2007 Russia–Belarus energy dispute

Background

For a long time, the gas price for most of the former USSR republics was significantly lower than for the Western European countries. In 2006, Belarus paid only $46 per 1000 m3, a fraction compared to $290 per 1000 m3 paid by Germany. The annual Russian subsidies to the Belarusian economy were around $4 billion, as Russian president Vladimir Putin said on 9 January 2007. In 2006, Russia announced a higher price for 2007. After Alexander Lukashenko, President of Belarus, rejected this price change, and without a new treaty, Gazprom threatened to cut gas supplies to Belarus from 10:00 MSK on 1 January 2007. Both sides finally agreed on the following terms:

• Russian gas to be sold to Belarus for $100 per 1000 m3 (compared to Gazprom's original request of $200 per 1000 m3)
• Belarus to sell Gazprom 50% of its national gas supplier Beltransgaz for the maximal price of $2.5 billion
• Gas prices for Belarus to gradually rise to the European market price by 2011
• Belarus's transit fees for Russian gas to increase by around 70%

Another part of the energy dispute is the dispute over oil. In 1995, Russia and Belarus agreed that no customs would be imposed on oil exported to Belarus. In exchange, the revenues from this oil processed in Belarus would be shared by 15% for Belarus and 85% for Russia. In 2001, Belarus unilaterally canceled this agreement while Russia continued its duty-free exports. Lukashenko's state kept all the revenues, and many Russian oil companies moved their processing capacities to Belarus. On this arrangement, Russia also lost billions of dollars annually. Belarus imposed a tariff of US$45 per ton of oil flowing through the Druzhba pipeline, prompting Russia to claim that the move was illegal and to threaten retaliation, since it contradicts bilateral trade agreements and worldwide practice. Only imported or exported goods are being tariffed while transit goods are not objects of tariffing. Russia rejected paying the newly imposed Belarusian tariffs.

In compensation, Belarus began siphoning off oil from the pipeline. According to Semyon Vainshtok, the head of Russia's pipeline monopoly Transneft, Belarus had siphoned off 79,900 metric tons of oil since 6 January. Vainshtok said this was illegal and the move was made "without warning anyone".{{cite news |access-date=2007-01-09 |url-status=live

A Belarusian team led by Vice-Premier Andrei Kobyakov flew to Moscow on 9 January to pursue a solution{{cite news |access-date=2007-01-09 |access-date=2007-01-09 |url-status=live

On 10 January, the Belarusian government lifted the tariff, and Russia agreed to start negotiations. The oil flow was resumed at 05:30 GMT on 11 January. In the wake of the dispute, Gazprom acquired 50% stake in the Belarusian gas pipeline operator Beltransgaz for US$2.5 Billion.

August 2007 developments

Following the alleged violation of previous agreements and the failure of negotiations, on 1 August 2007, Gazprom announced that it would cut gas supplies to Belarus by 45% from 3 August over a $456 million debt. Talks are continuing and Belarus has asked for more time to pay. Although the revived dispute is not expected to hit supplies to Europe, the European Commission is said to view the situation 'very seriously'. Following overnight negotiations in Moscow, on 3 August, $190 million of the debt was repaid, and Belarus was given a further week to pay the remainder or face a 30% cut in supplies.

As of 8 August, Belarus has fully paid its $460 million debt for Russian natural gas supplies, ending a dispute between the country and Gazprom [RTS: GAZP].

Related disputes

The situation is reminiscent of other recent price tensions between Russia, one of the world's energy superpowers, and other states since the start of 2005. These have resulted in increases in the prices paid for gas by Moldova (now paying US$170 per 1,000 cubic meter), Georgia (US$235 per 1,000 cubic meter{{cite news |access-date=2007-01-09 |url-status=live |access-date=2007-01-09 |url-status=live |access-date=2007-01-09 |url-status=live

On 29 July 2006, Russia shut down oil export to Mažeikių oil refinery in Lithuania after an oil spill on the Druzhba pipeline system occurred in Russia's Bryansk oblast, near the point where a line to Belarus and Lithuania branches off the main export pipeline. Transneft said it would need one year and nine months to repair the damaged section. Although Russia cited technical reasons for stopping oil deliveries to Lithuania, Lithuania claims that the oil supply was stopped because Lithuania sold the Mažeikių refinery to Polish company PKN Orlen.

