BELARUS NEWS AND ANALYSIS

DATE:

02/07/2007

The Russian Line of the Belarussian Budget

// Russia Dictates Conditions for Credit to Alexander Lukashenko

In negotiations on Friday with Belarussian Prime Minister Sergei Sidorsky, the Russian side laid out new conditions that Belarus must meet in order to receive the $2 billion (up from $1.5 billion) in government credits that it has requested from Russia. Specifically, Russia is now insisting that Belarus, which still has not taken changes in the cost of gas supplied by Russia's Gazprom into account in its budget, change its budgetary policy to ensure that this handout is the last.

On Friday, Belarussian Prime Minister Sergei Sidorsky traveled to Moscow for talks with Russian Prime Minister Mikhail Fradkov concerning credits from Russia to the government of Belarus. Although the official reason for the Belarussian prime minister's visit was a regular meeting of the Council of Ministers of the Russia-Belarus Union, Mr. Sidorsky spent most of his time emphasizing the terrible state of the Belarussian economy in the wake of changes introduced at the beginning of 2007 in the supply of oil and gas to the republic by Russia. In particular, Belarus cites the problems currently facing its economy to explain why it needs $1.5-2 billion in credits from Russia in 2007.

According to the Belarussian prime minister, four months of increasing prices for Russian natural gas have led to "an increase of more than $458 million in the cost of importing [gas] to Belarus." In addition, according to his calculations, "as a result of decreased exports of oil from Russia since the beginning of the year, the Belarussian budget is approximately $200 million short." That same day in Minsk, Belarussian deputy prime minister Viktor Burya also mentioned large losses suffered by the country's budget. Reuters News Service reports that Mr. Burya estimates that the new export tariffs on oil introduced by Russia on January 1, 2007 cost the Belarussian economy $430 million between January and May of this year. According to Mr. Burya, Belarus, which at the beginning of May introduced a system of 90% compensation of customs tariffs on a give-and-take basis for Russian suppliers, expects to tackle the situation in the country's oil refining industry only in the second half of this year. The biggest macroeconomic challenge facing Belarus is a sharply negative trade balance with Russia: according to Sergei Sidorsky, the trade imbalance grew from $390 million in 2006 to $2 billion in the first half of 2007.

Mr. Sidorsky believes that Russia has an obligation to save the Belarussian economy from crisis: specifically, he maintains that the Russian government should offer credits to the Belarussian government to compensate for the budget shortfall. Negotiations on the subject are still ongoing. On Friday, before the session of the Council of Ministers, Mr. Sidorsky spent an hour and a half discussing the issue with Mikhail Fradkov during a bilateral meeting. One of the participants in the meeting told Kommersant that Minsk is now asking for $2 billion in credits. According to the source, the new Russian position is that Belarus can receive credits only to "replace the cash deficiency in the budget."

In other words, Belarus must demonstrate to Russia that it will make changes in its budgetary policy to ensure that the credits are only a one-time helping hand from Russia that will no longer be necessary in the future. This is not likely to be an easy task: the Belarussian budget for 2007 still assumes that Russian gas supplied to the republic costs $55 per thousand cubic meters. According to the source who was present at the meeting, the current negotiations between Russia and Belarus are reminiscent of those between the IMF and Russia in the 1990s, when the IMF met Russia's request for credits with demands for slashed social expenditures and transparency in the country's economic policy.

Yet another question to which Russia has yet to receive an answer from Belarus is the country's future privatization strategy. In March 2007, Belarussian deputy prime minister Vladimir Semashko announced that Belarus "is ready to begin selling its enterprises." According to the privatization plan worked out by the Belarussian Trade and Economic Development Ministry, tenders may be held in 2007 for the sale of shares in several key oil refineries and petrochemical enterprises, including the oil company Naftan, the Mozyrsky refinery, Polimir, Belshina, and Grodnoazot. From the Russian side, Gazprom, LUKOIL, and Uralkaly have all expressed interest, but the prices quoted by the Belarussian government strike its potential customers as unreasonably high. For example, Belarus hopes to get around $1 billion for the sale of the company Belshina. Lower opening bids in the privatization of these state-owned assets could turn out to be a key Russian demand in exchange for the credits that Belarus has requested.

Sergei Sidorsky clearly lacked the authority to make such concessions to the Russian side. During his visit to Moscow, the Belarussian prime minister succeeded only in avoiding an outright refusal to his government's request. Mikhail Fradkov summed up the negotiations by saying that the possibility of providing credits to Belarus is "under consideration" but that "this requires a certain amount of time and attentive relations." There has been no time limit set on the latest negotiations. Kommersant will continue to follow the evolution of events.

Pyotr Netreba

Source:

http://www.kommersant.com/p779172/Belarus,_Russia,_oil,_gas,_credits/

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