Publication: Monitor Volume: 8 Issue: 76

On April 15 in Minsk, Belarusan Deputy Prime Minister Leanid Kozik revealed the substance of several major economic agreements concluded three days earlier in the Kremlin by Presidents Vladimir Putin and Alyaksandr Lukashenka. On April 16-17, Russian Defense Minister Sergei Ivanov, along with a bevy of Russian generals, visited Minsk seeking decisions of stronger military ties. Meanwhile, Putin and Lukashenka have publicly committed themselves to adopting a constitution of their “union state” within the next few months.

These developments indicate, first, that economic and military relations are gathering significant momentum along parallel lines; second, that the pace on the economic track is catching up with that on the military track; and, third, that Putin is calling Lukashenka’s bluff on the issue of political unification. Using both economic inducements and arm-twisting, Putin is now asking Lukashenka to pass from words to deeds in ceding to Russia some levers of control over Belarus.

Kozik, one of Lukashenka’s closest lieutenants and overseer of economic relations with Russia and CIS countries, announced a breakthrough in terms of “equalizing the business conditions for Russian and Belarusan companies.” This is a phrase that for years had served to disguise an acerbic pursuit of unilateral advantage by Moscow and Minsk at each other’s expense. For Moscow, equality of conditions implied, above all, the opening of Belarus to Russian financial capital for privatizing that country’s energy sector and industry. For Minsk, equality of conditions meant only operating on Russia’s internal market and transportation system on the same terms as Russian firms do, as well as receiving Russian fuels at Russian domestic prices. Lukashenka had long resisted any privatization–including Russian takeover–of Belarusan state assets. For their part, the fiscally strapped Russian government and Russian protectionist interests resisted any substantial economic concessions to Belarus.

All this is now apparently changing, due to Putin’s political initiative on the one hand and the critical condition of the Belarusan state-owned industry on the other. At their Moscow meeting, Putin and Lukashenka agreed on a set of mutual concessions with a view to unifying the two countries’ economies. Prime Ministers Mikhail Kasyanov and Henadz Navitsky signed two landmark agreements. One, to go into effect as of May 1, stipulates that Belarus will pay the same price for Russian gas as Russia’s Smolensk Oblast (which abutts Belarus). That price this year is US$21 per 1,000 cubic meters. Until now, Belarus had been paying US$30 per 1,000 cubic meters to Gazprom–a sweetheart of a deal to begin with. With its current consumption of 16 billion cubic meters annually, Belarus reckons to save some US$140 million annually–a hefty sum for the pauperized country–on top of the savings achieved through the discount granted earlier by Gazprom.

The second agreement, to go into effect as of June 1, grants Belarusan companies the privilege of using Russia’s railroads at internal Russian tariffs. Kozik calculates savings of more than US$70 million annually through this Russian concession. Because of the vast distances across Russia, paying domestic tariffs is a privilege all CIS countries exporting to the Russian market covet. Thus far, Moscow withholds that privilege even from member countries of the Eurasian Economic Community. Putin has now singled out Lukashenka for this favor. Aside from direct gains, the Belarusan state economy stands to make substantial indirect ones from the gas and railway agreements. With lower costs of production and transport, Belarusan goods will become more competitive, at least in price if not in quality, on the Russian market. By the same token, Belarus will become even more heavily dependent on export outlets in Russia.

At the same time, however, Lukashenka pledged to issue a decree by May 1, abolishing some major customs preferences and tax concessions now enjoyed by a wide range of Belarusan state enterprises. This measure, too, is being presented as “equalizing business conditions”–in this case, for Russian companies planning to enter Belarus. If enacted as pledged, the measure will signify drastic cuts of indirect state subsidies, leaving many Belarusan companies exposed to the risk of bankruptcy, whether outright or through competition with stronger Russian firms. The way will thus have been paved for privatization of Belarusan state assets by Russian capital.

Putin and Lukashenka took a big first step in that direction by agreeing, at their Moscow meeting, to merge the gas transport systems of Russia and Belarus into a single entity. This agreement is closely linked with that on charging Belarus the internal Russian price for Russian gas. The merger is to encompass the transit pipelines and the internal distribution pipelines for gas on Belarusan territory. A single gas transport system is, however, merely a euphemism for Gazprom’s takeover of the Belarusan system. The decision covers–and may indeed have been spurred by–Russia’s current plan to expand the capacity of the Yamal-Europe gas pipeline via Belarus.

Putin and Lukashenka are to meet again in six weeks’ time to discuss the adoption this year of a constitutional act of the Russia-Belarus union state, and in another six weeks’ time to make decisions on the “joint group of armed forces” and its armaments. Sergei Ivanov, discussing the relevant technical issues in Minsk yesterday, commented that Moscow and Minsk are now moving “from coordination to actual unification” (Interfax, Belarusan Television and Radio, Belapan, Izvestia, April 13-17).

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