Gas disputes: Belarus rejects a new offer from Russia

Russia might find itself in another “gas war” on New Year’s Eve – this time with Belarus. Minsk has rejected a new offer from Gazprom. If Russia cuts off gas supplies to Belarus, Minsk might respond by disrupting gas supplies to Western Europe.

Russia might find itself in another “gas war” on New Year’s Eve – this time with Belarus. Gazprom executives met with a Minsk delegation on December 26, but the talks failed to produce an agreement on the price Belarus will pay for natural gas in 2007. Russia has now made some concessions, offering to raise the price to $80 per thousand cubic meters (rather than $200, as proposed earlier) and receive a 50% stake in the Belarusian gas transport system using the valuation done by the Belarusians themselves. But Minsk has refused once again. Belarus now has less than five days to think it over; then Russia will cut off gas supplies to Belarus, and Minsk might respond by disrupting gas supplies to Western Europe.

Belarus has been provided with the most favorable gas terms this year. In contrast to other CIS countries, Belarus continued to receive gas at $47 per thousand cubic meters – Russia’s domestic price. Our other neighbors have repeatedly pointed a finger at this: you’re asking us to pay world prices (up to $250), but you’re selling gas to the Belarusians cheaply. Russia responded that Belarus would also face price rises in due course, and 2006 has only been a transition period.

It was true – Russia gave Belarus a whole year to prepare its economy for higher gas prices. But President Alexander Lukashenko did nothing. Instead, he and his subordinates seemed to have a kind of impenetrable confidence that gas prices would not rise. “We’re prepared to accept an increase, but only so that we pay the same price as the neighboring Smolensk region,” said senior Belarusian officials. This gave the impression that Belarus is also a region of Russia, like Smolensk. Yet the Russia-Belarus Union State still doesn’t exist. Minsk isn’t even mentioning a common currency. So what is there that unites us, other than talk of a Union?

Russia has made repeated offers to Belarus: gas prices would remain low, in exchange for a stake in Beltransgaz – the company whose activities include transporting Russian gas to Western Europe. But Russia and Belarus couldn’t agree on a price. Lukashenko’s estimate for his company’s worth was an incredible $10-12 billion, while Russia valued it at a more realistic $3.3 billion.

This week, after lengthy disputes, Russia made some concessions. Belarusian Deputy Prime Minister Vladimir Semashko came to Moscow for a meeting with Gazprom CEO Alexei Miller, and some new terms were announced.

Gazprom’s offer: it will charge Belarus $80 per thousand cubic meters, instead of $200 as promised earlier; in exchange, Minsk hands over half of Beltransgaz for $2.5 billion. What’s more, Gazprom offered to pay this price in the form of gas supplies, over four years, at $30 (!) per thousand cubic meters. But Belarus has rejected this offer – it insists on a gas price of $75 per thousand cubic meters, and that Gazprom should pay for the Beltransgaz stake in money.

“The terms are favorable, they couldn’t be better – but they’re still saying no,” said Gazprom spokesman Sergei Kuprianov, disappointed. “So we parted company at that. We still have an opportunity to meet and reach agreement before New Year’s Day. Negotiations are continuing.”

What would happen if Gazprom has to cut off gas supplies to Belarus? The pipeline across Belarus leads to Europe, carrying up to a third of Russia’s exports – to Germany, Poland, Ukraine, the Czech Republic, Slovakia, Hungary, Latvia, Lithuania, and the Kaliningrad region.

Should anything happen, Lithuania and the Kaliningrad region would be hardest-hit – since the other countries could be supplied via Ukraine. The problem is that while Lithuania might be able to get some help from Latvia and Estonia, Kaliningrad would be worse off – the region doesn’t have an underground gas reservoir of its own. Kaliningrad Governor Georgy Boos said on December 26 that he doesn’t expect “any unpleasantness from Belarus” with regard to the unresolved problem of gas supplies. Boos seems to be hopeful that matters won’t reach the point of gas supplies being cut off.