BELARUS NEWS AND ANALYSIS

DATE:

31/12/2006

Belarus, Russia gas talks stagnate

By JIM HEINTZ

Belarus faced the prospect of a frigid New Year as talks aimed at preventing Russia from cutting off its natural gas shipments lasted into the night Sunday, but produced no apparent compromise.

Russia's natural gas monopoly OAO Gazprom says it will cut off supplies to the nation of 10 million on New Year's Day unless an agreement is reached. Gazprom has demanded Belarus pay 125 percent more for gas in 2007 and turn over shares in its pipeline network.

Although the $105 per 1,000 cubic meters demanded by Gazprom is far below world market prices, the hike would be a severe blow to Belarus, not only in costs for heating and cooking but because Belarus' Soviet-style state-contolled industries depend on cheap Russian gas to remain competitive.

Western European countries were watching the dispute nervously, fearing that a cutoff could sap the Russian gas that flows to their countries via Belarus.

Gazprom spokesman Sergei Kupriyanov described the negotiations as "tense," and told state-controlled Channel One television that Belarusian officials were trying to connect the gas dispute to other issues troubling the countries' relations. He did not elaborate.

Belarusian First Deputy Prime Minister Vladimir Semashko flew to Moscow on Sunday morning for the talks, a day after saying Belarus would pay $100. Semashko's statement had implied an agreement was reached, but Kupriyanov indicated the company was not inclined to dicker.

"This price is already better than for Armenia, with whom we agreed about supplying gas a year ago," he said on Russia's NTV television.

Semashko and other Belarusian officials have suggested they could hinder the transit of gas across Belarus to Europe if Gazprom halts supplies meant for Belarusian customers.

Belarus's authoritarian President Alexander Lukashenko, whose grip could be weakened by an increase in the price for Russian gas, accused Gazprom on Friday of blackmail.

The dispute reflects strained relations between Belarus and Russia, whose close ties go back centuries but have been increasingly tense in recent years as Russian President Vladimir Putin's Kremlin apparently has tired of providing political and economic support for Lukashenko.

Gazprom has said the price would increase annually and by 2011 reach a market-style European price -- minus the transit cost and export duties. For the next four years, Belarus would pay a portion of the cost in shares of Beltransgaz, its pipeline network.

The European Union and Germany, which receive some of their Russian gas via Belarus, have urged the neighbors to resolve their dispute quickly and guarantee supplies. Europe is wary of a repeat of the brief supply shortages that ensued when Gazprom halted deliveries to Ukraine during a similar dispute a year ago.

Gazprom has warned Belarus not to siphon gas from the Russian-owned Yamal-Europe pipeline, which carries about two-thirds of the some 44 billion cubic meters of gas that transits Belarus annually en route to Europe -- mainly Germany, Poland and Lithuania.

Kupriyanov said Saturday that Gazprom was sending inspectors to monitor connections linking Yamal-Europe with the Belarusian pipeline system in a bid to ensure no gas is siphoned, and also inviting "independent international observers" to help monitor volume in the pipeline.

Earlier this month, the Russian Cabinet decided to raise customs duties on oil exports to Belarus, which will deprive its Soviet-style economy of profits it has reaped by exporting oil products made of cheap Russian oil.

A large Belarusian industrial concern that includes chemical plants, Belneftekhim, has suspended its 2007 contracts to buy oil from Russian companies and will seek alternative suppliers because the customs duties will make purchases from Russia too costly, its director Alexander Borovsky said.

Source:

http://www.businessweek.com/ap/financialnews/D8MC08A80.htm