GAZPROM TO RAISE GAS PRICES FOR BELARUS FROM 2007

RIA Novosti, Russia
April 10 2006

MOSCOW, (Igor Tomberg for RIA Novosti) — Gas prices for Belarus
“should be at least three times higher,” said Alexander Ryazanov,
deputy CEO of Gazprom. This means about $140 per 1,000 cu m.

The news shocked the Minsk authorities, which had said they were
ready to pay a higher price but apparently did not imagine it would
be so high. The price rise will tear nearly a $2 billion hole in the
Belarusian budget.

According to a contract between Gazprom and Beltransgaz, the Belarusian
state-owned gas company whose pipelines carry Russian gas to Europe,
this year the Russian gas monopoly is to deliver 21 billion cu m of gas
at 2005 prices ($46.68). In return, Minsk promised to assist Gazprom’s
operation in the republic, notably not to change gas transit tariffs.

First, the two states are creating a union state, Gazprom deputy CEO
Alexander Medvedev, director general of Gazexport (a 100% subsidiary
of Gazprom), said, explaining the non-market price. Second, Belarus is
the only country where Gazprom owns the trunk gas pipeline and leases
the land under it. And third, the gas holding has resumed takeover
negotiations with Beltransgaz, he said. If the negotiations are
successful, Gazprom will take under its control the entire Belarusian
gas transportation network.

But the talks are apparently skidding because Ryazanov said a
price compromise was contingent on Gazprom’s involvement in the gas
transportation and distribution infrastructure of consumers.

Minsk flew into a fury. Such statements “are an element of blackmail
and outrageous behavior,” said Stepan Pisarevich, head of the
Belarusian upper house’s commission on the economy, budget and
finance. Price rising is an unavoidable element of discussions on the
creation of a joint venture on the basis of Beltransgaz and Gazprom,
he said.

Pisarevich recalled that gas prices for Belarus were stipulated in
the Union State Treaty and the agreement on creating equal conditions
for economic entities.

Prime Minister Sergei Sidorsky said almost the same. “The Belarusian
government will adhere to the existing agreements on equal energy
prices for the economic entities of the Union State,” he said.

Gazprom has the same price policy for all former Soviet republics,
company press secretary Sergei Kupriyanov said when commenting on the
harsh statement by Belarusian politicians. The gas price for Belarus
is based not only on the Union State Treaty, he said, but also on
other documents regarding gas pricing and the creation of a JV on the
basis of Beltransgaz. Kupriyanov said the JV was to be created in 2003.

But some Belarusian politicians view the situation differently. Roman
Vnuchko, head of the lower house’s commission on the monetary and
credit policy and banking, said Gazprom exposed itself to blackmail
by selling gas to Belarus at Russia’s domestic prices.

“Belarus is a headache for Gazprom; it is a precedent that prevents
the gas holding from raising prices for other partners,” Vnuchko said.

Settling price relations with friendly Armenia was another
difficulty. As if on prompting, Gazprom’s top managers made their
statement about leveling off prices for all consumers during the
visit by the Armenian president.

Gazprom (and the state as its beneficiary) are often accused of a
selective approach. Though gas prices were rapidly raised for other
ex-Soviet states, Belarus continued to get the fuel at Russia’s
domestic prices. Therefore, the latest decision of Gazprom looks like
a political win for the gas holding and the Russian authorities.

However, the level at which information is made public is also
important. The holding’s management is not in a position to set prices
for Belarus. Politics is too closely connected with the economy in
the case of Belarus. Belarussian experts claim that Vladimir Putin
had once offered Alexander Lukashenko to give economic entities,
both state and private ones, a free hand in solving their economic
problems. Presidents should discuss purely political matters, Putin
allegedly said.

This is exactly what Gazexport head Ryazanov meant: Gas prices and
the issue of ownership of the gas transportation infrastructure are
purely economic matters.

Gazprom will hardly triple gas prices for Belarus next year because the
republican economy would not survive even a double price. The issue
is to be discussed by politicians, and the results of playing the
“gas card” may surprise even Gazprom. This may accelerate the merger
of Belarus and Russia or transition to the common currency.

However, the current situation has again put the finger on Moscow’s
resolve to throw around its energy weight in foreign policy.

Igor Tomberg is a leading researcher of the Institute of Economics
at the Russian Academy of Sciences.

The opinions expressed in this article are those of the author and
may not necessarily represent the opinions of the editorial board.