres for 2007 and that the price for 2008-2010 was all that remained to finalise.

But Gazprom immediately poured cold water on the claim, saying it reflected Semashko's "point of view," not an agreement, and warned of a "critical scenario."

Gazprom, a state-owned giant that controls the world's biggest gas fields, has mounted a tough campaign to end Soviet-era subsidies to neighbouring countries, as well as expand ownership of infrastructure and other energy businesses throughout Europe.

The company says it wants to put pricing on a market basis. Critics, including many in western Europe, fear the Kremlin seeks to use Gazprom as a tool to reimpose part of its dominance lost at the time of the 1991 Soviet collapse.

Belarus, which lies sandwiched between Russia and the European Union, is in a loose economic and political partnership with Russia and has always argued that gas import prices should be similar to those paid within Russia.

But Kupriyanov on Sunday said this would not be possible, noting that the price demanded was lower than that now being paid by several other ex-Soviet republics, including Armenia, another ally of Russia.

"We take into account the relations that there are between our countries, but all the same Belarus is an independent, sovereign country, and not a region of Russia, and so the prices should be different," Kupriyanov said.

Belarus insists that unless a deal is reached on its own domestic imports, then transit of Russian gas across Belarus to western Europe will also be threatened. This could potentially result in shortfalls for EU members including Germany, Lithuania and Poland.

Gazprom accuses Belarus of preparing to siphon off gas intended for western Europe and says it will closely monitor the line.

The growing threat of energy war between Russia and Belarus could spell difficulties for Lukashenko, an autocratic ruler who runs a Soviet-style economy largely based on Russian subsidies, analysts say.

Western governments gave strong diplomatic backing to Ukraine's pro-Western president, Viktor Yushchenko, during the gas row at New Year's 2006, but Lukashenko is a political pariah in Europe and the United States.

The EU has limited itself to calling on the two parties to reach a deal that does not threaten European supplies, while the authorities in France and Germany say they are not worried by the prospect of shortages.

Source:

http://news.yahoo.com/s/afp/20061231/ts_afp/belarusrussiaenergy_061231094001