What, I thought Gazprom was punishing democratic Ukraine by raising gas prices -- uh, whoops. GAZPROM JUST WANTS MORE MONEY.
The Moscow Times
Wednesday, April 5, 2006. Issue 3386. Page 1.
Gazprom to Triple Price for Belarus
By Stephen Boykewich Staff Writer
Gazprom will at least triple the price of gas to Belarus by next year, Gazprom deputy chairman Alexander Ryazanov said Tuesday, upping the stakes in the state gas giant's longtime struggle for control of Belarus' pipeline infrastructure.
"The current price is $46.68 for 1,000 cubic meters. Belarus is the only country that still hasn't switched to market prices for gas," Ryazanov said, speaking at a conference titled "The Gas Factor in the Russian Economy."
"We believe that starting in 2007, the price should be at least three times higher," Ryazanov said.
The news followed last week's surprise announcement by Gazprom CEO Alexei Miller that Belarus would have to pay for gas "at European levels" -- currently $230 per 1,000 cubic meters -- in 2007.
Stanislav Bogdankevich, a former president of Belarus' central bank, warned that if the price of gas more than doubled, the economy would be doomed. "Much of our industry depends on cheap gas, especially machine-making and chemical manufacturing. It would be a disaster," he said by telephone.
Gazprom has rolled out a series of drastic price hikes to its neighbors in recent months. Armenia began paying $110 per 1,000 cubic meters, double its previous rate, last week. Moldova is paying the same as part of a temporary settlement after it refused to pay $160 in January and suffered supply cuts. And January's notorious price dispute with Ukraine led to supply cuts there and shortfalls in gas the country transports to Western Europe, which shook European faith in Russia's reliability as an energy supplier.
But Miller's announcement about Belarus came as a surprise for many reasons. Last month's presidential election in Belarus were the latest evidence of Russia's political support for the country's authoritarian president, Alexander Lukashenko, whom President Vladimir Putin officially congratulated while EU and U.S. officials were still crying foul over the voting results.
The Belarussian economy is also dependent on cheap energy from its closest ally. Russia effectively subsidizes its neighbor to the tune of $4 billion per year with cut-rate oil and gas, according to the International Monetary Fund.
In return, Belarus has been a valuable energy transit corridor for Russia, transporting 20 percent of Russia's gas exports and 50 percent of its oil exports outside the former Soviet Union at below-market rates.
Critics of Gazprom have interpreted price hikes to Ukraine and Moldova as punishment for the countries' political turn Westward, accusing Russia of using gas prices as an "energy weapon." If so, why would it strike its stridently anti-Western ally?
The answer, analysts said, lies in Gazprom's decade-long struggle to gain control of Belarussian pipeline monopoly Beltransgaz, as well as deep political tensions that belie the public talk of brotherhood and unification.
And while talks continue between Belarussian officials and Gazprom, a source at the company warned that a belligerent Belarus might find itself where other resistant countries have: out in the cold.
Favors for Favors
At the conference Tuesday, Gazprom's Ryazanov reiterated the company's position that pricing decisions are based on market principles -- which is precisely what critics used to say Belarus disproved.
"For us this is not some kind of political question; it's the reality of the economic situation we're in today," Ryazanov said.
But another source at the company said the reality was more complicated.
Western criticism that Gazprom had become a political instrument "was one of the factors in deciding to raise prices to Belarus," the source said last week, speaking on condition of anonymity due to the sensitivity of the topic.
Margarita Balmaceda, an associate at Harvard University's Davis Center for Russian and Eurasian Studies, said that Gazprom's latest move was intimately political but had more to do with longstanding bilateral energy disputes than it did with answering the West.
"If we look at the history of Russian-Belarussian relations, there are times when supplies have been reduced or cut," Balmaceda said by telephone last week. "In all these cases, there have been negotiations afterward, and Lukashenko has always been able to get away in one way or another."
