BELARUS NEWS AND ANALYSIS

DATE:

31/12/2006

Russia, Belarus gas talks drag on

By Dmitry Zhdannikov

MOSCOW (Reuters) - Russia on Sunday was hours away from turning off gas to neighboring Belarus, with a possible knock-on effect to supplies to Western Europe, as talks to settle a pricing dispute dragged on with no breakthrough.

Russia's gas monopoly Gazprom has said it will cut supplies to Belarus from 0700 GMT on January 1 if no deal on prices is reached. Minsk said it would retaliate by halting flows of Russian gas crossing the country bound for Western Europe.

Gazprom -- which ships about 20 percent of its gas bound for Europe via Belarus -- assured customers there would be no disruption. But it was not clear how the firm could stop Minsk carrying out its threat to cut power supplies to pipeline pump stations, so halting the flow of gas onward to Europe.

The row revived memories of a similar dispute with ex-Soviet Ukraine exactly one year ago which briefly disrupted Russian deliveries to Europe and shook confidence in Russia's reliability as an energy supplier.

Gazprom managers and Belarus negotiators led by First Deputy Prime Minister Vladimir Semashko were locked in last-ditch talks as most Russians prepared to greet the New Year, the country's biggest holiday.

"The talks are continuing, but unfortunately they have led to no results so far," Gazprom spokesman Sergei Kupriyanov said as the negotiations entered their sixth hour. "We want to reach an agreement and prevent events turning into a crisis."

"If the deal is not signed ... we will be forced (on January 1) to suspend supplies for Belarus' domestic needs. As for the transit shipment contracts beyond Belarus, they will be met in full."

POWER SUPPLY THREAT

But earlier, Belarus Energy Minister Alexander Ozerets said if Gazprom cut deliveries for Belarus's domestic use, Minsk would disable the Yamal-Europe pipeline, which carries all Russian gas transiting Belarus to Western Europe.

"In the event that gas supplies to Belarus are cut off we will in turn cut off the power supply to gas compressor stations on the Yamal-Europe pipeline," Ozerets told Reuters.

He said though he believed there was a real prospect of a deal being signed before the deadline.

Germany -- one of the biggest customers for Russian gas -- and the European Union have pressed Moscow and Minsk to reach a deal quickly and avoid any disruption to supplies.

Russia supplies about a quarter of Europe's gas needs. Eighty percent of the exports pass through Ukraine and the rest through Belarus.

Gazprom export chief Alexander Medvedev warned Belarus against disrupting export supplies.

"The Yamal-Europe pipeline belongs entirely to Gazprom. Disrupting transit shipments is unacceptable," he told Reuters via his spokesman

Medvedev declined to comment though on how Gazprom could prevent Belarus from disabling the pipeline.

The contract under which Gazprom has been supplying gas to Belarus -- at a massively discounted price of $46 per 1,000 cubic meters -- expires at midnight on Sunday. By comparison, Gazprom charges European customers over $250.

Gazprom wants Belarus to pay $105 from 2007, a demand it says is part of the firm's campaign to bring the amounts Russia's ex-Soviet neighbors pay for their gas into line with world prices.

In the past 12 months, Russia has agreed hefty price rises with ex-Soviet Ukraine, Georgia, Armenia and Moldova.

Western critics have accused the Kremlin of using the gas price increases as a political weapon to punish some of its neighbors for moving closer to the West.

Belarus though does not fit into that category. Its President Alexander Lukashenko has quarreled with the West and wants closer ties with Moscow. Washington has described Lukashenko as Europe's last dictator.

(Additional reporting by Andrei Makhovsky in Minsk)

Source:

http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyID=2006-12-31T180009Z_01_L30849731_RTRUKOC_0_US-RUSSIA-BELARUS-GAS.xml

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