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Belarus, Ukraine, and Moldova Report: January 25, 2007

A Belarusian Pawn On The Global Chessboard

By Victor Yasmann
January 23, 2007 (RFE/RL) -- While policymakers in the EU fret about Russia's reliability as an energy supplier, their counterparts in Russia interpret the conflict with Minsk differently. Economic Development and Trade Minister German Gref and Finance Minister Aleksei Kudrin argue that the rise of oil and gas tariffs for Belarus has more of an economic than political meaning.

They point out that Russia’s forthcoming entry to the World Trade Organization (WTO) requires the Kremlin to raise domestic prices to world market levels by 2011. This is impossible to do without first raising energy-export prices, which is precisely what Russia has been doing -- increasing gas and oil prices for its CIS neighbors.

However, another group of domestic analysts, many of them nationalist, interpret rising energy-export prices -- at least for a customer such as Belarus -- differently. They accuse "Western agents" within the government of Prime Minister Mikhail Fradkov of undermining the Russia-Belarus Union state agreement signed in 1997. One such critic, Mikhail Remezov, president of the Moscow-based National Strategy Institute, wrote on on 12 January that "the energy conflict makes the building of a Russia-Belarus Union state both impossible and meaningless."

An Alternative Future

One of the most provocative analyses of the Russian-Belarusian relationship has been put forth by Sergei Pereslegin, a specialist on alternative-future analysis who heads the St. Petersburg-based research center Modeling the Future. Pereslegin, who is reputed to have earned Putin's attention and respect, argues that the Kremlin has in fact revised its entire strategy toward Belarus.

Kremlin policymakers may eventually decide that political gains will offset the economic costs of absorbing Belarus.

Much of Pereslegin's argument can be found in his book "A Do-It-Yourself Guide To Playing On The World Chessboard," published in 2006. The book was intended as a Russian response to Zbigniew Brzezinski's "The Grand Chessboard" of 1997.

Lukashenka isn't looking at Russia from a position of strength (ITAR-TASS)

According to Pereslegin, the Kremlin has refused to fully incorporate Belarus into the Russian Federation -- not because this is not its ultimate goal. Rather, the Kremlin is merely biding its time. Kremlin policymakers believe that Belarusian President Alyaksandr Lukashenka's policies are bringing the country to a political and economic dead end. Russia only has to wait for "the fruit to ripen and fall into its hands."

Belarus is completely economically and politically dependent on Russia, according to Pereslegin. The Belarusian economy cannot exist independently of Russia's raw materials, which provide energy for Belarus's own industrial production. And Russia provides the only market for these finished products.

Moreover, cheap Russian oil helps Lukashenka's internationally isolated regime maintain its political stability. Belarus imports and refines annually about 17 million tons of Russian oil, but consumes only 4 million tons. The rest Minsk sells to the West at market prices. The revenues from these sales underwrite Belarus's generous social-welfare programs. In this way, not only Belarus's economic but also its social order depends on Russia.

Pereslegin also notes that Lukashenka's regime has no "national project" like that of neighboring Ukraine, which has been building its own independent state for more than a decade.

Belarus's leadership, on the other hand, has relied on tactics without a strategy or a strategic objective, such as an independent state. Lukashenka has backed himself into a tight corner: He has no other option than to push for the quickest union with Russia conditional on the preservation of his own status as president of an "independent Belarus."

"For the Kremlin it is clear that Belarus eventually cannot avoid joining Russia and the only agenda to discuss is the details of the integration," Pereslegin writes. Pereslegin suggests the Kremlin has in mind only one scenario: full reintegration through the incorporation of all six of Belarus's administrative areas plus Minsk as new oblasts of the Russian Federation.

Kremlin policymakers believe that Lukashenka's policies are bringing the country to a political and economic dead end.

Under this arrangement, Belarus would not even have the same status as the republics of Tatarstan or Bashkortostan. According to Pereslegin, Putin bluntly made this offer to Lukashenka in 2004, who angrily rejected it. "One can understand [Lukashenka's] position, since it would not only mean the inglorious end of the 'Republic of Belarus' but harshly upend the position of the Belarusian elite, including that of Lukashenka himself, " Pereslegin comments.

