Belarus’ gas bill

From - LukashenkaBelarus has agreed to pay out a portion of the $456 million the country owes Gazprom for natural gas payments originally due by July 23rd. When it had become obvious Belarus was not going to pay by then, Lukashenka was given until today to coordinate the payment. This first chunk, $190 million, has bought Belarus an additional week to come up with the remaining money, at the cost of supposedly emptying the country’s reserve fund. From RIA Novosti:

Alexander Lukashenko said: “I have instructed the government to take $460 million from our reserve and pay for Russian gas supplies. This is not a major sum for the country.”

“Our reserve fund will be emptied, but other countries are ready to help us, including [Venezuelan President Hugo] Chavez and foreign commercial banks,” Lukashenko said.

(Venezuela hasn’t confirmed agreeing to an actual loan, but Chavez visited Minsk in June and apparently is seeking a $1 billion arms deal with Belarus, suggesting that future cooperation is possible.)

Belarus had been negotiating with Russia for a $1.5 billion loan that would be used to cover the gas cost, but talks fell through last week during PM-level meetings. Two Gazprom-connected banks had also offered Belarus loans to cover the payment, but they were refused by Minsk.

The obvious question for me is why Belarus didn’t pay the bill with the $625 million it received from Gazprom earlier this year as payment for a 12.5% stake in Beltransgaz, the first transaction in a series of four that would give Gazprom a 50% holding in Belarus’ domestic gas pipeline system. This arrangement was at the crux of the gas deal worked out at New Years, when the price and payment deadlines that are now the issue were worked out.

Belarus would keep its sub-European price levels for the gas it was receiving from Gazprom, but in return, it would have to allow the Russian gas company to acquire a stake in its domestic pipeline operator. Gazprom already controls the company that runs the major Yamal-Europe pipeline, which passes through Belarus and into Poland and Germany. That pipeline is where the majority of Russian gas exports through Belarus traverse, and is key for bypassing Ukraine (which has much more of a stranglehold on Russia’s export routes). Control over the domestic pipeline network is less important for securing the reliability (and profitability) of its exports, but it does give Gazprom more leverage in securing payment from its deliveries to the internal Belorussian market. It also strengthens Gazprom’s general hold on the region’s natural gas infrastructure, a goal it has been pursuing lately.

The deal reached back in January kept Belarus’ gas prices well below Western European (and Ukrainian, Georgian, etc.) prices, but at the cost of Beltransgaz. Lukashenka really had no option; his economy–what there is of it, at least–is largely kept afloat through Russian energy supplies that are in effect subsidized. Forcing a dramatic increase in price would devastate the country’s energy-intensive industry. In addition, Gazprom’s payments for Beltransgaz would correspond to Belarus’ gas bills, ensuring the beleaguered country would have the funds available to keep Gazprom happy and at bay, (at least for the next few years) as Belarus transitions into prices more in line with market forces.

What exactly happened to the $625 million Lukashenka was supposed to spend on his country’s gas bill is not clear (though I can guess…). Instead, Belarus is trying to play the victim and Gazprom is forced into the position of threatening a gas shutoff, which is quite damaging to its already suffering public image.

However, I have no pity for Belarus on this. They new this date was coming, and they should have kept the funds available for it. Despite suggestions that this pressure is corresponding to requests for Russian access to Belorussian privatization deals, or calls saying this is just a further example of energy blackmail, Gazprom really does have a case here.

Gazprom’s shutoff to Ukraine on Jan. 1, 2006 was incredibly harmful to its reputation, and should a further cut off be necessitated, the company needs to do a better job of explaining its position–and the Western press needs to do a better job of listening to it. It appears efforts are being made in that regard, as noted in the Wall Street Journal:

Foreign Minister Sergey Lavrov reassured his audience that Russia was a reliable energy supplier. “I would like to stress that Russia has never violated its obligations under any contract to deliver energy,” Mr. Lavrov was quoted as saying by Interfax.

Russia guaranteed energy supplies “to every country, not only friends or allies,” he said.

Quotes like these, however, along with any mention of the $2.5 billion deal for Beltransgaz that was meant to pay for this sort of thing, are only mentioned at the end of these articles.

Update: Kommersant reports that the $625 million was put into the reserve fund now being tapped for the gas payment. Apparently, Lukashenka also got some of the country’s largest businesses to “donate” $100 million a piece to the fund as well, suggesting that raiding the account for the $460 million bill should not bottom it out.

In May, the Belorussian vice-premier Vladimir Semashko said that the money paid for Beltransgaz “will not be returned to Gazprom — it will [instead] go into the National Development Fund.”

While the sentiment may be appreciated–using money from the sale of a key national asset for strategic national development–it also suggests a lack of foresight on the Belorussian side. Just how did they expect to pay the bill? The government is apparently receiving payments from individual domestic gas customers, it is just refusing to pass along that payment to Gazprom. Now it is forced to go back on its assertion of not using Gazprom money to repay the Russian company. Long term, Belarus will have to increase collection efforts, raise domestic prices, and diligently repay gas contracts–or else it will once again have to raid its depleted cookie jar.

Check out more coverage from David Marples on the EDM, including some reactions from

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