BELARUS SEEKS TO EMULATE GERMAN-GAZPROM DEALS

President Alexander Lukashenka’s government in Belarus is drawing inspiration from German companies’ emergent model of relations with Russia’s Gazprom, a model blessed by the German government as well and antithetical to market economics.

On May 17, top officials of the Belarus government and the state pipeline company Beltransgas called for replicating the German model in the Belarus-Russia gas relations. The Minsk officials propose to hand over 50% ownership in Beltransgas to Gazprom, in return for a 25% stake to be acquired by Belarus in an unspecified Siberian gas field that would yield 12 billion cubic meters of gas annually to Belarus. The officials extensively cited the long-term agreements recently signed by Germany’s BASF/Wintershall and Gazprom to show that Minsk’s proposal follows that model. Under those agreements, Wintershall acquires a 25% stake in a Siberian gas field while Gazprom acquires a 50% stake in the joint Wintershall-Gazprom company Wingas for distribution in Germany and Europe.

Germany’s E.ON Ruhrgas is close to signing a parallel agreement with Gazprom on those same terms. Both German agreements and that now proposed by Belarus adhere to Gazprom’s concept of long-term use of a “single export channel.” The Yamal-Europe pipeline is the “single channel” for Belarus. In Germany’s case, that single channel is the North European Gas Pipeline on the Baltic seabed, to be built by Gazprom, Wintershall, and Ruhrgas in a 50-25-25 joint venture, synchronized with shared control of German and other European distribution systems.

Belarusian First Deputy Prime Minister Uladzimir Syamashka remarked, “Gazprom’s goals are obvious. It seeks to take control of the gas transport systems in Europe as well as in Belarus” (Interfax, May 17). Minsk’s sober comment (even as it offers to give in) contrasts with the German businessmen’s and cabinet ministers’ euphoria, on display at the signing of their agreements with Gazprom (see EDM, September 13, 2005, May 2, 2006).

This model reflects the German gas market’s intense de facto cartel-ization by a few big transport and distribution companies and the outright state monopoly in Belarus. Each side is ready (albeit for different reasons) to share its internal market with Gazprom in return for relative restraint on price hikes, and both are content to lock their respective country into long-term dependence on Russian deliveries. Indeed, such arrangements with Gazprom are shielding those companies from market competition in Germany and help preserve state ownership of the economy in Belarus.

Syamashka and the Beltransgas executives were addressing an industry conference on Minsk’s response to Gazprom’s threat to more than triple the price of gas next year at one stroke. The move aims to force Minsk to cede control of Beltransgas to Gazprom in return for continuing preferential treatment of Belarus on gas prices. In early April, Gazprom had given Belarus until April 30 to respond. On April 28, Lukashenka rushed to St. Petersburg for a meeting with his Russian counterpart, Vladimir Putin, and proposed ceding to Gazprom a stake in Beltransgas in return for sharing access with Belarus to a Siberian gas field (Belarus Television, April 28; Interfax, May 6). Media reports on this initiative were sketchy and did not mention the German model, although the latest set of Russian-German gas agreements signed at the Russian-German summit on April 26 almost certainly inspired Lukashenka’s demarche two days later to Putin.

For further measures to limit or offset Gazprom’s price hikes, Minsk proposes joint construction of underground storage sites in Belarus for Russian gas en route to European Union countries and starting immediately the construction of the Yamal-Europe pipeline’s second trunk line in Belarus. Gazprom, experiencing a serious deficit of storage capacity close to EU territory, can readily agree to Minsk’s storage proposal. However, Gazprom rejects outright Minsk’s proposal to proceed with Yamal-Europe’s second trunk line at this time or even in the next several years.

Gazprom plans to complete at least the first stage of the North European pipeline on the Baltic seabed, and probably also its second stage, while holding up the Yamal-Europe pipeline’s second trunk line via Belarus and Poland. The sequencing reflects, on the one hand, Gazprom’s shortage of investment capital commensurate to its ambitions. However, it also aims to: a) withhold at least for the next several years any additional volumes of gas pumped via “unfriendly” Poland; and b) press Belarus to cede control of Beltransgas by threatening to switch some of the gas transit business from Beltransgas to the North European pipeline.

The annual transit capacities involved are up to 27.5 billion planned for either line of the Baltic pipeline and up to 33 billion cubic meters for either trunk line of Yamal-Europe via Belarus and Poland (the first line becomes fully operational this year). In addition, Beltransgas handles more than 20 billion cubic meters of Russian gas annually en route to EU territory.

Gazprom spokesman Sergei Kupryanov and Russia’s Ambassador in Belarus, Alexander Surikov, recently warned publicly that Beltransgas risks losing business to the Baltic seabed pipeline, unless Minsk cedes control over Beltransgas to Gazprom. Kuprianov, moreover, spells out that Russia needs “full flexibility” in terms of multiple export routes to Europe: via the Baltic seabed, via Belarus-Poland, and via Ukraine. (Gazprom additionally seeks a Turkish route to preempt other suppliers to Europe). As the total planned capacity of these pipelines considerably exceeds Russia’s gas export capacity (even if Turkmen gas is factored in), Gazprom will be able to play off the transit countries against each other regarding transit terms and will press for taking over the national transit systems.

Belarus currently pays a mere $46.68 per one thousand cubic meters of Russian gas, while Gazprom pays almost equally ridiculous fees for the transit of its gas via Belarus to points west: $0.75 per one thousand cubic meters per one hundred kilometers through Beltransgas pipelines, and $0.46 through the Belarus stretch of the Yamal-Europe pipeline. Gazprom is to deliver 21 billion cubic meters of gas to Belarus this year, amply covering (as in previous years) the country’s requirements. In 2005, Gazprom exported 41 billion cubic meters of gas via Belarus, including 22 billion through the Yamal-Europe line before it reached full capacity and another 19 billion cubic meters through Beltransgas pipelines. Gazprom threatens to raise the price of gas to Belarus to at least $145 per one thousand cubic meters as of January 1, 2007, but would show clemency in return for a 50% stake in the Beltransgas system.

(Interfax, May 2, 13, 16, 17)