Sidorski’s Gas. The Contract Signed.

The Contract Signed. Its evaluation and estimate are given in this article. We are interested in the visit of Belarusian Prime Minister Sidorski and Belarusian Ambassador to Russia Dauhaliou to Gazprom. Sidorski also dared to give first negative estimate of the agreement. He said, “Belarus signed a disadvantageous contract.” However, Prime Minister’s comment does not mean that Aliaksandr Lukashenka won’t use the contract to announce his next victory over the Kremlin.

Analysis of the signed agreement:

Gazprom’s press release says, “The agreed price of Russian gas exported to Belarus in 2007 includes the price of 100 USD per 1,000 cubic meters of gas, the price formula which to be effective from January 1, 2008 (which coincides with the price formula of Russian gas to Europe), discounts (67%, 80%, and 90%) for 2008, 2009, and 2010 that differ from the market price. Tariff rate (1,45 USD) for supply via Beltransgaz pipelines and service payments for managing the pipelines Yamal-Europe were adjusted. The terms of Gazprom’s payments for 50% of Beltransgaz shares as 2,5 billion USD of equal payments during 4 years were determined. All payments will be made in currency.”
The agreement concerns solely money. Consequently, all procedures of “estimation” are completed. A joint gas transporting enterprise will not be created. It means that Gazprom’s CEOs finally understood that the foundation of “a joint enterprise with Aliaksandr Lukashenka” is unrealistic.

Let us analyze dynamics of the agreement:

December 25, 2006.
Gazprom’s offer remained 200 USD per 1,000 cubic meters of natural gas. Belarus stalled negotiations and returned to the price of 2005-2006 that equals maintaining the price of 46 per 1,000 cubic meters. Then approach of both sides began. Gazprom’s offer on December 26 made provisions for receiving 1.575 bil. USD from Belarus as well as 12.5% of Beltransgaz shares.

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victory over Moscow was considered as a way to change sharply Lukashenka’s positioning in the West

Minsk’s offer on December 26 stipulated for paying to Gazprom in 2007 1.575 bil. USD and receiving from it 2.5 bil USD for the packet of 50% Beltransgaz stock. Gazprom had to pay Minsk in 2007 roughly 2 bil. USD.

According to the signed contract, Belarus has to pay Gazprom 2.1 bil. USD in 2007. Gazprom will transfer to Minsk 625 mil. USD for Beltransgaz stock. As a result, Belarusian natural gas expenses will come to 1.312 bil. USD that comes to 62.5 USD per 1,000 cubic meters of gas while loosing 12.5% of Beltransgaz shares.

Gazprom’s concession counts for 6.5 USD. The price formula becomes stricter from 2008. There were no more talks about a single payment for Beltransgaz’s stock packet. As it appeared, 6.5 USD counts for the delay of payment for Beltransgaz. Here is a compromise. We should remember that Gazprom lowered its price from the original 200 USD. However, there are some evident disadvantages for Belarusians that the gas deal entails. Moreover, those disadvantages have political context. Lukashenka lost unaccounted money received from gas resale at the Belarusian internal market. He can do that no longer. Gas will be exported at the price of 100 USD, and it cannot be resold to Belarusian consumers two times more expensive, as it used to be when the price was 46 USD. Compensations for Beltransgaz will go directly into the national budget. Consequently, Belarusian president is left without “gas” money. It is a significant failure…

Moreover, agreement on December 31, 2006 excludes gas from the sphere of union agreements. There is no more conversation about the “prices equal to Smolensk.” Thus the energy skeleton of the Union State is destroyed. This is the main political result of the gas contract. There is no further interdependence between natural gas prices and oil duties.

Reasons that made Lukashenka sign the contract:

The main reason is that the West remained silent and never launched a massive campaign against Gazprom. However, it is notable that EU tirelessly contacted Moscow regarding the matter. Hence Europe is to blame for the breakdown of a substantial pipeline conflict. Besides that Lukashenka lost his political supporters among Russian political players. Lukashenka was left alone… He did not dare to launch a conflict.

Consequences of the gas deal for Lukashenka

Lukashenka began selling Beltransgaz that signifies that he broke the main taboo of his internal policy. Gazprom’s share of Beltransgas will be growing with each received cubic meter of gas. He yielded.

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The transition of Belarus to the formula “sovereignty equals world prices” began

Furthermore, Lukashenka allowed gas price to grow. It is a political failure. The Union State is forced out of economic sphere. It is a strategic failure.

As a result, Lukashenka will give all forces to prove that he gained a victory over Moscow. The outcome of that victory will result in world gas prices for Belarus in 2011, when Northern Stream pipelines will be put into use, and loss of half of Beltransgaz. Or will he remain in the conflict stream?

In any case, Belarus Prime Minister Sidorski’s reaction is significant…

We shouldn’t forget that the question of oil duty remains unsolved.