Impact

All IEA member countries who are net oil importers have legal obligation to hold emergency oil reserves, which is equivalent to at least 90 days of net oil imports of the previous year. Furthermore, under the EU regulations there is obligation to hold reserves equivalent to 90 days of consumption, so unlike the gas dispute with Ukraine in 2006, consumers were not affected. Poland had an 80-day oil reserve. The Czech Republic reported drawing oil from its 100-day reserves.{{cite news |access-date=2007-01-10

The involved countries have, however, expressed concerns about the reliability of the Russia-Belarus oil pipeline and Belarus as an oil middleman supplier.

The events have also provoked renewed discussion on the government policy of phasing out nuclear power in Germany.{{cite news |access-date=2007-01-11 |url-status=live

Reaction

The European Union has demanded an "urgent and detailed" explanation, according to a spokesman for Energy Commissioner Andris Piebalgs.

Piotr Naimski, Poland's deputy economics minister who is responsible for energy security, stated "This shows once again that arguments among various countries of the former Soviet Union between suppliers and transit countries mean that these deliveries are unreliable from our perspective."

German Economy Minister Michael Glos stated that the dispute showed that "one-side dependencies must not be allowed to develop".

Following a meeting with European Commission President José Manuel Barroso in Berlin, German Chancellor Angela Merkel condemned the action, stating "It is not acceptable when there are no consultations about such actions". Commenting on the importance of trust in energy security, she said "That always destroys trust and no trusting, undisturbed cooperation can be built on that." Merkel continued by saying "We will certainly say to our Russian partners but also to Belarus that such consultations are the minimum when there are problems, and I think that that must become normality, as it would be within the European Union." Barroso said that "while there is no immediate risk to supplies, it is not acceptable" for such actions to be undertaken without prior consultation.{{cite news |access-date=2007-01-09

References

References

1. (2006-04-17). "Russia to adopt market gas price with Belarus from 2007". [[People's Daily]].
2. (2006-12-18). "Russian gas demands irk Belarus". [[BBC]].
3. (2006-12-31). "Russia-Belarus gas deal reached". [[BBC]].
4. (2007-01-06). "Belarus, Russia trade blows in oil tax dispute". [[Agence France-Presse]].
5. (2007-01-08). "Russia oil row hits Europe supply". [[BBC]].
6. (2007-01-10). "Белoруссия отменила транзитную пошлину". [[BBC]].
7. (2006-01-10). "Russia says oil flow to restart". [[BBC]].
8. (2007-01-11). "Russia-Belarus oil blockade ends". [[BBC]].
9. (2007-05-19). "Gazprom Buys Half of Beltransgaz for $2.5 Billion". [[Kommersant]].
10. "UPDATE 4-Gazprom to halve gas to Belarus in debt row". Reuters.
11. (2007-08-03). "UPDATE 4-Belarus buys one week's respite in Russia gas row". Reuters.
12. [http://www.akm.ru/eng/news/2006/december/26/ns1840485.htm Gazprom to deliver gas to Moldavia at $170 per 1,000 cubic meters in 2007] {{Webarchive. link. (28 January 2007 , by AK&M, 26 December 2006. Retrieved on 11 January 2007)
13. link. (21 November 2006 , by Vladimis Socor, Eurasia Daily Monitor Volume 3, Issue 150 (3 August 2006))
14. "Fact Sheet on IEA Oil Stocks and Response Potential".
15. Sebastian Smith. (2007-01-08). "Russia-Belarus oil row hits supplies to Germany, Poland". [[Agence France-Presse]].