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Belarus: What Does Future Hold For Gazprom's Deal?

Jonathan Stern (Courtesy Photo) January 5, 2007 (RFE/RL) -- Despite Russia's obvious gains in its December 31 deal with Belarus, which more than doubles the price of natural gas and secures a 50-percent stake in Belarus's gas-transit network Beltranshaz, there are no assurances the agreement will work as Russia hopes. Who has the advantage, Minsk or Moscow, when it comes to profiting from Russian pipes transiting Belarusian territory? And what does the future hold for Gazprom's other CIS clients? RFE/RL spoke to Jonathan Stern, the director of gas research at Britain's Oxford Institute for Energy Studies.

RFE/RL: Why has Gazprom received a 50-percent stake in Beltranshaz, rather than 49 percent or 51 percent? How will that partnership work?

Jonathan Stern: A 50-percent stake in Beltranshaz means you are an equal partner in the operation and you at least have the right to be the co-operator of the pipeline. The key issue here for gas utility is that you want to know what is happening to the gas in the pipeline. It probably wouldn't have been politically appropriate for Gazprom to have more than a 50-percent stake; with less than a 50-percent stake it wouldn't have had the right to ask to be co-operator.

RFE/RL: So the share size wasn't a point of contention? Was Gazprom looking specifically for 50 percent?

Stern: I think it was probably a very contentious negotiating point. I mean, negotiations over the first investment in the pipeline network as a whole started before 2000. Just the negotiation on the valuation [of Beltranshaz] has taken over three years. So the whole thing has been extremely contentious.

RFE/RL: In a situation where Russia controls half the pipeline but Belarus controls the territory it runs over, who has the upper hand?

Stern: It depends who operates the pipeline. Pipelines have operators -- in other words, they have companies who actually look at what goes in, what comes out, open valves, close valves. Let me give you an example. Why has there never been any leakage or siphoning reported from the pipeline in Moldova? Answer: Gazprom has a majority stake in Moldovagaz, which operates the pipeline. Gazprom has no stake whatsoever in the Ukrainian network, and has had no stake in Beltranshaz. Hence the importance of being at least a co-operator of the pipeline.

RFE/RL: So do you anticipate the 50-percent stake is enough to ensure things go smoothly for Gazprom in Belarus?

Stern: That is their intention. The problem I think they'll face is that -- as far has been reported in this very strange negotiation, that finished at two minutes to midnight -- we don't really fully understand what has happened. You can read a lot of different things in the press. The official documents aren't, at least to me, very clear about what's happened. So I'm hoping things will run smoothly, but I'm not sure.

RFE/RL: Are there other CIS countries in addition to Moldova where Gazprom can be confident its shipments are reaching their intended clients in full?

Stern: Only one. The Armenian pipeline network, where Gazprom has a majority stake in ArmRosgazprom.

RFE/RL: Some people have argued that Gazprom, by raising Belarus's gas prices, has answered critics who said it was using energy prices as a political tool against its detractors within the CIS. Belarus was a loyal ally and yet is now facing the possibility of paying European-level prices by 2011. Is Gazprom being ruthless, or simply pragmatic

Stern: In current circumstances, from what we understand, everybody including people in Russia will be facing European prices by 2011. There is no doubt about that. The decision was made in November that Russian domestic gas prices would be at European levels at 2011. But what is very clear is that whatever subsidy that has existed during and since the Soviet Union is finished, and the maximum time that anybody can expect -- and in fact Belarus is probably the longest one -- is 2011, when at the same time as Russian industrial and power-generation gas customers, it will be phased out.

The next question is: Was it, and is it, a political price? For me, political prices finished in around 2002-03, with the recognition first that Gazprom and the Russian state could no longer afford them and secondly, whatever political reason was being given, it wasn't working. And the decision was taken, and that's why they were prepared to go through the huge amount of pain in January 2006 and the huge amount of reputational damage caused by cutting off Ukraine for two days. But most people who talk about political prices are comparing one number in one country with another number in another country. And you can't do that. You can't make any sense of that because all the numbers are different for different reasons. It's a very, very complicated process.

RFE/RL: The European Union's Gas Coordination Council, during its January 4 meeting in Brussels, appeared certain Russian gas supplies to Europe would be secure in 2007. But the meeting was called before Russia and Belarus resolved their dispute, when the EU was facing the possibility of a cutoff. How nervous were European officials watching this standoff between Moscow and Minsk?

Stern: The problem clearly made them very nervous. And because they were caught very badly last year -- when they were all on their holidays, and they didn't come back and do anything until the problem was fixed -- they wanted to be clear that they were on top of it this time.

RFE/RL: What kind of relationship do you predict Gazprom will have with its CIS neighbors during the next 5-10 years?

Stern: I would say that in 5-10 years' time, Gazprom will have most of the same clients it currently has, except not in the Caucasus. In 5-10 years' time, it won't be exporting any gas to Azerbaijan and Georgia, and probably not to Armenia either. My guess is that it will be exporting gas to most of the other CIS countries. I doubt whether in such a short time frame as 10 years they will have created any other gas options. But Gazprom sales will be much, much smaller than they are today because the principal impact of price increases is demand decreases. And what these countries are going to find, just like Russia's going to find, is that when you put the prices up to economic levels, you'll see demand crash.

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