But Putin is remaining firm, unmoved by Lukashenka's growing discomfort. According to Pereslegin, Putin knows Belarus has no choice. In fact, Russia will win more concessions the longer it delays the "acquisition" of Belarus. The more time that passes, the more "profitable" the Union Treaty will be for Russia, whose businesses will be able to come in and replace the owners of Belarusian assets.

Biding Its Time

At the present time, Russia would pay too high a price to absorb the unreformed, paternalistic economy of Belarus, according to Pereslegin. The Russian economy is more open and market oriented than the Belarusian economy, which responds to the decrees of Lukashenka rather than market forces.

Another problem is that the 10 million-strong Belarusian population has an average annual income lower than that of Russia. Well educated and technically proficient Belarusian workers earn lower wages than their Russian counterparts. They are now employed mostly in the machine-building sector, whose products are exported to eager Russian industrial enterprises.

Belarusian exports depend heavily on the Russian market (RFE/RL)

Full integration could trigger a massive influx of migrants from Belarus to Russia, which could trigger both social tension and a reduction of Belarusian industrial exports to Russia because of labor shortages.

However, Kremlin policymakers may eventually decide that political gains will offset the economic costs of absorbing Belarus. The Putin government could score a big political success by retaking "lost Russian lands." What's more, Russia-Belarus integration could "create momentum for further integration and political pressure on Ukraine and Baltic states," Pereslegin suggests.

Pereslegin notes that timing is the critical issue. The conditions have to be right. First and foremost, the resources of the United States and European Union must not be allied against the project. Second, Russia would need to quickly generate additional economic growth from the absorption of Belarus to offset the costs of the incorporation of new territories. These criteria relate not only to Belarus but also to any further efforts to reintegrate former Soviet states.

These conditions, in Pereslegin's view, do not yet exist, but they are achievable in the medium-term. In the meantime, it will be expedient for Russia to delay formation of the union state, leaving Lukashenka dangling as if over a precipice.

PACE President Calls For Democratic Change In Minsk,

Van der Linden discusses his trip during a press conference in Minsk

MINSK, January 19, 2007 (RFE/RL) -- The highest-ranking European diplomat to visit Belarus in years called today for democratic change and the release of political prisoners during a speech at Belarusian State University.

Rene van der Linden, the president of the Council of Europe’s Parliamentary Assembly (PACE), also met with government officials, opposition leaders, and the wife of a political prisoner in the course of a two-day trip that concluded today.

The top government official to meet with van der Linden was parliament speaker Vladimir Konoplyov.

Open To Discussion

But the PACE president did not rule out a potential future visit with the country's authoritarian president, Alyaksandr Lukashenka.

"This first visit is a visit between the speaker of parliament and the president of the Parliamentary Assembly, on the parliamentary level," van der Linden said. "I don't exclude, if we see real positive steps, that next time there will also be a meeting with the president."

Van der Linden was speaking today at a press conference in the Belarusian capital. He also called for an international fact-finding mission into what opposition leaders say is the country’s growing ranks of political prisoners.
"I don't exclude, if we see real positive steps, that next time there will also be a meeting with the president." -- van der Linden

"Even if there is a dispute whether there are political prisoners or not, let's ask international experts and accept the outcome of this fact-finding mission by experts," van der Linden said.

During his visit, van der Linden met with government officials, NGO representatives, students, and opposition leaders.

After meeting with the PACE president, the country’s main opposition leader, Alyaksandr Millinkevich, said he hoped the Dutch official’s visit would spur reforms.

Milinkevich said his decision to come to Belarus represented “a last chance” for Lukashenka’s iron-fisted regime to forge ties with Europe.

“Once again, a hand has been extended to the Belarusian authorities," he said. "They weren't even required to take the first step of improving the situation with democratic institutions. [The European officials] just came. The authorities will not get a better gift than this. Now they must make reforms, political and economic."

But the opposition leader added that he was skeptical, because previous European offers have amounted to nothing. Yet, “hope springs eternal,” he said.

Long-Isolated Belarus

Belarus has long been suspended from the Council of Europe, and Lukashenka has been isolated by the West for crushing human rights, suppressing independent media, and rigging elections.

Anatol Krasutski, a parliament deputy, told RFE/RL that the Council of Europe should reconsider its decision to expel Belarus.

