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Belarus, Ukraine, and Moldova Report: August 2, 2007

Belarus's Gas War With Russia Reaches New Level

By Jan Maksymiuk

Presidents Lukashenka (left) and Putin are no longer on such pleasant terms (file photo)

August 2, 2007 (RFE/RL) -- Gazprom announced on August 1 that, starting on August 3, it will reduce its gas supplies to Belarus by 45 percent to reflect the level of payment for Russian gas by Belarus this year.

Under a contract signed on December 31, 2006, between the Belarusian government and the Russian state-controlled gas monopoly, Belarus has to pay $100 per 1,000 cubic meters of Russian gas in 2007, compared with $46.68 during the previous 2 1/2 years.

Gazprom allowed Belarus to pay 55 percent of the contract price in the first six months of 2007. Minsk promised to pay off the accumulated gas debt by July 23 but failed to do so. Belarus's debt to Gazprom now stands at $456 million.

In the past few weeks, Belarus held a series of talks with Russian government officials about the gas-debt repayment both in Moscow in Minsk, but apparently failed to reach a satisfying agreement.

Reassuring Nervous European Customers

Meanwhile, Gazprom spokesman Sergei Kupriyanov assured Gazprom's European customers that they do not have to be worried about the forthcoming reduction of gas pressure in Belarusian pipelines.
"It is the beginning of another stage of Russia's policy of pushing Lukashenka into a corner. Now Russia and the Kremlin are using Lukashenka as both an object and a tool for the economic subjugation of Belarus."

"The daily delivery of gas to Belarus will be reduced approximately by 21 million cubic meters from 10 a.m. on August 3," he said. "That is about 45 percent of Belarus's daily consumption. At the same time, the volume of gas transit across Belarusian territory for our customers in third countries will remain the same."

Gazprom pumps one-fifth of its gas exports to Europe via Belarus to customers in Poland, Lithuania, and Germany.

The European Commission, through its spokesman Martin Selmayr, showed immediate concern for this new gas spat between Belarus and Russia.

"We take these developments very seriously and we believe [that] both sides [will be able] to resolve the dispute without any delay and to create conditions for the timely resumption of the deliveries," Selmayr said on August 1.

Latest Battle In Gas War

This is now the third time that Minsk and Moscow have been at loggerheads over the payment for Russian gas.

In 2004, Gazprom refused for five months to sign an annual gas contract with Belarus, pressuring Minsk to accept a higher price and sell Beltranshaz, Belarus's gas-pipeline operator, on favorable conditions.

At that time, Belarusian President Alyaksandr Lukashenka went as far as to accuse his Russian counterpart, Vladimir Putin, of practicing economic "terrorism" on Belarus.

In 2004, Belarus agreed to pay a higher price for Russian gas but retained Beltranshaz intact.

However, much harder times came at the end of 2006, when Minsk was forced by Moscow into accepting a deal under which Gazprom more than doubled the gas price for Belarus in 2007 and finally received a 50 percent stake in Beltranshaz for $2.5 billion.

Moreover, the deal provided for a gradual increase of gas prices for Belarus to the European market level by 2011. In early 2007, Russia also imposed a sizable duty on crude-oil exports to Belarus, thus painfully cutting into Minsk's lucrative business of reexporting refined Russian oil to Europe.

Rock And A Hard Place

In direct response to these Russian moves, Lukashenka made a number of politically incoherent statements in January, which suggested that Belarus might open its economy to Western investors and abandon its plans of close integration with Russia. But in subsequent months, Lukashenka toned down the anti-Russian rhetoric and forgot about his overtures to the EU, which met them rather coldly and disbelievingly.

Vintsuk Vyachorka, the leader of the opposition Belarusian Popular Front, thinks that Gazprom's threat to reduce gas supplies to Belarus is a logical step in Russia's drive to absorb Belarus economically.

Are Belarusians ready for another hike in gas prices? ( file photo)

"It is the beginning of another stage of Russia's policy of pushing Lukashenka into a corner. Now Russia and the Kremlin are using Lukashenka as both an object and a tool for the economic subjugation of Belarus," Vyachorka says. "They are following this course pragmatically. It is apparent that, in this situation, the only way out for Belarus would be to urgently meet all conditions of the European Union and take advantage of European programs of energy security, investments, technologies, etc."

Anatol Lyabedzka, the leader of the opposition United Civic Party, believes that in refusing to pay the gas debt, Lukashenka is trying to gain time and see who will be in control in Moscow after parliamentary elections in December and a presidential election next year.

"I think [the threat] is a direct reaction to the fact that Lukashenka does not want to have straightforward dialogue [with Putin]," he says. "He wants to play for time, he's waiting for the start of an election campaign in Russia -- in order to establish contacts with a new master in the Kremlin. But it is being suggested to him that, notwithstanding the start of an election campaign, there will also be time for pressuring official Minsk."

Few Options

Russian political expert Mark Urnov is of the same opinion. Urnov told RFE/RL's Belarus Service that despite's Lukashenka great popularity in Russia, particularly among older people, he is unlikely to stir the Russian voters' sentiments to the extent that the Kremlin could write off Belarus's gas debt.

