Putin-lukashenka Detente Releases Russian Gas To Belarus

Publication: Eurasia Daily Monitor Volume: 1 Issue: 28

Meeting on June 5 in Sochi, Russian President Vladimir Putin and President Alyaksandr Lukashenka of Belarus agreed that the pace of formalizing the two states unification is “not to be rushed artificially,” and that Moscow and Minsk should in the meantime focus on bilateral economic ties. At a joint news conference following their four-hour meeting, Putin glowingly described the growth in Russia-Belarus trade as cementing relations between the two countries. Putin predicted US$15 billion in bilateral trade for 2004, second only to Germany’s trade with Russia, and three times the value of Russia’s trade with Ukraine, although Ukraine has a population four times larger than Belarus. Putin’s estimate evidently combines the bilateral exchanges of goods and international transit flows between Russia and third parties via Belarus.

By not quickly moving toward unification, Belarus can postpone introduction of a single currency for the would-be Russia-Belarus union. Previously, on June 2, Pyotr Prakapovich, chairman of Belarus National Bank, called for postponing the single currency’s introduction to January 2008, instead of January 2005. While in Sochi, Putin agreed to the postponement, without suggesting a substitute date. Putin also agreed that Gazprom would immediately resume gas deliveries to Belarus. Russian Prime Minister Mikhail Fradkov and Gazprom Chairman Aleksey Miller put that plan in motion on June 8 in Minsk.

Gazprom had suspended all deliveries to Belarus since January 1 in a dispute over the price of gas and transit fees for gas exported via Belarus to European Union countries. Smaller, nominally independent Russian gas companies had almost exhausted their government-allocated export quotas to Belarus by May 31. That quota totals 8.3 billion cubic meters for all of 2004. Thus, Belarus faced the possibility of an imminent stoppage of Russian gas deliveries when Lukashenka flew to Sochi for the meeting with Putin. Three days later in Minsk, Miller and BelTransGaz chief Pyotr Pyatukh signed the supply and transit contract for 2004.

The contract is retroactive from January 1, and will serve as a barometer for 2005. The contract envisages annual delivery to Belarus of 10.2 billion cubic meters of gas for internal use, priced at US$46.68 per 1,000 cubic meters. For gas supplied to third countries via Belarus, the transit fee is set at US$0.75 per 1,000 cubic meters per 100 kilometers of Belarus-owned pipeline. For the same service through the Russian-owned Yamal-Europe transit pipeline via Belarus, the fee remains at its present level of US$0.46. Gazprom plans to deliver 31 billion cubic meters of gas to European countries via Belarus in 2004, including eight billion through BelTransGaz and 23 billion through the Yamal-Europe pipeline, for which BelTransGaz is the operator on Belarusan territory.

Minsk has not received the desired increase in deliveries; these remain at the same level as in 2003, including deliveries from Gazprom and the three other Russian companies. However, the agreed price of US$46.68 per 1,000 meters is what Minsk had offered Gazprom during the standoff. The Russian company had demanded US$53.00 per 1,000 cubic meters. The agreed transit fee is closer to the US$0.67 sought by Gazprom than Minsk’s demand for US$1.02.

The signing of the supply and transit contract leaves unresolved the fight over ownership of Belarusan state pipeline company BelTransGaz, a key link in transporting Russian gas to Europe. That battle was at center of the five-month standoff between Moscow and Minsk, and looks set to continue. The ownership conflict provides a stark view of a lawless political and economic environment.

In October 2003, Putin notified Belarus that Gazprom would, as of January 2004, begin charging international market prices rather than internal Russian prices for gas delivered to Belarus. As a Kremlin favor to Lukashenka, Belarus was alone among CIS countries in purchasing gas at a discounted rate. However, in December, Gazprom and the Russian government offered to continue charging internal Russian prices, if Belarus agreed to turn BelTransGaz over to Gazprom for US$600, a fraction of its real value. Minsk responded by valuing BelTransGaz at US$5 billion. Moscow countered by suspending its gas deliveries to Belarus as of January 1. Belarus retaliated by almost doubling the transit fee for Russian gas to US$1.02. Gazprom reacted by withholding transit fees for gas exported through BelTransGaz to Europe from January to date.

Fradkov and Miller indicated in Minsk that terms of the contracts just signed are sufficiently favorable to Belarus to justify turning BelTransGaz into a joint enterprise with Gazprom. In addition, Gazprom would lobby the Russian government to grant Belarus a US$200 million loan “on fraternal terms” to settle the debt owed by Gazprom to Belarus. Arrears on that debt amount to US$123 million plus interest and penalties.

Also on June 8 in Minsk, Belarus agreed to recognize Russian ownership of oil product pipelines on Belarusan territory, in return for a commitment to increase deliveries and transit of Russian oil products. Belarus had claimed ownership rights to those pipelines in accordance with the 1991-1992 CIS agreements on division of the former Soviet Union’s property assets among successor states. An affiliate of Russia’s state pipeline company Transneft operated the oil product pipelines in Belarus until 2000, when Belarusan authorities revoked the affiliate company’s license due to disputes over tax and other issues.

The June 8 agreement, signed by Russia’s Industry and Energy Minister Viktor Khristenko and Belarusan First Deputy Prime Minister Uladzimir Semashka, recognizes Transneft’s affiliate as owner and operator, while requiring it to comply with Belarusan tax laws and other laws. Only hours before boarding the plane for Sochi, Lukashenka said during a meeting with members of the Belarusan Academy of Sciences, “I will be speaking with the Russian president tomorrow. Three-quarters of the time will have to be devoted to gas and oil supplies to Belarus. Is this normal? No, it is not. It reflects our extremely heavy economic dependence on just one country. We must do what everyone else does: seek alternative supply sources.” (Interfax, June 3-8; RIA, June 5; see EDM, May 25).