BELARUS NEWS AND ANALYSIS

DATE:

02/08/2007

Belarus slams Russia, but to pay gas debt

By Andrei Makhovsky and Douglas Busvine

MINSK/MOSCOW, Aug 2 (Reuters) - Accusing Russia of launching a hostile economic takeover of his country, Belarussian President Alexander Lukashenko grudgingly promised on Thursday to repay a half billion dollar gas debt.

Lukashenko launched his tirade a day before Russian gas monopoly Gazprom (GAZP.MM: Quote, Profile, Research) was due to make good on a threat to halve deliveries to Belarus, a vital transit route for oil and gas shipments to Europe.

While repaying the $456 million gas debt may avert possible supply disruptions to Poland and Germany, Lukashenko's rhetoric heralded a slide in relations, just as Russia prepares for parliamentary and presidential elections.

Lukashenko, who runs a Soviet-style command economy and has been dubbed by the United States as "Europe's last dictator", accused Russia of using its power to seize economic control.

"Russia wants to privatise not only individual businesses -- and even grab them for free. It wants to privatise the whole country," he told journalists in Minsk.

State-controlled Gazprom, which put a squeeze on Russia's poor western neighbour by doubling export prices to $100 per 1,000 cubic metres in January, had no comment on Lukashenko's remarks.

CHAVEZ TO HELP?

Lukashenko, according to news agency reports, said Belarus would draw on its limited financial reserves to repay the debt after a grace period expired on July 23.

He also said he had appealed to Hugo Chavez, the populist president of Venezuela, for financial help.

"Our reserve fund will be laid bare, but other states are prepared to step in and help -- including Chavez and foreign commercial banks," Lukashenko said.

Analysts say that Russia, having supplied Belarus with subsidised energy for years, feels let down by Lukashenko's recent lack of loyalty towards Moscow and reluctance to open his country up to investment.

And, as Kremlin strategists seek to orchestrate a smooth succession to Vladimir Putin at next March's presidential election, a troublesome Belarus is the last thing they want.

"Russia is clearly flexing its muscles to put pressure on the political regime in Belarus," said Dieter Helm, an economist at Oxford University in England.

"No doubt there will be some hurried settlement, but ... the issue in respect of Belarus will not get resolved until something happens to remove Lukashenko."

Gazprom's threat echoed previous disputes between Russia and its neighbours -- Belarus and Ukraine -- which caused gas and oil supply cuts to Europe in the past three winters, underlying Europe's heavy dependance on Russian energy resources.

This time, Gazprom has told European customers it is ready to use alternative routes to ensure steady supplies, and take legal action if Belarus siphons off gas from transit pipelines.

Both Gazprom and analysts said Europe any potential supply disruptions would be limited, as gas demand is relatively low in the summer.

The dispute is likely to add to Russia's resolve to build alternative export routes, such as a subsea link across the Baltic to Germany, to bypass troublesome neighbour states, said analysts. To see a story on Gazprom's threat to cut gas [ID:nL0191047] To read an analysis on the Belarus gas row [ID:nL01775070] To see a factbox click on [ID:nL01299567] To see analysts view on the dispute [ID:nL02847474] (Additional reporting by Barbara Lewis in London)

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