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Belarus-Russia deal averts cut in gas supplies

Moscow will charge its ally double what it did in 2006. A transit fee increase will help offset the price hike.

January 01, 2007|David Holley | Times Staff Writer

MOSCOW — Russia and Belarus announced a last-minute deal on natural gas prices early today, averting the threat of a midwinter disruption of supplies to European customers.

Russia's state-controlled gas monopoly, Gazprom, had threatened to cut off the flow of gas for Belarus at 10 a.m. today unless a new contract was signed, although the company said it would still supply other European customers by shipping gas across Belarus through pipelines it owns.

Belarus had responded by indicating that it might siphon gas from the pipelines or shut them down.

The agreement, announced shortly after midnight, called for Belarus to pay slightly more than twice as much for gas this year as in 2006. Gazprom would pay nearly twice as much in transit fees to Belarus, partially offsetting the increase in the gas price.

Belarus also agreed to sell Gazprom half of the ownership of its state-run gas distribution network, Beltransgaz.

The acrimonious negotiations dealt a blow to relations between the two longtime allies, and it was not clear whether ill feelings would linger.

As recently as Friday, Belarusian President Alexander G. Lukashenko angrily criticized Gazprom's demands, declaring that his government "won't give in to blackmail."

The two sides agreed on a price of $100 for 1,000 cubic meters of gas, up from $46.68 in 2006. Gazprom had been seeking a price of $105. Although the price marked a sharp jump, Gazprom said it represented very favorable terms: European Union customers typically pay about $250 for 1,000 cubic meters of Russian gas.

"The natural gas agreement signed with the Belarusian side is the least favorable to Gazprom out of all the agreements signed with the former Soviet countries," Gazprom Chief Executive Alexei Miller said at a news conference.

The standoff resembled a pricing dispute a year ago between Russia and Ukraine, which led to a brief disruption of supplies when a contract was not reached by the Jan. 1 deadline.

Critics of Kremlin policy charged at that time that Gazprom was forcing unfavorable terms on Ukraine, compared with other post-Soviet states, because of the Kiev government's turn toward pro-Western policies under President Viktor Yushchenko.

Lukashenko has been widely criticized in the West as "Europe's last dictator," and he has been heavily dependent on economic and political support from Moscow.

Gazprom has been seeking to gradually raise the price of all exported gas to what it calls market levels. The agreement with Belarus apparently calls for additional price increases from 2008 through 2011, although details on further hikes were not immediately released.

The two sides agreed that the transit fee Gazprom pays to ship gas across Belarus would immediately jump 93% and remain at that level for five years, Miller said. They also agreed that Gazprom would pay $2.5 billion in equal installments over the next four years for the purchase of half of Beltransgaz, he said.

Belarusian Prime Minister Sergei Sidorsky, who flew to Moscow for the final negotiations and appeared at a news conference with Miller, seemed unhappy but resigned to the terms of the agreement.

"The conditions are very unfavorable for Belarus," he said. "Our country does not have a rich base of raw materials, and our economy

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