BELARUS NEWS AND ANALYSIS

DATE:

31/12/2006

Russia, Belarus sign gas deal

By Dmitry Zhdannikov and Andrei Makhovsky

MOSCOW/MINSK (Reuters) - Russian and Belarus announced a last-ditch deal on gas prices, minutes before Moscow was to start cutting off supplies with potential knock-on disruption for customers in Europe.

At a joint news conference early on Monday, Alexei Miller, CEO of Russian gas monopoly Gazprom (GAZP.MM: Quote, Profile , Research), and Belarus Prime Minister Sergei Sidorsky, said Russian gas exports to Europe via Belarus were out of danger after a deal was agreed.

Under the accord, Belarus agreed to pay Gazprom $100 per 1,000 cubic metres of natural gas, up from the $46 ex-Soviet Belarus has been paying until now.

Gazprom had said it would cut supplies to Belarus from January 1 if a deal on new gas prices to its neighbor was not reached by midnight on Sunday. Minsk said it would retaliate by halting Russian gas crossing the country on its way to Western Europe.

The gas row revived memories of a similar dispute with ex-Soviet Ukraine exactly one year ago which briefly disrupted Russian deliveries to Europe and shook confidence in Russia's reliability as an energy supplier.

Russia supplies about a quarter of Europe's gas needs and Gazprom ships about 20 percent of the gas it exports to Europe via Belarus, with the rest going via Ukraine to the south.

Gazprom managers and Belarus negotiators were locked in last-ditch talks to beat the midnight deadline as most Russians prepared to greet the New Year, the country's biggest holiday.

POWER SUPPLY THREAT

Belarus Energy Minister Alexander Ozerets said on Sunday if Gazprom cut deliveries for Belarus's domestic use, Minsk would cut power to pump stations on the Yamal-Europe pipeline, which carries all Russian gas transiting Belarus to Western Europe.

Germany -- one of the biggest customers for Russian gas -- and the European Union had pressed Moscow and Minsk to reach a deal quickly and avoid any disruption to supplies.

The contract under which Gazprom has been supplying gas to Belarus expires at midnight on Sunday. By comparison, Gazprom charges European customers over $250.

Gazprom says the price increase for Belarus is part of the firm's campaign to bring the amounts Russia's ex-Soviet neighbors pay for their gas into line with world prices.

In the past 12 months, Russia has agreed hefty price rises with ex-Soviet Ukraine, Georgia, Armenia and Moldova.

Western critics have accused the Kremlin of using the gas price increases as a political weapon to punish some of its neighbors for moving closer to the West.

Belarus though does not appear to fit into that category. Its President Alexander Lukashenko has quarreled with the West, which accuses him of abusing human rights, and seeks closer ties with Moscow.

Source:

http://today.reuters.com/news/articlenews.aspx?type=businessNews&storyID=2006-12-31T215927Z_01_L30849731_RTRUKOC_0_US-RUSSIA-BELARUS-GAS.xml