"This is not only a question of Belarus's need to take steps [toward Europe]," Krasutski said. "Logical steps should also be taken by the Parliamentary Assembly of the Council of Europe, which -- as early as 2003 and for no special reason -- unilaterally shut the door, in practice, to the Belarusian parliament."

On his arrival at the Minsk airport on January 18, local news agencies quoted van der Linden as saying that he hoped Belarusian officials “understand isolation is not a way to the future” and that a dialogue could begin during his visit.

Local officials signaled their own position. Parliamentary speaker Vladimir Konoplyov said during his meeting with van der Linden that politicians would “consider various questions” but also “defend our point of view."
"The authorities will not get a better gift than this. Now they must make reforms, political and economic." -- opposition leader Milinkevich

Anatol Lyabedzka, the chairman of the opposition United Civic Party, told RFE/RL after his meeting with the PACE official that his visit has already produced modest opportunities for dialogue between the European community and Belarusian authorities, as well as between the authorities and the opposition.

"This visit may already be meaningful, in that the Europeans may realize once again that their expectations regarding the Belarusian regime are excessive," Lyabedzka said. "We [in the opposition] cannot say no to efforts to promote new dialogue. We're interested to see whether the government will change the strategy they've been following for the past 12 years. I'm not convinced that Lukashenka is even psychologically ready for this, but every little bit helps."

Just last week, Belarus and Russia ended a bitter row over energy prices and taxes that saw Russia halting oil supplies for several days in a key export pipeline. Relations between the two traditional allies have significantly cooled, and observers are asking whether this is a window of opportunity for Europe to try and bring Belarus closer to the West.

While in the country, van der Linden also met with the wife of jailed opposition political figure Alyaksandr Kazulin, currently serving a 5 1/2-year sentence for organizing protest rallies following Lukashenka’s victory last March in what the West called a rigged election.

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

Ukrainian Foreign Minister Touts Need For Common Energy Rules

Borys Tarasyuk

January 16, 2007 (RFE/RL) -- Controversy continues around Ukrainian Foreign Minister Borys Tarasyuk. Parliament has dismissed him from his position, but President Viktor Yushchenko signed a decree bringing him back into office. RFE/RL Ukrainian Service correspondent Marianna Dratch spoke to Tarasyuk on January 15 during his visit to the Czech Republic.

RFE/RL: The oil conflict between Russia and Belarus has been taken care of and Europe has sighed in relief. But an unpleasant aftertaste remains for many. How do you assess what happened between Moscow and Minsk? What lessons has Ukraine learned from this?

Borys Tarasyuk: Ukraine went through a similar unpleasant situation a year ago. Actually, Ukraine's experience propelled the EU, united Europe to react to these types of situation through a new energy strategy. As we all know, the EU is currently working according to this new strategy. This is the result of last year's standoff between Ukraine and the Russian Federation. A year later, this standoff is being repeated, this time with Belarus. United Europe and every country for that matter should work to reduce its dependence on a single energy source. First of all, we need to diversify energy supplies and, secondly, we must develop and adopt common rules, which are the same for all, whether it is Russia, Ukraine, and Germany.

RFE/RL: On whose side was Ukraine in this conflict? Do you believe that Ukraine maintained a neutral position?

Tarasyuk: Certain statements were made by government members, in my opinion these statements were not very tactful as regarding Belarus. These comments made no sense, as Ukraine had no possibility to change the transit route of Russian oil to a united Europe. The very same oil pipeline, which goes through Belarus, continues through Ukraine. This is one pipeline. In this instance, our sympathies should be with a single set of rules, a single set of standards, which are dictated by the European Energy Charter. Ukraine is a part of this charter. If all countries abided by the provisions of this charter, we wouldn't have such critical situations.

RFE/RL: What is the future of the Odesa-Brody pipeline? For years, talks have continued on this topic. Can you tell us when Caspian oil will begin flowing through the Odesa-Brody pipeline? Will this day ever come?

Tarasyuk: This could happen in 2008-09. The issue here is not the unwillingness of certain politicians, but the real presence of oil resources. According to our plans, this will happen in 2008-09.

