Gazprom Eyes Takeover Of Beltransgaz

BelTransGaz, the Belarusan state gas company whose pipelines carry Russian gas to Europe, is being targeted by Russia’s state-controlled Gazprom monopoly for cheap takeover. Turning up the political pressure, the Russian side released on May 19 the transcript of a meeting held two days earlier by Gazprom’s management. Gazprom is offering to buy BeltTransGaz outright, including the transit pipelines, its most valuable asset by far, for US$500 million.

Speaking at the meeting, Gazprom Chairman Aleksey Miller and Deputy Chairman Aleksandr Ryazanov conceded that an independent assessment of BelTransGaz’s commercial value might price it in the range of several billion dollars. But they cited three reasons why Gazprom and the Russian government would refuse to pay commercial value: 1) it would take many years to recoup an investment of that size; 2) Russia’s government and Central Bank would not authorize it, as Russia cannot afford a long amortization period; 3) Gazprom itself has no available liquidity, other than that already committed in full to its government-approved domestic investment program.

As part of its pressure tactics, Gazprom has declined to sign supply contracts with Belarus for the country’s internal needs in 2004, despite earlier decisions by the Russian government that remain officially in force. Under those decisions, Gazprom is required to deliver 10.2 billion cubic meters of gas to Belarus (same volume as in 2003), and nominally independent Russian companies will supply another 8.3 billion cubic meters during the current year. However, Gazprom has delivered nothing to Belarus since January 1.

The Russian government approved this temporary suspension of deliveries, on grounds that Belarus refuses to turn BelTransGaz into a joint venture on Gazprom’s Terms. The other Russian suppliers have delivered 7.9 billion cubic meters to Belarus through mid-May, thereby almost reaching the limit of their quota for the entire year 2004. Thus, Belarus must recognize the possibility of an imminent stoppage of Russian gas deliveries.

Moreover, Gazprom has declined to sign a contract with Belarus on the Russian gas transit to Europe. The transit continues even as Gazprom pays nothing for the service. At a meeting with Belarusan journalists, Gazprom leaders warned Minsk against resorting to the practice of siphoning off gas from the transit pipelines, once the supply to Belarus dwindles or ceases.

Over the years and until December 31, 2003, Gazprom charged Belarus the same price paid by wholesale customers in Russia’s westernmost regions (the “Fifth Gas Price Zone” in Russia). Last year, however, Presidents Vladimir Putin and Alyaksandr Lukashenka agreed at their meeting in Sochi to switch to “market prices.”

For 2004, Gazprom demands US$52 per 1,000 cubic meters, whereas Belarus offers US$46.7 for the gas to be used internally. Regarding the transit via Belarus to Europe, Gazprom offers to pay US$0.67 per 1,000 cubic meters per 100 kilometers of pipeline via Belarus, while Belarus demands US$1.02 for that service on its territory.

At their meeting with Belarusan journalists, Gazprom leaders and Loshchinin hinted at the possibility of reverting to the old system of charging internal Russian prices for gas supplied to Belarus, provided that the latter agrees to turn BelTransGaz over to Gazprom, and generally to “real integration of the two states.” That proposition is officially on offer since July 2003, but has shattered on two main obstacles: conflicting assessments by Russia and Belarus of BelTransGaz’s value, and insistence by Belarus on retaining a substantial stake in BelTransGaz, whereas the Russian side seeks an takeover which it labels as a “joint venture.”

In Minsk, Lukashenka reacted to Gazprom’s government-backed warning by lashing out at Moscow. “If you wish to privatize [in Belarus], then pay money, and pay market value. Deal honestly, don’t ruin our country. Our trade with Russia nowadays is in the worst condition. We incur heavy losses from Russian taxes [on fuels delivered to CIS countries]. We want to be treated as allies. If this is not understood, then we will be pushed away from the idea that we should be together.” (Interfax, May 17, 18, 19, Belapan, May 19).