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December 28, 2006

Belarus: Does Minsk Stand A Chance In Gas War With Gazprom?

by Jan Maksymiuk

(RFE/RL)

December 28, 2006 (RFE/RL) -- Gazprom and Minsk have managed to agree on one thing -- Belarus's asking price of $2.5 billion for a 50 percent stake in the state pipeline operator Beltranshaz.
Gazprom spokesman Sergei Kupriyanov has confirmed that concession to Belarus:
 
"We have agreed to the most comfortable conditions for Belarus," Kupriyanov said on December 27. "We want to obtain 50 percent [of Beltranshaz], not control over it, and we are [offering] a price that is even higher than the market one."
 
Two Deals Or One?
 
But the two sides remain at loggerheads over how the Beltranshaz stake will be paid for. Belarus is demanding cash, while Gazprom is insisting that it be paid in the form of gas supplies as part of the deal it is trying to work out with Minsk for gas supplies in 2007 and beyond.

 
According to Gazprom CEO Aleksei Miller, such a payment plan could be extended until 2011, when Gazprom intends to switch exclusively to cash payments for gas at market prices.
 
Minsk, meanwhile, sees the possible Beltranshaz share sell-off and its contract with Gazprom for future gas supplies as separate issues.
 
And on the issue of gas rates -- regardless of the Beltranshaz stake -- the two sides do not see eye to eye.
 
Gazprom is asking $105 per 1,000 cubic meters of Russian gas next year, up from the $46.68 Belarus is currently paying. With the Belatranshaz stake thrown in -- at a rate of $30 a share -- Belarus would end up paying $75 per 1,000 cubic meters. Minsk is willing to pay $75 in cash per 1,000 cubic meters -- period.
 
Belarus's chief negotiator in gas talks with Gazprom, First Deputy Prime Minister Uladzimir Syamashka, went so far on December 26 to characterize Gazprom's negotiating position as a "provocation."

 
Syamashka claimed Gazprom had the day earlier agreed to sell gas to Belarus in 2007 for $75 per 1,000 cubic meters without linking the transaction to Beltranshaz.
 
Anything greater than that amount, Syamashka said, is simply not feasible.
 
"We cannot put our signature under a collapse of our economy," he said. "In this case our situation is sort of desperate because we are tied to the Russian pipeline, to the Russian gas-distribution network."
 
Eyes On The Prize
 
It is debatable whether this gas-price hike could have such a disastrous impact on Belarus's economy.
 

The Minsk headquarters of Beltranshaz (TASS file photo)

What is obvious is Minsk's general reluctance to share Beltranshaz with Gazprom. Minsk has managed to defer this issue for nearly five years. A protocol with Gazprom on the establishment of a joint venture to run Beltranshaz was signed by the Belarusian government as far back as April 2002.
 
Under the circumstances of Moscow's increased assertiveness in using gas supplies as a tool for political and economic extortion, Belarus appears to treat Beltranshaz as a strategic asset directly linked to the country's sovereignty and security.
 
Currently, 44 billion cubic meters of Russian gas, or some 24 percent of Russian gas exports in the European direction, transits Belarus annually. Gas pipelines in Belarus fork into six routes: Lithuania-Kaliningrad Oblast, Poland-Germany, Poland-Czech Republic, Poland-Slovakia, Poland-Slovakia-Hungary, and Ukraine.
 
Therefore, Minsk seemed to be fairly unmoved by Miller's threat on December 27 that Gazprom could interrupt gas supplies to Belarus unless a valid supply contract for 2007 is signed by January 1.
 
"If the contract for gas deliveries for next year is not signed," Miller said, "Gazprom does not have any basis for gas deliveries to Belarus as of January 1, 2007, as of 10 [a.m.] Moscow time."
 
Syamashka promptly responded that Gazprom has no gas transit contract with Belarus for 2007.
 
"We are interconnected. I do not have a contract with Mr. Miller for gas deliveries to Belarus, while Miller does not have a contract with me for gas transit through Belarus," Syamashka said. "And I should say that 44 billion cubic meters of gas transits through Belarus."
 
A Calculated Risk
 
Syamashka appears to be confident that while Gazprom might lower the volume of gas flowing across Belarus in January to only the amount intended for Europe, it would never dare to turn off the gas tap completely. In such a case, the economic and political damage incurred by Gazprom would surely be greater than that caused to Belarus.
 
Therefore, Syamashka's ostensible composure in the face of Miller's threat just might mean that Minsk is prepared to siphon off Russian gas intended for Europe in order to make it through the winter. In the absence of a valid transit contract, Minsk would theoretically be justified in considering Russian gas flowing across its territory on its way to Europe as "contraband."
 
On the other hand, Miller on December 27 stopped short of announcing the possibility of a total shutoff of gas flowing across Belarus.
 

A gas pipeline crossing the border between Belarus and Lithuania (bymedia.net file photo)

"Gazprom will supply gas to its European consumers on the Belarusian border at full volume and in accordance with [current] contracts. Gazprom today shipped gas to its partners in Lithuania, Poland, and Germany and sent them a letter about the supply situation regarding Belarus," Miller said.
 
And this means that the gas talks between Minsk and Gazprom --  even if they now seem deadlocked considering the frosty rhetoric from both sides -- will be resumed sooner or later, and a compromise solution will be found, as was the case during the short gas-supply crisis involving Ukraine in January 2006.
 
Market Principles
 
As for Europe, which pays some $250 for 1,000 cubic meters of Russian gas, it is hardly imaginable that it could publicly sympathize with Belarus's desire to pay just $75. But one also should not expect any harsh public condemnation from Europe over Minsk's attempts to bargain for the best possible gas deal with Moscow.
 
It would seem that an obvious solution would be for all of Russia's neighbors to pay a set market price plus transportation costs. But Ukraine will pay $130 in 2007, Moldova $170, and Georgia $235.
 
For the past 12 years, Moscow has made every effort to make everybody believe that Belarusians under the rule of President Alyaksandr Lukashenka deserve to pay significantly less than other states. Persuading everybody -- and especially Belarusians -- to drop that notion may take longer than the last four days of 2006.
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