Belarusian president threatens to break relations with Russia

Belarusian President Alexander Lukashenko has warned he may instigate a split in relations with Russia if its energy giant Gazprom raises the natural gas price for his country. Sources in the Russian government said the president was reacting to the failure of the latest round of gas talks.

Commenting on Gazprom's proposals to increase natural gas prices in 2007 to $200 per 1,000 cubic meters, Lukashenko said: "Such an increase in gas prices unambiguously spells a split in all respects - and certainly in economic terms."

A Russian minister said Lukashenko's statements followed the failure of negotiations between Belarusian Prime Minister Sergei Sidorsky, his Russian counterpart Mikhail Fradkov and Gazprom CEO Alexei Miller.

Sidorsky suggested propping up gas prices at the current level of $46.68 in exchange for joint control of oil and gas transporter Beltransgaz.

The deputy chairman of Gazprom's management committee, Alexander Ryazanov, said: "Establishing Gazprom's joint venture with Beltransgaz to control trunk pipelines and gas export prices for Belarus are separate issues." However, Belarus may pay with a stake in Beltransgaz, he said.

The parties have already hired Holland's ABN Amro to conduct an independent assessment of Beltransgaz. A source close to Gazprom said the company could be valued at $1-1.5 billion. The price will be higher than for Ukraine ($130-140), because Ukraine buys Central Asian gas, the source said.

According to IMF estimates, if gas prices rise to $200 in 2007, Belarus's GDP will fall by 0.7%, while inflation and the budget deficit will grow.

Alexander Chubrik from the Minsk Institute for Privatization and Management believes an increase to $200 is unrealistic.

The price is set "according to the maximum price that can be included in the Belarusian budget, which is about $97," Belarusian political scientist Sergei Kozlovsky said.

Previously, Russia used to grant privileged loans to Belarus to help it pay for its gas, and then agreed to restructure them, the Russian minister said. He added that no loan has been negotiated yet, but such an issue could be readdressed.