BELARUS NEWS AND ANALYSIS

DATE:

02/08/2007

Gazprom price row with Belarus could hit European gas supplies

Carl Mortished, International Business Editor

Gazprom is poised to cut gas shipments to Belarus, in a confrontation over hundreds of millions of dollars in unpaid bills that could jeopardise Central European supplies.

The Russian gas utility said that it would take steps to prevent the loss of pressure in transit pipelines when it reduces gas shipments to Beltransgaz, expected tomorrow, if Belarus fails to pay an oustanding bill of $456 million (?224.8 million).

A fifth of Russia's gas exports to Europe pass through Belarus, creating a potential risk to supplies to Poland, Germany and Lithuania if Belarus takes gas from the pipeline without authorisation.

Gazprom sought to reassure its European customers yesterday. Ilya Kochevrin, a Gazprom spokesman, said that the company would divert gas to alternative transit routes, if necessary. "Should Belarus start illegal offtake of gas, we have a concrete plan so customers get their gas," he said.

The Belarus dispute echoes a confrontation between Gazprom and Ukraine in January 2006, when the Russian utility cut off supplies after Ukraine refused to accept a tripling of its gas price.

Gazprom argued that it could no longer sell fuel to an independent Ukraine at subsidised rates set during the Soviet period. The stand-off was seen by many in Ukraine as an attempt to undermine the antiKremlin stance of the Government in Kiev.

Heated talks in Minsk between Gazprom and Beltransgaz officials have failed to arrive at a settlement over the unpaid gas bill. Efforts by Belarus to raise a loan through Raiffeisen Bank, of Austria, appear to have failed.

Underlying the dispute may be Gazprom's interest in gaining control of Beltransgaz, the Belarus gas company, which operates gas pipelines on Belarussian territory. In January, Gazprom secured a deal in which it would acquire half of Beltransgaz for $2.5 billion. So far, it has paid $625 million for a 12.5 per cent stake.

According to Gazprom, the Belarus gas company owes $456 million, representing 45 per cent of the cost of gas delivered over the past six months.

After months of talks, Belarus agreed in December to an increase in its gas price from $46 to $100 per 1,000 cubic metres. However, Gazprom agreed to defer payment of $45 per 1,000 cubic metres until July 23.

The Russian utility insisted that its action was purely commercial. "Since we are a commercially driven company and a major taxpayer in Russia, our cashflows are very important," Mr Kochevrin said. Gazprom said that it was disappointed that Belarus had failed to find a solution, suggesting that its neighbour had ample funds because the Russian utility pays transit fees of $30 million a month for gas exported across Belarus to Europe.

The risk to Central Europe's supplies is small compared to the Ukraine crisis, according to experts, because summer gas demand is weaker.

Cheap gas has kept the Soviet-style Government of President Lukashenko in power. Although fiercely loyal to the Kremlin, Mr Lukashenko's relationship with Russia has deteriorated over the issue of energy prices. The price offered to Belarus is a fraction of the market rate in Western Europe and Belarus appears to be behaving like the poor relation, demanding more assistance, to the embarassment and irritation of the Kremlin.

Source:

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2182930.ece