Some conclusions:

Undoubtedly, Lukashenka was interested in escalating a conflict from the very beginning. Simultaneously, he did not exclude a possibility that Moscow would give up under Lukashenka’s pressure before December 31. Beginning December 26, Minsk began to escalate the conflict by using threats that entailed the following:
- If the gas price for Belarus grows to 75 dollars, transit rate will be raised by the minimum of 1.3 dollars, present rate being 0.75 dollars per 1,000 cubic meters per 100 kilograms;
- In case Belarus does not reach an agreement with Gazprom, pumping stations that provide transportation of Russian gas through the territory of Belarus to Europe may be disconnected, according to Belarusian Minister of Energy Aliaksandr Aziarec);
- Confiscation of gas transit, including Yamal-Europe pipelines;
- Possibility of complicating oil transfer;
- Blocking ground transit, including a vital transit channel to Kalinigrad;
- Complicating functioning of Russian military bases.

There is no doubt that a complete program of punishing measures against Moscow was prepared in Minsk by December 31.

Lukashenka’s goals in a possible conflict were evident:

Political goals

Burdened by complexes and fantasies, Lukashenka thought that if Kyiv with the West’s support did not manage to wrestle Putin in January 2006 and later in 2006 Brussels and Washington, then he can demonstrate his potential to the entire world—only Lukashenka is able to get the better of Vladimir Putin. There are no illusions that Lukashenka wanted to oppose Miller or Medvedev—his opponent was President Putin. Belarusian president thought that a victory over Putin would make up for all his faults during twelve years of his presidency in the eyes of the West.

Moreover, victory over Moscow was considered as a way to change sharply Lukashenka’s positioning in the West and to open him a freeway to legitimizing his regime from the part of Brussels and Washington. Noteworthy, Lukashenka was absolutely sure that Western anti-Russian instinct would provide him unquestioning support of the West.

In the case Moscow had to surrender to Minsk, Lukashenka’s position within the country would be firm. He would have become father of the nation, an imbodiment of state nationalism. A part of nationalist opposition would have begun clinging under his wing. At the same time, Lukashenka’s concessions to Gazprom meant the onset of extremely negative internal political trend that will have a potential to remove him from power in future.

If Moscow had to surrender, Lukashenka’s political influence in Russian would have increased as well. Curiously, influence of Belarusian factor in Russian will be significant only in the case of Moscow’s failure. Had Lukashenka won, he had a chance to be a real political oligarch at Duma elections in Russia. He can turn from the sponsor of left and left-centrist powers in Russia to the center of their political attraction. Failure of Putin’s administration at “Belarusian front” may have adverse impact on the rating of the political party United Russia and positioning of Kremlin’s successor.

Economic goals of a possible confrontation

Minsk had a goal to solve all remaining economic problems with Russia together with gas problem. The outcome of that business would have been putting Russia in the position of a Belarusian colony. Indirect evidence of Minsk’s willingness to except Moscow’s surrender is the appearance of Siamashka with 14 contracts of oil, sugar, etc. supplies in Gazprom’s building on December 31.

Moscow’s surrender was designed to frame Russian-Belarusian relations as equal for the decade to come. It would symbolize privileged access to Russian energy carriers for Belarus but also to oil and gas extraction, as well as an opportunity to maintain control over some spheres of Russian market.

Methods of achieving victory

Lukashenka believed that he had to last till January 4, 2007. He estimated that Europe would be first to give up. Then Brussels and Washington will begin the campaign of pressure on Moscow. Warsaw and Vilnius had to follow the rescue campaign from January 1, 2006. Besides that Lukashenka counted on Russian “fifth pillar” (trans.-dissidents and those who do not agree with the official state policy) and indirect Kiev’s support.

It not excluded that Russian emigrants set Lukashenka against Putin and promised him to launch a support campaign in the West.

The version of Lukashenka’s offer to exchange privileged prices on gas and oil for integration referendum that would cement the unification of Belarus with Russia was released as a political cover of the real negotiations. Belarusian government actively spread the information that gas pressure had the goal to force Minsk accept Russia’s terms of creating the Union State. In that case, Lukashenka could solve two problems: blame Moscow for ruining the Union State and, simultaneously, act as a fighter for Belarusian sovereignty. Belarusian opposition was used as a blind player in this game.

Resources

Gas and mazut, gas substitute used at electric power plants, supplies were sufficient to last 12, even 14 days. Alternative energy resources would not be the solution of the problem. Oil supplies could have lasted 10 days. Then oil had to be imported at any price to maintain petrochemical plants with permanent cycle.

Conclusion

Lukashenka stopped a step away from “gas war”… But the war itself did not disappear—it relocated from Belarusian-Russian border into Minsk. The transition of Belarus to the formula “sovereignty equals world prices” began…