BELARUS NEWS AND ANALYSIS

DATE:

24/01/2007

Lukashenko Returns the Favor

// Of the $3.5 billion lost in concessions to Russia

Belarusian President Alexander Lukashenko declared the conflict with Russia over supplies and transit of energy sources unfinished yesterday. He stated that he expects $3.5 billion lost in concessions to Russia to be returned. In particular, he was referring to imposing rental payments for the 40,000 hectares of land on which oil, gas and petroleum product pipelines lie.

Russian President Vladimir Putin did not move Lukashenko to gratitude last week with his announcement of continuing funding of $5.8 billion for Minsk. Yesterday at a meeting of the Belarusian government in Novopolotsk, where the country's largest oil refinery, Naftan, is located, Lukashenko instructed the government to return the $3.5 billion to the country that it lost from the increase in the price of natural gas (a loss of $2.5 billion, according to Lukashenko) and the imposition of a customs duty on oil supplied to Belarus. "All the oil and gas agreements are disadvantageous to us as compared to last year," Lukashenko noted. "We must demand, without fuss or ambitions, according to the principles of international law, that they pay us."

Lukashenko also identified the source of those payments. Russia is to pay for the land over which pipelines run. At present, Belarus collects rent only on the land under compressor stations. But the country's state property committee explained that "the forest lands under the pipelines should be paid for, since they are not being used for their appointed purpose." Interfax news agency quoted a member of that committee as saying, "A draft order has been prepared to establish rental payments for those lands."

The Yamal-Europe Pipeline (which belongs to Gazprom), the Zapad-Transnefteprodukt Pipeline (which belongs to Transnefteprodukt), the Beltransgaz trunk line and the Druzhba oil pipeline cross Belarus. According to the Belarusian government, those pipelines occupy 40,000 hectares of land.

A Zapad-Transnefteprodukt spokesman confirmed that "Belarus's intentions may be realized," specifically, "if the rental charge is too high, the company's work will become unprofitable." Gazprom, which will begin negotiations with the Belarusian government on the establishment of a joint venture at Beltransgaz, declined to comment on the possibility of those additional expenses.

Gazprom and Transnefteprodukt will not be the only parties to suffer from the move. "If any Russian oil companies don't want to work with Belarus, we should charge then a high price for the transport of their oil to Europe," Lukashenko threatened. That appears to be the real motivation for his actions. The country has already encountered consequences of the new rules for working with Russia when the oil companies rejected processing agreements for Belarusian oil refineries. The Mozyr refinery will process 490,000 tons of oil next month, as compared to 900,000 in February 2006.

"The imposition of the customs duty on oil had a negative effect on Belarusian market conditions," noted Alexander Ershov, chief of the Argus Moscow bureau. He added that it had been profitable for Russian companies to operate in Belarus under processing agreements, but it no longer is. Processing agreements were necessary simply because the Belarusian refineries had no money to buy oil to operate at capacity. "Now the oil companies doubt the Belarusian plants' ability to pay," Ershov said. "Those on processing agreements don't know how they will work under the new scheme and what duties they will have to pay on petroleum products."

An employee of an oil company that supplies oil to Belarus told Kommersant that negotiations with that country's authorities are continuing. "Alexander Lukashenko has tied supplies to refineries to transit volume. It's not just a question of how much oil Transneft is prepared to pump through Belarus," the source said. Although bilateral duties on the transportation of oil is not practiced anywhere in the world, Belarusian authorities indicated at the beginning of the year that they may impose extremely exotic taxes, such as a transit duty of $45 per ton of oil.

Having most likely prepared himself for a second series of unusual measures, Lukashenko instructed the government to look into oil deliveries through Baltic ports, Ventspils in particular. But that could not be accomplished quickly. Minsk itself estimates that it would cost $15-30 million to organize the movement of the oil through the Druzhba pipeline, and take two and a half years. Ershov thought that oil moved through Ventspils would be uncompetitive in price and useless for solving Belarus's problem with supplies for its refineries.

Natalia Grib, Denis Rebrov

Source:

http://www.kommersant.com/p736297/r_527/oil_natural_gas_duties_Belarus/