RFE/RL: Belarusian President Alyaksandr Lukashenka recently called on Ukraine to join Belarus in forming a common energy front in relations with Russia. Should we expect such a front next month, in February, when the presidents of Ukraine and Belarus are scheduled to meet?

Tarasyuk: I wouldn't talk about such a meeting as a certainty.

RFE/RL: Lukashenka has said that this meeting will take place.

Tarasyuk: There is a proposal and it is being considered. It's too early to talk about the timing of this visit because for us the results of a meeting are more important than the meeting itself.

RFE/RL: What about an energy front vis-a-vis Russia. Is this possible?

Tarasyuk: I think that in this type of war, no one can win. Military terminology is inappropriate here. The issue here is cooperation and mutual interest. Do they exist for Ukraine and Belarus? Yes. Is there the possibility to unify these interests, yes there is, for Ukraine as well as for Belarus.

European Integration

RFE/RL: Let's talk for a bit about your visit to the Czech Republic. Czech President Vaclav Klaus, a declared Euroskeptic, has just said that joining the EU did not bring the people of the Czech Republic or Slovakia any considerable gain. How do you read this statement? Will you try to determine what this really means?

Tarasyuk: Certainly, being here in Prague, I will try to determine what led to such a sentiment. The information that I have shows that both the citizens and business community of new EU members benefit from EU membership. Perhaps there is something unique about the Czech Republic; I will try to ascertain this.

RFE/RL: The Czech Republic traditionally underscores that it has always supported and will continue to support Ukraine's "Eurointegration" course. In Ukraine, the issue of a NATO referendum is being discussed, possibly before realistic talks about membership even begin. What can the consequences of such a referendum be for Ukrainian "Eurointegration"?

Tarasyuk: In 2005, [then Foreign] Minister Cyril Svoboda and I signed a document outlining our European and Euro-Atlantic integration cooperation priorities. Today, we will be signing additional documents, which will make concrete our European cooperation. As for the referendum, I personally see no sense in conducting such a referendum because opinion polls show that Ukrainian society is not ready for such a referendum. If a referendum must be conducted on this issue, then it should be done no sooner than 2008-09. In any case, as far as I know, the [Ukrainian] president intends to pass this question onto the Ukrainian Constitutional Court for consideration.

RFE/RL: Is the Ukrainian government doing enough to inform Ukrainian society about NATO? While he was in Washington, D.C., last December, Prime Minister [Viktor] Yanukovych promised to devote much effort to this issue. What is really happening?

Tarasyuk: Yes, a promise was made to become more active in this regard and to engage the entire government in this endeavor.Allow me to quote some figures. In 2006, 5.2 million hryvnyas [slightly over $1 million] was budgeted for this. In 2007, only 5 million. So we see that declarations differ from deeds. Ukraine enacted an information program, which was to be enforced in 2004 through 2007. This program should be carried out. As far as this is concerned, just in the past year the Foreign Ministry has done an awful lot to realize this program. We hope that concrete steps will follow the government's declarations.

Odesa-Brody Pipeline Potential Still Unfulfilled

By Roman Kupchinsky
January 12, 2007 (RFE/RL) -- EU ministers are asking the same questions they asked in January 2006 when Russia halted supplies of gas to Ukraine: Is Russia a reliable fuel supplier, or is it using energy as a weapon to reestablish hegemony over the former Soviet space?

But the question that is not being asked is why Russia's crude-oil customers within the EU find themselves so heavily reliant on the Druzhba pipeline. Have no alternative routes been considered in the past, and if there were, why were they rejected?

A case can be made that Russian skullduggery, combined with European miscalculations and inactivity, set the stage for recent events. This is best illustrated by the case of the Odesa-Brody pipeline in Ukraine.

Origins Of A Pipeline

Ukraine built the 674-kilometer Odesa-Brody pipeline in the hope of competing with other routes for the lucrative job of moving Caspian oil to the West. Azerbaijani and Kazakh crude oil, a high-quality blend, needed to avoid being transported by Russian pipelines where it could mix with the sour Urals blend.

Constructing the Odesa-Brody route, which runs from the Black Sea to the Polish border, was seen as the ideal solution. The pipeline's first phase was put into operation in May 2002. It boasted a throughput capacity of 9 million tons with the capability to reach 14.5 million tons yearly.

