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Russia: Gazprom May Abandon Cooperation Deals With Belarus, Leaving Minsk In Economic Lurch

Russian gas giant Gazprom last week announced it intends to cut subsidized natural-gas sales to Belarus and cancel other cooperative agreements. The step, which has the backing of the Russian government, may prove a brutal blow to Belarus's shaky economy.

Prague, 10 September 2003 (RFE/RL) -- Russia's natural gas giant Gazprom announced last week it is raising the price of gas shipments to Belarus. It also said it will not proceed with the purchase of Belarus's state-owned gas company Beltransgaz, saying Minsk's terms were unacceptable.

Neither decision is final, but both have the support of the Russian government, and if implemented are likely to wreak havoc with Belarus's weak economy.

From a Russian standpoint, the stance appears to make good economic sense. Ksenia Judayeva, an analyst with the Moscow Carnegie Center, says, "This economic decision needed to be made a long time ago. I can't understand why Russia has subsidized the Belarusian economy. Belarus buys gas at a very low price. We sell gas abroad for rather high prices, but then directly subsidize the Belarusian economy. From this point of view, I think this measure [by Gazprom] is completely justified."

Right now, Gazprom sells gas to Belarus at the same price that it charges within Russia: $28 per 1,000 cubic meters. The price Gazprom charges to neighboring Ukraine for its natural-gas purchases -- $50 per 1,000 cubic meters -- is nearly twice that. And other former Soviet republics pay even more.

"The attitude of Gazprom is that the consumers should cover the cost of the [gas] extraction and transportation, as well as a normal profit for the company," says Gazprom spokesman Igor Plotnikov. "At this time, [this price] comes to nearly $80 per 1,000 cubic meters. This is the price which is profitable for us and acceptable for buyers in the Baltic States -- Lithuania, Latvia, and Estonia -- and also in Moldova."

Plotnikov says Ukraine pays less for its natural-gas purchases because Gazprom uses Ukrainian pipelines to pump its exports to the West. The price of transit is automatically subtracted from the cost of the gas.

Gazprom was hoping to find an alternative export route to the West through Belarus, and had sought control of the state pipeline company Beltransgaz. But negotiations on the deal were suddenly terminated last week after Minsk -- which had asked for $5 billion -- rejected Gazprom's offer of $1 billion.

Now Gazprom may be threatening higher natural-gas prices to force Minsk to reconsider. Judayeva says Gazprom is eager to expand its pipeline network as much as it can.

"Russia has several routes to export gas to the West. In each case, the gas travels through third-country territory. This puts Russia in a situation where it would be beneficial to have some competition between the pipelines. It isn't good to be dependent on one country. So in this case it's good, and important, to control pipelines in both Ukraine and Belarus," Judayeva says.

Additional pressure on Minsk may come from the Russian government, which has voiced support for Gazprom's threatened price hike. The gas giant has also requested that Moscow suspend negotiations with Belarus on the creation of a joint gas transport company and a unified gas pricing policy.

The move comes as just the latest blow to Belarusian President Alyaksandr Lukashenka's years-long aim of creating a Russia-Belarus Union. The idea has so far amounted to little more than a series of declarations, with almost no real progress in integrating the two countries.

Russian analysts say that Moscow is trying to take advantage of Lukashenka's pariah status in the West by snapping up Belarusian companies on the cheap. But theories vary on the latest disagreement with Gazprom. The Russian "Kommersant" daily says the move may be Moscow's retaliation for Lukashenka's recent refusal to adopt the Russian ruble in 2005, as previously agreed.

The economic consequences of Gazprom's move range from uncertain to catastrophic. The Belarusian Energy Ministry last week convened a crisis meeting in Minsk to discuss the situation. Afterwards, a Belarusian official told Agence France-Presse the threatened price hike would cost Minsk, which is totally dependent on Russia for its gas supplies, an extra $100 million a year. Speaking on condition of anonymity, the official said "the Belarusian economy isn't ready for that" and expressed some hope that Belarus might instead be moved to a "Ukrainian" price level.

Some Belarusian authorities are more optimistic. An Energy Ministry spokesperson says there is no sense of impending panic in the ministry, and that Belarus has had experience in adjusting to price hikes in the past. The spokesperson added that since most of Belarus's manufactured goods are sold on the Russian market, it is only reasonable to expect the cost of Belarusian trucks, for example, to go up in the near future.

Susanna Briksiova represents the International Monetary Fund in Lithuania and Belarus. She says Gazprom's price hike and Minsk's new plan to raise wages may have a negative impact on at least half of the country's enterprises.

Judayeva of the Moscow Carnegie Center says Moscow's natural-gas subsidies have long distorted trade relations between the two countries and have kept Belarus from proceeding with much-needed economic reforms. She says she has some hope the gas price hike will push Lukashenka toward market reform.

"Higher prices for gas [theoretically] could become the cause for some reforms [in Belarus]. However, [Belarus is different from the Baltic states]. If in the Baltic states the rise in prices at the beginning of 1990s was a serious stimulus for reforms, especially when they wanted to join the EU and so on. Lukashenka may act differently. He may start an anti-Russian campaign and blame Russia for everything, and then use the wave of this demagogy to keep himself in power for some time," Judayeva says.

Compromise is still possible. Negotiations between Gazprom and Belarus on new gas prices are due to begin in October.

(RFE/RL's Belarusian Service contributed to this report.)