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Russia: Moscow To Build Gas Pipeline To Germany

Despite the settlement of its gas dispute with Belarus, the Russian gas monopoly Gazprom has announced that it will build a new pipeline to Germany across the Baltic Sea. The plan is part of Moscow's campaign to control all its export routes to Europe, putting more pressure on both Belarus and Ukraine.

Boston, 26 November 2002 (RFE/RL) -- Russia's monthlong struggle with Belarus over gas supplies has ended with questions about how much has actually changed.

In October, the Russian gas monopoly Gazprom slashed its supplies to Belarus by half and threatened a complete halt for 15 November, citing gas diversions and growing debts. Instead, last week, Gazprom met with Belarusian officials in Moscow and agreed to give Minsk until 1 December to submit a debt-rescheduling plan. The gas supplies, which were never completely stopped, have apparently been restored to previous levels.

In between the two events, Belarusian President Alyaksandr Lukashenka scaled the rhetorical heights of his anger, accusing Moscow of "unprecedented pressure" and "attempts to shake us down." Lukashenka also told Belarusian radio that the country could turn to alternate sources of aid, saying: "Ask the Arabs, ask the West, ask America. They will help us despite our relations." Last week, 14 members of the European Union announced they would deny entry to Lukashenka for his human rights record in a possible sign of how little help he can expect.

Russia also issued a wide range of statements, demanding debt payments ranging from $80 million to $207 million. In the end, Belarus paid $11 million to keep the gas flowing until the end of the year, when a new contract with Russia begins. Belarusian Prime Minister Henadz Navitski pledged on 22 November that $150 million in arrears will be paid next year, Interfax reported.

Whether Belarus makes payments or not, Russia may have achieved one goal by persuading Minsk to privatize the state-owned pipeline company Beltranshaz by next July. The move allows Gazprom to claim a stake in the neighboring gas network in exchange for debt. Given Belarus's record of running up gas bills, Gazprom could gain control of the company by the end of next year.

Gazprom's deputy chief executive, Aleksandr Ryazanov, may have assured the success of the strategy by warning that Russia would only accept cash for limited deliveries of low-priced subsidized gas. Ryazanov said, "If Minsk fails to honor its debt obligations, the terms and conditions of next year's gas supplies to Belarus may be reconsidered."

Last June, the Russian government gave Belarus virtually cash-free access to fuel by allowing it to pay with sugar and automotive equipment. The tougher terms for next year may be a sign that Gazprom can no longer afford to pay for such political gifts from the government, which owns 38 percent of the company.

But Gazprom's new policy toward Belarus is more than ordinary business. The control of the Belarusian gas system is part of Russia's three-pronged effort to secure its strategic gas-transit routes to Europe. The problem of direct access to Russia's only profitable gas market has troubled Gazprom ever since the Soviet breakup. One of the monopoly's biggest challenges has been to avoid being monopolized by transit countries for exports.

While Russia maneuvers with Belarus, it continues to negotiate with Ukraine over terms for managing its transit lines, which carry more than 80 percent of Gazprom's exports. Its problems with Ukraine have been at least as bad as those with Belarus. After two years of talks, Ukraine still has not settled its $1.4 billion gas debt to Russia. And while Kyiv has agreed to form an international consortium to manage its decaying pipelines, it has insisted on retaining its control.

Gazprom's solution to resistance in Belarus and Ukraine is to pursue a new pipeline project through Finland and across the Baltic Sea. Gazprom is likely to win control over one of the routes eventually, if not all three.

Last week, Gazprom's board approved plans for the $3 billion North European Gas Pipeline crossing the Baltic to Germany by 2007 with connections to the exclave of Kaliningrad, as well as to Finland, Sweden, and Denmark. Annual capacity would be 30 billion cubic meters, or a little less than one-fourth of the volume that Russia delivers to Europe now.

The Baltic line would also roughly equal the current shipments through Belarus. Earlier plans have called for boosting transit through Belarus and Poland or adding a second line to bypass Ukraine. But the frictions with Lukashenka make it likely that Gazprom will turn back to Ukraine, with its pipeline capacity of up to 170 billion cubic meters, far more than the Baltic and Belarus routes combined. Lukashenka's poor relations with the EU may also disqualify him from becoming a major partner for gas supplies.

But there are signs that Russia is pursuing all three routes at once in order to keep its neighbors guessing. Neither Belarus nor Ukraine can afford to take Russian gas for granted as long as the threat of an alternate transit route to Europe remains alive. Last week, the industry newsletter "Petroleum Argus" said that some observers see the Baltic plan as "little more than a strategy to put pressure on states currently handling Russian gas in transit to European destinations."

Gazprom has yet to sign up investors for the project, raising suspicions that it may only be a ploy to gain control of access through Belarus or Ukraine. Russia's two neighbors may find out how serious it is over the next year.

Even if Russia does pursue the new Baltic route, the huge capacity of the former Soviet trunk lines through Ukraine still makes it the top prize in Gazprom's long game. Winning the dispute with Lukashenka could give Gazprom even more leverage as it keeps pressure on Kyiv.