Gazprom, the Russian gas company, struck a five-year deal to supply gas to Belarus just minutes before a New Year deadline, narrowly avoiding a gas price war that threatened to disrupt supplies to Europe.
The agreement, signed at two minutes to midnight on New Year’s eve, just as Vladimir Putin, Russia’s president, made his New Year address, averted a shut-down of gas supplies to Belarus scheduled for 10am on January 1.
The new contract doubles the price of gas for Belarus this year and gives Gazprom a 50 per cent stake in its pipeline network.
Under the terms of the deal, gas prices will rise steadily over the next five years bringing them in line with European countries by 2011.
The deal will phase out a multi-billion dollar gas subsidy to Belarus, which had allowed Alexander Lukashenko, the country’s authoritarian president, to subsidise living standards. Gazprom has been trying to bring gas prices to all former Soviet republics more into line with European levels.
The price increase and exemption from export duties gives Belarus more favourable terms than those offered to other former Soviet republics.
Belarus agreed to pay $100 per thousand cubic meters of gas this year compared with $46 last year, while Gazprom agreed to pay $2.5bn in cash for a 50 per cent stake in Beltrangaz, the distribution and pipeline network.
Gazprom had wanted Belarus to pay $105 for gas of which $30 would be in Beltransgaz shares. Sergei Kupiyanov of Gazprom, said the company was satisfied with the deal.
By comparison, Georgia, which has been in a state of cold-war with Russia, will this year pay $235 per 1,000 cu m of gas.
“The terms which have been fixed [with Belarus] in this current agreement are the best which exist on the territory of the former Soviet Union,” Alexei Miller, the chief executive of Gazprom, said.
Sergei Sidorski, Belarus’s prime minister, said the doubling of the price was “very difficult, almost unbearable” for Belarus’ economy.
“The Belarussian side, in a difficult atmosphere on the eve of the new year, signed an agreement on unfortunate terms,” Mr Sidorsky was quoted as saying.
Last week Alexander Lukashenko, the authoritarian president of Belarus, said: “Belarus won’t bow to Gazprom’s blackmail. If they keep putting pressure on us, we will go down into the bunkers, but we will not surrender.” Mr Lukashenko had also pledged not to give up control over the country’s pipelines.
Gazprom had threatened to turn off supplies to Belarus on January 1, if it did not agree on a new price. This echoed Russia’s stand-off with Ukraine which resulted in the shutting down of gas supplies to Ukraine and disruptions to other European countries.
While only 20 per cent of Russian gas is exported through Belarus, several EU member states, including Poland, Lithuania and Germany would have felt the repercussions as Belarus said it would halt transit.
Under a new deal, Belarus will double the tariffs for Russia’s gas transits. The agreement marks a new phase in Russia’s relationship with Belarus.
The two countries have been close allies, but the Kremlin became increasingly annoyed with Mr Lukasehnko’s failure to deliver on promises of closer integration.