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Russia-Belarus Gas Deal Averts Supply Disruption to Europe

Reuters
Monday, 1 Jan 2007 | 4:57 PM ET

Russia and Belarus announced a last-minute deal on gas prices on Monday, moments before Moscow was to start cutting off supplies with potential disruption for customers in Europe.

Belarus Prime Minister Sergei Sidorsky arrived at Russian gas monopoly Gazprom's Moscow headquarters barely 30 minutes before Sunday's midnight deadline to sign the deal.

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

"A mid-term agreement was reached on gas prices to Belarus and on transit shipments to Europe," Gazprom boss Alexei Miller told a news briefing early on Monday.

Big European Supplier

Russia supplies around a quarter of Europe's gas demands and pumps 20% of this amount through Belarus.

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.

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

By comparison, Gazprom charges European customers over $250.

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

"The terms which have been fixed in this current agreement are the best which exist on the territory of the Former Soviet Union," Miller said.

Soviet-Style Economy

Around 10 million people live in Belarus. Its economy is still largely run on a Soviet-style command system and its industry relies heavily on cheap energy imports to remain profitable.

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 fit into that category. Its President Alexander Lukashenko has quarreled with the West and wants closer ties with Moscow.

At the joint press conference Belarus Prime Minister Sidorsky looked visibly displeased by the price rises.

"We don't have much natural resources. You (Russia) have put us in a difficult situation, but we will stay strong," he said.

In the deal Gazprom will also pay $2.5 billion to control half of Belarus's pipelines for four years and agreed to pay double to transit gas through Belarus to Europe.

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