Russian Gas Pressure Mounts

By Olga Birukova

MINSK, Belarus, September 3, 2003 (ENS) - Russia is threatening to cut cheap gas supplies to Belarus, which would plunge the republic into an energy crisis shortly before winter sets in.

The possible move appears to stem from Moscow’s frustration at what it sees as Minsk’s continued foot-dragging over an agreement last year to create a Belarusian-Russian joint venture for transporting Russian gas to Western Europe.

The deal – supposed to have been finalized by July 1 – had been held up by the two sides’ failure to reach agreement on control over the new venture, and on the price of the deal.

Moscow seems to be losing patience, and hopes to exert pressure on its neighbor by threatening to cut its gas supplies, which account for almost 70 percent of Belarus’s energy needs, just before the winter freeze takes hold.

Moscow’s ambassador to Belarus, Alexander Blokhin, told the Russian news agency Interfax last week that Russia's giant state controlled Gazprom company might back out of an agreement to supply Belarus with gas at discounted rates.


The city of Minsk faces a long, cold winter if Russia withholds gas supplies. (Photo courtesy Babak Fakhamzadeh)
“If Gazprom cancels the agreement before the beginning of this heating season, the Belarusian authorities will be under presure,” said the director of the Minsk analytical centre Strategy, Leonid Zaiko.

Gas supplies have been a traditional instrument of diplomacy in Belarusian-Russian relations, enabling Moscow to influence its energy dependent neighbour.

Since independence Belarus has relied heavily on Russia for energy, maintaining good relations with Moscow in order to secure vital supplies, which have effectively kept the country’s unreformed economy afloat – a policy that Belarusian journalists have dubbed the “gas for kisses” deal.

Russian gas concessions allowed Minsk to save about US$500 million annually, Zaiko told the Institute for War and Peace Reporting (IWPR).

But in spring 2002, President Vladimir Putin’s government sought to change the arrangement, getting Minsk to agree to a joint venture between Belarusian state owned gas transit network company Beltransgaz and Gazprom in exchange for continued supplies of subsidised gas – one fifth of the Russia’s price for Western Europe.

The agreement also established for a supply quota the first time. Gazprom promised to deliver about 62 per cent of the country’s annual gas needs, but Minsk didn’t appear to take this seriously and expected Moscow to continue providing it with unlimited supplies, and also wavered over the new joint venture.

Moscow’s patience snapped in November 2002, declaring that Belarus had exhausted the annual quota of gas supplied at discount prices. President Alexander Lukashenko hit back, describing this as “unprecedented pressure on our country.”


Vladimir Putin and his Belarus counterpart Alexander Lukashenko in a meeting, December 2000. (Photo courtesy Tickets of Russia)
Nonetheless, Minsk immediately took steps to prepare Beltransgas for a merger with Gazprom, by turning it into a state owned joint-stock company, and it also started to pay Russia gas debts that had accumulated over the years.

But Belarus has failed to meet the agreed deadline for the creation of the joint venture between Beltransgaz and Gazprom, and has put forward demands that Moscow is not prepared to accept. Minsk wants Gazprom to pay US$2.5 billion for a 49 percent share in Beltransgaz, whereas the Russian energy giant wants a controlling stake and is only prepared to pay US$600 million.

Additionally, the Belarusian government is demanding that Gazprom provides enough discount rate gas to meet its entire domestic demand – almost twice the volume it now supplies - until 2010; a major increase in the volume of Russian gas that transits through Belarus to Western markets; and significant investment in modernizing the county’s gas pipeline network.

“This is simply economic extremism,” Zaiko told IWPR.

Analysts are divided over whether Russia’s threat to substantially cut crucial energy supplies will force Belarus to give up on its demands.

“Just now Russia has the full right to revalue relations with Belarus,” according to Yaroslav Romanchuk, an opposition activist who heads the research center Mizesa. “Traditionally new negotiations on gas deliveries begin in October, so autumn is the right time to set new rules of the game.”

But some observers say the Moscow would be reluctant to go through with its threat, since this would be unpopular with Russian voters on the eve of parliamentary and presidential elections, scheduled for December and next March respectively.

“Many people in Russia still consider Belarus a brotherly nation, a part of the Big Empire. A harsh approach could harm [the Russian government’s] pre-election campaign,” said Zaiko.

At the moment, Minsk is calculating that Moscow will not act on the gas before the spring presidential election – when the winter crisis will be over. “With the new government – yes, it’s possible. But not earlier,” said an official who asked not to be named.

Gazprom, meanwhile, has said nothing more about the threatened cuts in energy. A spokesman would only say that the company hoped Belarus would agree to its terms for control of Beltransgaz, “We hope that Belarusian government will take our proposals into consideration, and that we can resolve all the problems.”

While it is unclear whether Moscow will carry out its threat, Belarus is preparing for a possible energy crisis by raising domestic and industrial energy charges, as a way of building up funds to buy emergency supplies from other private gas Russian gas companies.

{Olga Birukova is a reporter for the newspaper "Belorusski Rynok" in Minsk. This report is published in cooperation with the Institute for War and Peace Reporting.}