Belarus reluctantly signs new gas deal with Russia

PUBLISHED : Tuesday, 02 January, 2007, 12:00am
UPDATED : Tuesday, 02 January, 2007, 12:00am

Belarus signed a new price deal for Russian gas supplies two minutes before a midnight New Year's Eve deadline, narrowly averting a threatened supply cut that would likely have hit deliveries to Western Europe yesterday.

A new contract envisages a roughly fourfold increase in the price of Russian gas supplies to Belarus over the next five years, to gradually bring it up to parity with prices paid by other consumers.

The increase, coupled with a rise in Russian oil import duties, could prove a crushing blow to the economy of Belarus, traditionally one of Moscow's closest allies.

Speaking in Moscow after signing the deal, Belarus's prime minister, Sergei Sidorsky, did not hide his disappointment.

'The Belarusian side, in a difficult atmosphere on the eve of the new year, signed an agreement on unfortunate terms,' he said.

As part of the deal, Belarus agreed to sell 50 per cent of its strategically important gas pipeline operator Beltransgaz to Russian gas monopoly Gazprom, according to a breakdown of the deal provided by the Russian company.

In recent years, the Belarusian government has strenuously resisted such a sale.

Under the deal, Belarus will pay US$100 per 1,000 cubic metres of gas this year, just below the US$105 earlier demanded by Russia, but far higher than the US$45 charged under the previous contract, Gazprom said.

Over the five years covered by the contract, the price of gas would climb annually to reach the 'market price' charged to Western European customers, it said.

Most of Gazprom's EU customers pay more than US$200 per 1,000 cubic metres of Russian gas.

The deal appears to mark the end of an era of cheap energy supplies from Russia that have subsidised the Belarusian economy since the collapse of the Soviet Union in 1991.

Mr Sidorsky said he hoped to negotiate a 50 per cent reduction in the newly imposed duties on Russian oil imports.

Belarus's president, Alexander Lukashenko, warned that his country faced a 'new economic reality'.

In an apparent reference to Russia, Mr Lukashenko spoke of 'a blow to our centuries-old friendship' and called on the population to 'budget more carefully'.

Speaking alongside the Belarusian prime minister, Gazprom chief Alexei Miller said Belarus had 'the most subsidised and attractive conditions of any country in the former Soviet Union'.

As part of the deal, Russia would also pay US$2.5 billion for the 50 per cent stake in Beltransgaz over the next four years, while the transit price for Russian gas supplies across Belarus would be doubled.

Without an accord on a new five-year contract Gazprom had warned that it would cut off supplies.