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Archive for Monday, January 1, 2007

Russia, Belarus cut natural gas deal

January 1, 2007

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— Russia and Belarus announced a last-minute deal on natural gas prices early today, averting the threat of a midwinter disruption of supplies to European customers.

Russia's state-controlled gas monopoly, Gazprom, had threatened to cut off the flow of gas for Belarus this morning unless a new contract was signed, although the company said it would still supply other European customers by shipping gas across Belarus through pipelines it owns.

Belarus had responded by indicating that it might simply siphon gas from the pipelines or shut them down.

The agreement, announced shortly after midnight, called for Belarus to pay slightly more than twice as much for gas this year as in 2006. Gazprom would pay nearly twice as much in transit fees to Belarus, partially offsetting the gas price increase.

Belarus also agreed to sell Gazprom half the ownership of its state-run gas distribution network, Beltransgaz.

The acrimonious negotiations dealt a blow to relations between the two longtime allies, and it was not immediately clear whether ill feelings would linger.

As recently as Friday, Belarusian President Alexander G. Lukashenko angrily criticized Gazprom's demands, declaring his government "won't give in to blackmail."

The two sides agreed on a price of $100 for 1,000 cubic meters of gas, up from $46.68 in 2006. Gazprom had been seeking a price of $105. Although the new price marked a sharp jump, Gazprom insisted that it represented very favorable terms: European Union customers typically pay about $250 for 1,000 cubic meters of Russian gas.

"The natural gas agreement signed with the Belarusian side is the least favorable to Gazprom out of all the agreements signed with the former Soviet countries," Gazprom Chief Executive Alexei Miller said at a news conference.

The standoff resembled a pricing dispute one year ago between Russia and Ukraine, which led to a brief disruption of supplies when a contract was not reached by the Jan. 1 deadline.

Critics of Kremlin policy charged at that time that Gazprom was forcing unfavorable terms on Ukraine, compared with other post-Soviet states, because of the Kiev government's turn toward pro-Western policies under President Viktor Yushchenko.

Lukashenko has been widely criticized in the West as "Europe's last dictator," and he has been heavily dependent on economic and political support from Moscow.

Gazprom has been seeking to gradually raise the price of all exported gas to what it calls market levels. The agreement with Belarus apparently calls for additional price increases from 2008 through 2011, although details on further increases were not immediately released.

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