Publication: Eurasia Daily Monitor Volume: 3 Issue: 211

As anticipated (see EDM, November 8), Belarus President Alexander Lukashenka’s meeting with his Russian counterpart Vladimir Putin in Moscow on November 10 ended in disagreement on the full range of issues discussed. In a highly unusual move, the Kremlin kept the publicity down to near-zero level after the presidential meeting, instead of papering over the differences as it does when they are manageable.

It was only three days later that Lukashenka recounted the Kremlin meeting to the assembled cabinet of ministers in Minsk (Belapan, Interfax, Charter 97, November 13). He turned down Putin’s proposals on energy deliveries, customs duties, and property transfers, which Moscow had publicly aired the preceding week to official Minsk’s indignation (see EDM, November 2).

Regarding gas, Putin and Lukashenka could only agree that Gazprom and the Belarus state gas transport company Beltransgas would continue negotiations on the price of Russian gas to Belarus for 2007. Russia demands $140 per 1,000 cubic meters — triple the existing price of $46.68 — and wants 50% ownership of Beltransgas in lieu of payment. Lukashenka not only ruled out the stated new price, but also countered by telling Putin that Beltransgas is worth $10 billion to $12 billion, and any transfer of its assets to Gazprom must proceed from that valuation.

Lukashenka’s new valuation of Beltransgas (based, he said, on the German valuation of the Czech gas transport system) would seem to rescind an earlier, informal Moscow-Minsk agreement to accept the Dutch ABN AmRo Bank’s valuation of Beltransgas. Officially, both sides had selected the Dutch bank to appraise Beltransgas, but there seems to be no binding agreement to accept that appraisal. The bank is now expected to issue an upper-end estimate of Beltransgas’s value at $3.5 billion. However, Lukashenka (by his account) told Putin in the Kremlin that he would only take the Dutch bank’s appraisal into consideration as one among others, along with Minsk’s own, “market-based” valuation.

Regarding oil deliveries, Putin as well as the Russian ambassador in Minsk, Alexander Surikov, had recently threatened publicly to terminate the existing arrangement, which is highly favorable to Belarus. Under this arrangement, based on existing taxation mechanisms on both sides, Belarus is massively importing Russian crude oil at a substantial discount, refining it in Belarus, and exporting the refined products with high profits. When Putin said during the Kremlin meeting that Russia would impose taxes on oil exports to Belarus, Lukashenka — invoking the [nominal] Union State agreements — rejected any kind of taxation including on oil and insisted on identical crude oil prices for Russian and Belarus refineries. Belarus would simply decline to take Russian oil at higher prices, Lukashenka warned.

Official Minsk probably has some leverage in this regard. With Russia badly short of refining capacities, some oil producing companies rely on the Navapolatsk and Mazyr refineries in Belarus and would probably ask the Russian government to take official Minsk’s position into account on the issue of crude oil deliveries.

Controversy flared up unexpectedly during the Kremlin meeting over sugar deliveries from Belarus to Russia. The Russian side suspects that some of that sugar is made elsewhere from cane and sold to Russia under preferential arrangements reserved for beet sugar from Belarus, undercutting Russia’s own producers. Moscow now proposes annual quota limits on sugar imports from Belarus. “What’s the matter, is sugar from Belarus less sweet to you?” countered Lukashenka, back in Minsk, rejecting any quota. Prior to the Kremlin meeting, Russian authorities had blocked some 200 railroad cars and trucks carrying sugar from Belarus, and the latter retaliated by blocking a 12-truck Russian convoy en route to Kaliningrad via Belarus.

Recounting this situation to the cabinet meeting, Lukashenka instructed the head of the State Customs Committee, Alexander Shpilyavsky, to prepare for possible retaliation against Russian transit: “If Russia continues to impose restrictions, we must take commensurate steps….Some 100 million tons of Russian cargoes are crisscrossing Belarus. This is huge transit, and we wouldn’t want to take certain actions.” He then warned in Moscow’s direction: “Would you like us to check every [Russian] truck at the [Russia-Belarus] border? In that case, the waiting line of your trucks would be stretching from Smolensk to Moscow” (Interfax, November 13).

Shortly before the Kremlin meeting, Lukashenka had received Azerbaijan’s President Ilham Aliyev in Minsk and went on to visit Iran on November 5-7. Official Minsk is actively seeking non-Russian supplies of energy and considering the possibility of transit routes for such supplies to Belarus via Ukraine. It is a very long shot, but it reflects the collapse of official Minsk’s confidence in Moscow. The process was long in the making and received its final impetus from Moscow’s latest and continuing attempts to take over the economy of Belarus.