This pipeline was intended to transport Caspian oil from the newly built Pivdenny terminal to the existing Druzhba pipeline for transport to European refineries. From there it would be sold to distributors in Europe and elsewhere. Both projects came under the direct jurisdiction of the Ukrainian state-owned oil and gas monopoly, Naftohaz Ukrayiny, and its subsidiary company, UkrTransNafta, the manager of oil pipelines in Ukraine.

As these projects were under construction, "Alexander's Oil And Gas" on June 9, 2000, reported that U.S. Energy Secretary Bill Richardson said the U.S. government supported Ukraine's plans to build the new Pivdenny oil terminal and the Odesa-Brody oil pipeline. Richardson added that the new terminal would help Ukraine diversify its energy sources and thus make the country less dependant on Russia.

The Ukrainian side was encouraged by the European Union and the United States to build the Odesa-Brody pipeline. However, after it was completed, Ukraine did not have the money required to fill it with Caspian crude and none of the European states were willing to build the connecting pipelines needed to link Odesa-Brody to refineries. As "Stratfor Commentary" noted on September 8, 2003, "The end result was that Kiev found itself saddled with a white elephant rusting picturesquely in the Ukrainian countryside."

A New Direction

But serious doubts were also expressed as to the direction oil in the Odesa-Brody would take. Matthew Sagers of Cambridge Energy Research Association was quoted by Interfax on August 15, 2003, as saying that there was no demand for Caspian oil in Northern Europe due to its high price and that there would be no problems if the pipeline were to transport oil south, to the Pivdenny terminal and then via the Bosporus. Sagers claimed that an additional 9 million tons of oil per year would not overburden the heavily trafficked straits.

At this time the Russian-British firm TNK-BP began a massive lobbying campaign in Kyiv to reverse the flow of the Odesa-Brody -- sending its oil south to the Black Sea.
Despite a decision by Ukraine's Cabinet of Ministers to send oil in the northerly direction, Ukrainian President Leonid Kuchma suddenly began agreeing that Russian oil should be put into the pipeline and pumped south.

On April 29, 2003, the head of Kazakh state oil firm KazMunaiGas announced that Kazakhstan would start filling the Odesa-Brody pipeline in the second half of that year and that a deal had been made with other members of the Tengizchevroil consortium that included ChevronTexaco, ExxonMobil, BP, and LUKoil to supply 6 million tons per year to the pipeline. The only matter that needed clarification was the price the Ukrainians would charge.

The Astana headquarters of Kazakhstan's KazMunaiGas (official site)

"The Moscow Times" quoted the Kazakh official as saying that the interested Western companies were completing commercial negotiations with oil refineries in Southern Europe to receive their oil from Odesa-Brody and that initial agreements had been reached.

But despite a decision by Ukraine's Cabinet of Ministers to send oil in the northerly direction, Ukrainian President Leonid Kuchma suddenly began agreeing with Russian oil majors that Russian oil should be put into the pipeline and pumped south.

Russia Gets A Boost

The TNK-BP lobbying effort was apparently making progress. On April 28, 2003, Interfax-Ukraine announced that Kuchma said at a press conference that "the shipment of Caspian oil via the Odesa-Brody pipeline is unlikely to take place because it would be a money-losing proposition, so Ukraine must reconsider the use of the pipeline for Russian oil shipments from Brody to Odesa." This view was rapidly seconded by Deputy Prime Minister for Fuel and Energy Andriy Klyuyev.

Interfax quoted the Ukrainian president as saying that "the fact is that, as of today, there is neither a Caspian oil seller nor a buyer. Visit Baku and speak to analysts and learn if there is Caspian oil. There is none and there will not be any. As for Russian oil, it exists, and we can earn $90 million in profits from the reversed use of the pipeline."

The following day, U.S. Deputy Assistant Secretary of State for European and Eurasian Affairs Steven Pifer strongly contradicted Kuchma's statement and said that Ukraine had not done anything to insure Caspian supplies that could fill the Odesa-Brody pipeline. Pifer reminded the Ukrainian president that Germany and Slovenia both had refineries working with Caspian oil and that Ukraine was in an excellent position to utilize its pipeline to send Caspian oil to these refineries. Interfax-Ukraine, which reported Pifer's statement, also added that Pifer went on to say that if Ukraine wanted to integrate into Europe, "this is a wonderful way to unify its energy system with the European one."