"I don't think that Russia would now back down [on Belarus's gas debt] -- because the elections [in Russia] are beginning on a wave of imperial feelings," Urnov says. "It would be very hard to convince the public that it is necessary to forgive [Lukashenka] everything, while he keeps on refusing to pay."

It seems unlikely that Lukashenka, cornered by Moscow for the second time in seven months, will once again start making overtures to the EU, let alone meeting some EU demands for democratization, in order to get some help from Brussels.

It should rather be expected that Lukashenka will once again launch a media campaign accusing the Russian leadership of ill-will in dealings with its closest and truest ally. If such a campaign proves fruitless, Belarus will pay the debt.

Belarus's foreign-currency reserves reportedly stand at $3 billion. So there is no danger of any immediate default or economic collapse for Belarus. But the situation may become tough for Lukashenka in the medium term, when Minsk will gradually have to pay much more for Russian gas than it does now.

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

Gas Row Raises Concerns For Economy's Health

Vitali Silitski (file photo)

August 2, 2007 (RFE/RL) -- Russian gas monopoly Gazprom announced on August 1 that it will cut gas supplies to Belarus by 45 percent as of August 3 because of an unpaid gas bill of $456 million for deliveries in the first half of 2007. The move could be problematic for the government of hard-line President Alyaksandr Lukashenka.

The country's economic stability -- or what Belarusian officials call an "economic miracle" -- has been largely due to cheap energy and favorable loans from Russia. RFE/RL correspondent Luke Allnutt asked Vitali Silitski, the director of the Belarusian Institute for Strategic Studies, about how the move could affect the Belarusian economy.

RFE/RL: Is Belarus on the verge of economic collapse?

Energy consumption [compared] to GDP in Belarus is perhaps double what it is in Central Europe.

Vitali Silitski: Not at all. The problem is rather technical and, as a matter of fact, if they wanted to pay that, they would have. It's more the political and economic maneuvering by the Belarusian side that led to this situation. Talking about the issue in question, it's about $500 million, and if they had wanted to pay it they could pay it with the money they received from the sale of [gas-pipeline operator] Beltranshaz.

RFE/RL: So why don't they pay?

Silitski: That's a very good question. There are several versions. One of them is that they are trying to use the debt as a pretext to get a new Russian loan and that they're sort of stocking up money in advance. The issue is not the economic difficulties right now, but the economic difficulties they would face in the future when the prices grow. So I think they wanted to receive a Russian loan in advance.

RFE/RL: So gas prices in 2011 will rise to reach EU levels. You mentioned that in the short-term Belarus won't face any immediate economic difficulties, but in the medium and long terms could they face problems?

Silitski: If they're not capable of adjusting to these prices then, of course, they will. So it's no question.

RFE/RL: What do you think the Belarusian economy needs to do to adjust?

Silitski: Well, they have to start reforms that have been delayed for a decade and a half, starting with the energy sector and going down to privatization and restructuring of the economy. One of the reasons why this energy conflict is so prominent is that [Belarus] has just got used to their low energy prices for so long and the state-owned enterprises are just not that efficient.

A polymer factory in Navapolatsk ( file photo)

Probably energy consumption [compared] to GDP in Belarus is perhaps double what it is in Central Europe. They are trying to avoid privatization, but then it cost them. Right now their short-term strategy is to replace any serious restructuring of the economy by just borrowing.

RFE/RL: And why are the Belarusian authorities trying to avoid restructuring of the economy?

Silitski: Just because it is an issue of political control.

RFE/RL: Meaning if, for instance, there was a factory that employs 30,000 people...

Silitski: Absolutely, if they started employing 5,000 people, what do you do with 25,000 people? And if you give away property into private hands, how do you control it and another bunch of issues.

RFE/RL: There have been hints from Belarusian officials that they do want to privatize, perhaps not big enterprises, but at least small- and medium-sized enterprises. Are there are any realistic signs that Belarus could begin a privatization program?

Silitski: This government will not start any privatization until all other options have been used, and right now they're running out of options. Right now they're trying to replace privatization with state-run modernization of state-owned enterprises again by using foreign borrowing and just a few weeks ago they announced a major modernization of the cement industry and again they refused to privatize. [Instead] they want to borrow some half a billion dollars on the international markets to invest in these enterprises. So that's their strategy. They will pursue it until a) the external resources, the loans, are unavailable; and b) they encounter the situation where they have to privatize. But it will be a very difficult decision for them for the reasons I just mentioned.

RFE/RL: And turning to Russia's relations with Belarus. Has Putin now had enough of Lukashenka?

Silitski: I don't know whether it is really a political issue right now. It's not clear for me. They just failed to pay their debts and the one thing Russia wants from Belarus right now is money. Such situations were frequent a decade ago, but at that time it was pretty easy for Lukashenka to get some postponement or be forgiven the debt, but [this situation] is no longer. So Russia is definitely getting more tough on Lukashenka.

RFE/RL: And apart from Russia, is there anywhere else Belarus could get the money from?