As Balmaceda details in a recent report on energy relations between the two countries, Gazprom first cut supplies to Belarus in 1994, ostensibly over unpaid fuel bills. In late 2002, it again withheld half its shipments and demanded a price increase from $30 per 1,000 cubic meters of gas to $150 per 1,000 cubic meters. A partial resolution kept prices from rising, but fell apart in January 2004, when Gazprom cut supplies to Belarus entirely.
That crisis ended with Belarussian gas prices rising only to $46 per 1,000 cubic meters. Lukashenko was also able to secure a package of Russian loans to offset the increase for domestic consumers.
"Lukashenko has been very skillful to see that they didn't hurt him as much as they might have," Balmaceda said.
But now that Lukashenko has thoroughly alienated the West, "his field of maneuver has been greatly reduced. He has put all his eggs in the Russian basket not because he loves Russia, not because he wants a real union, but because he's embarked on a political path that only Russia is willing to support," Balmaceda said.
And with Lukashenko's re-election secured, she said, the time has come to pay for Russia's support.
"This is certainly an attempt from the Russian side -- in my view a very clear one -- to cash in on the support it has given Belarus in repression associated with the elections. Now the tone of the relationship is going to be much more dictated by Russia's demands," Balmaceda said.
The Missing Link
Higher prices are not an end in themselves for Gazprom but a lever to gain control of what it has wanted from Belarus since 1993: control of Beltransgaz, analysts said.
Pavel Borodin, the head of the Russia-Belarus Union, sought to play down the importance of the company in comments to reporters Monday.
"What's the difference who owns Beltransgaz? It's simply a matter of talks. I'm sure that everything will be agreed upon," Borodin said.
But control of Belarus' pipeline monopoly is key in diversifying its export options to rich Western consumers, which Gazprom has named a key priority, said Stephen O'Sullivan, head of research at UFG.
"I'm quite sure it's related to the acquisition of Beltransgas," O'Sullivan said of Gazprom's price push. "You've had this relationship where there seems to be a disparity in price, but Gazprom has been expecting to gain control of the company all along."
According to Belmaceda's report, every gas crisis between the two countries from 1994 forward has been associated with broken Belarussian promises to privatize the company. Lukashenko promised privatization during his fall 2001 re-election campaign, precipitating the 2002 crisis, and the 2004 crisis was solved -- though only temporarily -- when Putin promised fixed prices in exchange for Lukashenko's renewed promise to privatize Beltransgaz.
"Gazprom wants to get as much control over the export pipeline system in its backyard as possible," said Chris Weafer, chief strategist at Alfa Bank. "One reason for getting control over Belarus' pipelines is that it provides some alternate export routing to Europe," the need for which was highlighted by January's Ukrainian gas crisis.
But a key dispute remains the vast disparity in the two sides' assessment of the company's worth: Belarus puts it at $5 billion, while Gazprom's assessment of it is a mere $600,000.
A Beltransgaz representative referred all questions for this report to general director Dmitry Kazakov, who has been unavailable for comment for the past week.
Beltransgaz on Monday offered Gazprom a handful of joint projects, including concessions on building a second branch of the joint Yamal-Europe pipeline which ships Russian gas to Europe through Belarus, Interfax reported Monday, but the question of privatization remains stalled, a Gazprom spokesman said.
"I think Lukashenko will have to give up this property sooner or later. He won't have any choice," Bogdankevich, who served as Belarus' central banker from 1991 to 1995, said by telephone from Minsk. "If he had normal relations with the world, if we had an adequately developed economy, it would be a different story."
Belarussian Prime Minister Sergei Sidorovsky told reporters on Monday that talks on gas prices would continue "calmly throughout the current year."
But the source at Gazprom said that if Lukashenko decided to play hardball, a repeat of January 2004 was not out of the question.
"I think that Belarussian history and recent events in Ukraine have been enough for everyone to make their own conclusions -- and to understand the need to agree on all terms of gas supply contracts before it's too late," he said.
http://www.moscowtimes.ru/stories/2006/04/05/001.html
Nu, zayats, pogodi!
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