BELARUS NEWS AND ANALYSIS

DATE:

27/12/2006

Gazprom Threatens to Cut Off Gas if Belarus Rejects Higher Price

By ANDREW E. KRAMER

MOSCOW, Dec. 26 - Gazprom, the Russian energy monopoly, threatened Tuesday to halt natural gas supplies to Belarus if that country did not agree to a large price increase by the first of the year.

The strong Russian position suggests that Moscow is becoming aggressive in energy pricing even with countries that have been close allies.

Belarus now has the cheapest gas in the former Soviet Union, other than Russia. Gazprom, the world's largest energy company by volume of reserves, is insisting that Belarus pay more than double its current price, though it would still pay less than richer countries in Europe.

Gazprom warned that Belarus was behaving "irresponsibly" in the talks over pricing and a Russian demand to surrender equity in an important export pipeline, and said that such resistance was putting Belarus's energy supply at risk.

The threat was issued almost a year after Gazprom cut off fuel supplies to Ukraine, another important transit country for Russian energy exports, causing intense concern over supply in Western Europe. After three days and a din of criticism, Gazprom turned the gas back on.

In the energy markets now, the Kremlin is dictating terms with greater assertiveness than it has since the collapse of the Soviet Union. Gazprom already owns one of the two major export pipelines that run through Belarus and is negotiating for a share in the second, a move that would tighten the company's bear hug on European supplies.

Gazprom said exports to Poland and Germany through the pipelines would not be at risk, even if Belarus were switched off. The company spokesman, Sergei V. Kupriyanov, said Gazprom had been stockpiling gas in underground reservoirs in Western Europe to ensure uninterrupted supplies.

"Responsibility for what has taken shape today lies with the Belarussian side," Gazprom's chief executive, Aleksei B. Miller, said Tuesday to a Belarussian delegation led by a first deputy prime minister, Vladimir I. Semashko. "Gazprom and the Russian Federation met you halfway on all issues," Mr. Miller said.

Gazprom's tough negotiating suggested an unraveling of the special relationship between Russia and Belarus, which form a loose coalition called a union state. Russia is one of the Belarussian dictator Aleksandr G. Lukashenko's last allies in Europe.

"The demand shows Putin is abandoning any myth of the union state," said Lilia Shevtsova, a senior associate at the Carnegie Moscow Center of the Carnegie Endowment for International Peace. "Lukashenko is desperate and backed into a corner."

Gazprom's final asking price for gas in Belarus, $105 to $110 per 1,000 cubic meters, is still among the lowest offered to Russia's neighbors. Gazprom says it is intent on raising prices throughout the former Soviet Union, ending a decade of subsidies.

Gazprom said Belarus wanted rates in line with those paid in Smolensk, a neighboring Russian province, or about $40 for residential consumers and $54 for industrial customers, citing a treaty related to the union state. Mr. Semashko, the Belarussian deputy prime minister, left talks in Moscow on Tuesday without a deal. "We still have time until the 31st of December," he said.

Gazprom has slowly increased prices in neighboring countries while trading special deals for footholds in the local distribution business or access to export pipelines, which is essential to its hugely profitable business.

Source:

http://www.nytimes.com/2006/12/27/world/europe/27belarus.html