Silitski: Oh, very easily. It's not an issue of politics all the time. Private borrowing is private borrowing. It is given by private commercial banks. Unlike Russia, Belarus has a very good record dealing with Western partners in terms of borrowing and returning debts. And interest rates that Belarus will be charged will be higher than in [Western] Europe, so it's pretty profitable to loan money to Belarus. Also there are these fraternal states like Venezuela, etc. But it's not that important, it's not that big money compared to Europe and Russia.

RFE/RL: Some analysts have said that in the long term this could be good for Belarus as it could be forced into market liberalization and that could mean, in turn, more political freedom. Do you think that's an accurate analysis?

Silitski: Well, in the long term, without doubt. Yes, I sort of think it will be good for Belarus. But the relationship between economy and politics is not linear. Even if the [Belarusian authorities] go for some economic reform, they will do it only to the extent where they will be able to keep political control. So even if you have some economic liberalization, political liberalization [can lag behind] for quite some time. It's simply not that easy.

Ukraine: At The Center Of The East-West Drug Trade

By Roman Kupchinsky

Bags of poppy straw confiscated along the Ukraine-Russia border

July 31, 2007 (RFE/RL) -- Ukrainian Security Service (SBU) agents this month netted 174 kilograms of heroin in a raid conducted in cooperation with the U.S. Drug Enforcement Agency (DEA) and Turkish law-enforcement organizations.

The haul was the latest sign that Ukraine is increasingly being used as a transit country for illegal drugs -- both for synthetic drugs making their way from Europe, and for Afghan heroin heading west.

The problem recently led the SBU to issue a statement in which it expressed its concern about Ukraine's rising role in the world of drug trafficking, including the production of drugs and "the more intensive involvement of Ukrainian nationals."

Record Hauls

The 174-kilo stash was seized on July 23 in Illichevsk, where it was discovered in the false bottom of a truck that had arrived at a southwestern Ukrainian port by ferry from Georgia. Investigators believe the heroin was being smuggled from Iran to Western Europe via Azerbaijan, Georgia, Ukraine, and Poland.

A Turkish national who was driving the truck was arrested following the seizure, which was described by a spokesman for the SBU as "one of the largest hauls this year," according to RIA Novosti.
Ukraine's Security Service this year has confiscated more than 460 kilograms of heroin worth $32 million.

That catch came just two months another major heroin shipment was appropriated -- this time 114 kilograms netted in central Kyiv as a Turkish national was loading the drugs into an automobile. An SBU official said in announcing the action on May 23 that it was the third and final phase of an international operation to destroy a criminal group that was transporting heroin to Europe.

That raid followed the announcement in April by the SBU that an international ring trafficking drugs from Western Europe to Ukraine had been broken up. Four people from different parts of Ukraine were detained in that operation, which yielded $200,000 worth of ecstasy, cocaine, and amphetamines and led to the interception of a larger haul of 4,000 ecstasy tabs and 1 kilogram of amphetamines in Western Europe, according to Unian.

And in February, SBU, DEA, and Turkish police officials raided a house in a small village in southern Ukraine's Kherson region, where they discovered a laboratory for refining opium into heroin, along with precursor chemicals used in the process.

At the scene they arrested the driver of a minibus carrying 124 kilos of heroin destined for markets in the European Union, as well as a Turkish citizen who was charged with drug smuggling.

Ukraine's pourous borders may appeal to drug traffickers (ITAR-TASS)

All in all, Ukraine's Security Service this year has confiscated more than 460 kilograms of heroin worth $32 million -- more than the total amount of heroin seized in Ukraine in the past 15 years.

By comparison, according to statistics released by the Ukrainian government just 3.7 kilograms of heroin were confiscated by Ukrainian law-enforcement agencies in 1997; in 1999, 6 kilograms were seized; and in 2001, 12 kilograms.

And while the SBU boasts of having closed nine channels for drug smuggling via Ukraine already in 2007, it is widely believed that the amount of heroin captured represents only a fraction of the amount that reaches its final destination.

According to a report prepared for the U.S. Justice Department, for instance, the estimated amount of heroin trafficked via Ukraine in 2001 was 9 to 20 metric tons.

Why Ukraine?

A number of factors appear to dictate why drug smugglers have chosen Ukraine as a popular trafficking route.

One can be found in the vast stretches of unguarded borders between Ukraine and Russia, from which illegal drugs deriving from Central and South Asia and trafficked via the Caucasus can enter the country.

Another is the largely unprotected Black Sea coastline, which provides a safe haven for boats laden with illegal drugs to dock undetected.

And the high level of corruption among Ukraine's Customs Service also plays a vital role in Ukraine's east-west drug-trafficking trade.

Smugglers, taking advantage of border crossings known to be "safe" as a result of lax security, or arrangements with corrupt inspectors, focus on those entry and exit points.

Lastly, increased vigilance by law-enforcement along the traditional "Balkan route" has led traffickers to find new routes -- making Ukraine a natural choice owing to its borders with Poland, Hungary, Slovakia, Romania, and Moldova to the West, and Russia on the east.