A pressing issue over the years was where Kazakh oil would be routed. The United States and Europe were placing their money into the construction of the $3 billion Baku-Tbilisi-Ceyhan (BTC) pipeline. This pipeline, when finished, would have a throughput capacity of 1 million barrels per day. But for it to be commercially viable, it would need Kazakhstan to send its oil through it.

Kazakhstan Comes Up Short

A few weeks after the KazMunaiGas announcement, the Kazakh ambassador to Ukraine made an unexpected statement contradicting the head of his country's gas and oil monopoly. Speaking to reporters in Kyiv on May 19, 2003, Interfax-Ukraine quoted him as saying that Kazakhstan, in fact, did not have the required oil to fill Odesa-Brody. Why this rapid about-face took place was not explained.

It is inconceivable that the Kazakh ambassador would make such a statement without the approval of Kazakh President Nursultan Nazarbaev and without the knowledge of KazMunaiGas. In effect, the revelation that there was no oil available for Odesa-Brody from Kazakhstan immensely strengthened TNK-BP's (and Kuchma's) hand and seemed to deal a serious blow to the effort to diversify Caspian oil-transit routes.

In mid-June 2003, Russian Industry and Energy Minister Viktor Khristenko traveled to Kyiv, where he met with Serhiy Tulub, the Ukrainian minister for fuel and energy. A few days after this meeting, Khristenko sent a letter to Tulub explaining his government's position on the Odesa-Brody pipeline. According to Interfax on June 18, 2003, the Russian minister wrote that Russia was not interested in seeing Odesa-Brody flow in a northerly direction -- to Brody. Khristenko explained this by saying that there were no markets for Russian light oil in Northern Europe and that sending oil north to Brody would destabilize the markets in Southern Europe for Russian and Kazakh light oil.

Khristenko said Russia was still interested in seeing the Odesa-Brody pipeline used in reverse mode, but at lower volumes than originally planned. In effect, he was telling the West that Odesa-Brody was off-limits.

At the same time, Khrystenko noted that Russia was still interested in seeing the Odesa-Brody pipeline used in reverse mode, but at lower volumes than originally planned.

In effect, Khristenko was telling the West that Odesa-Brody was off-limits to them. The argument that Russian light crude did not have a market in Northern Europe was somewhat exaggerated since most Russian crude is Urals blend. Khristenko also chose to speak on behalf of the Kazakh oil industry, which had already agreed to supply oil to fill the Odesa-Brody pipeline.

The Yuzhny terminal of the Odesa-Brody pipeline (TASS file photo)

Writing in "The Wall Street Journal Europe" on October 10, 2003, former Reagan-era national security adviser Robert McFarlane noted: "When Ukrainian Prime Minister Viktor Yanukovych was in Washington this week, certainly one issue for discussion was last week's decision by Ukraine's state pipeline company to move forward toward reversing the use of the Odesa-Brody oil pipeline in Russia's favor.... Russian oligarchic interests, however -- with Britain's BP unfortunately in tow -- wish to use that pipeline themselves, in the opposite direction.... This would cancel all the hopes that had been vested in the Ukrainian pipeline."

Return To Sender

David O'Reilly, the head of ChevronTexaco, sent a letter to Kuchma on January 29, 2004, in which he wrote, "We are prepared to continue to work actively with UkrTransNafta and the other pipeline along the route to implement this project and make shipment through Odesa-Brody to Central Europe a reality." The letter has apparently gone unanswered.

It was only in August 2005, with oil prices skyrocketing and Russian behavior becoming more aggressive, that the EU realized the value of Odesa-Brody as an alternative route for Caspian oil to reach Europe. The European Commission agreed to award a contract to a consortium of European companies to finalize the technical, economic, and legal studies required for the construction of the pipeline to the Polish refinery in Plock, Poland.

The press release issued by the European Commission to Ukraine and Belarus on August 8, 2005, noted, "The construction of the Black Sea-Ukraine-Poland oil transportation corridor is a crucial infrastructure project in the context of EU and Ukrainian policies for security of oil supplies."

According to the latest reports, little if anything has been done by this consortium of European companies to further the project to completion.