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Wednesday, December 27, 2006

Belarus warns Russia over gas transit to Europe

MINSK/MOSCOW (Reuters) - Belarus issued an implicit threat that it could stop Russian gas deliveries through its pipelines to western Europe unless Russia's gas monopoly Gazprom relented on demands Minsk pay steep price increases in 2007.

The threat is likely to revive unpleasant memories of gas cuts to Europe last year when Russia was locked in a similar pricing row with Ukraine. But Belarus ships smaller volumes of gas to Europe via its territory and Russia said Europe was safe as Gazprom (GAZP.MM) had stockpiled extra gas in Germany.

"We are inter-dependent. If I don't have a domestic gas supply contract, Gazprom won't have a transit deal," Belarus's Deputy Prime Minister Vladimir Semashko said at Minsk airport late on Tuesday after his return from failed talks in Moscow.

About 80 percent of Russian exports to Europe are pumped via Ukraine, with the rest going through Belarus. Russia supplies a quarter of Europe's gas to more than 20 countries.

Belarus, whose President Alexander Lukashenko is accused in the West of crushing human rights, has long been a Russian ally.

Relations have soured due to what analysts say is Kremlin leader
Vladimir Putin's distaste for Belarus's Soviet-style economic policy and reluctance to share enterprises with Moscow.

Semashko did not say whether Belarus was prepared to stop all gas transit via its territory.

Two years ago, Minsk took no such action in a similar dispute, but Gazprom accused it of taking gas from transit pipelines for its domestic needs. Gazprom said it viewed Semashko's latest comments as a new threat to steal gas.

Two years ago, the row generated no major criticism of Russia in the West due to Lukashenko's poor political image.

Last year, Russia came under fire from politicians in the
European Union and the United States following gas cuts to Ukraine. The dispute accentuated rocky relations between Moscow and Ukraine's pro-Western leadership, since tempered by the return of a prime minister friendlier to Russia.


The sniping reached a climax when Vice President
Dick Cheney accused Russia earlier this year of using energy to intimidate and blackmail smaller neighbors.

Some analysts say Moscow may decide against resorting to cuts this year given the Ukrainian experience and the growing importance of Germany as its top trade partner.

"Belarus has a very strong negotiating position with its gas transportation infrastructure and we believe that Gazprom will have to be very flexible with its Belarus pricing policy," said Yelena Savchik from Renaissance Capital brokerage.

But a Gazprom source told Reuters some top employees had been told to cancel New Year holidays: "It looks exactly like one year ago with Ukraine."

Gazprom still hopes for a deal to allow Belarus to receive supplies and Gazprom to transit gas to Poland and Germany.

Gazprom says it offered major concessions to Belarus on Tuesday such as lowering the proposed price to $110 per 1,000 cubic meters from the previous proposal of $200. On Wednesday, it lowered its offer still further to $105. Gazprom has also said the country could pay part of its bill in assets.

Belarus now pays $46.7, or as much as consumers in Russia. By comparison, Gazprom will charge Moldova $170 in 2007 and Georgia $235, while consumers in Europe pay over $250.
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