WILL LUKASHENKO PRIVATISE BELARUSIAN GAS PIPELINES?


11.12.06
MOSCOW. (Andrei Suzdaltsev, Higher School of Economics, for RIA Novosti)

During his latest visit to Minsk in late November, Russian President Vladimir Putin said he was convinced that a joint venture would be set up by Belarusian gas pipeline monopoly Beltransgaz and Russian energy giant Gazprom before January 1, 2007.
The sides are to share Beltransgaz stock 50:50, and the venture is to be registered in Belarus.
Russian experts say Gazprom’s struggle for control over the Belarusian leg of the Russian gas transit pipeline to the European Union is almost over. Lukashenko seems ready to privatise Belarusian gas communications.
However, the situation is rather complicated, as Russia and Belarus have a package agreement, signed in April 2002, on the establishment of a joint gas transportation venture, under which Russia is to supply gas to Belarus at domestic prices for five years. Minsk is receiving the cheapest gas in the former Soviet territory but has avoided setting up a joint venture with Gazprom.
The Belarusian gas pipeline system was established more than 40 years ago. It delivers 7-8% of Russian gas exported to Central Europe and, most importantly, is the operator of Russian gas transit via Belarus and the controller of the Yamal-Europe pipeline with a capacity of 36 billion cubic meters of gas a year. Control over these two gas pipelines is an important political resource, which Lukashenko is unlikely to give up.
Beltransgaz will receive Russian gas at $46.68 per 1,000 cubic meters until December 31, 2006. But Belarusian end clients pay at least $100, and the difference adds up to $600-$800 million a year. The establishment of a joint venture threatens to expose this grey income, which bypasses the Belarusian budget.
The Belarusian pipeline monopoly is a major internal political resource. Since the country gained independence, the republican political class has considered the Belarusian leg of the Russian gas pipeline as the main asset of sovereign Belarus.
Beltransgaz is a shining example of Lukashenko’s ability to ensure that Moscow decisions benefit the Belarusian ruling class, which is a big part of the Belarusian president’s legitimacy. Lukashenko is unlikely to give up his image of a successful negotiator with the Russian leaders.
Not a single major joint venture was established in the past 20 yeas of Russian-Belarusian economic integration, although Russian business has set up dozens of joint ventures with partners in other countries. Moreover, the viability of a potential joint Russian-Belarusian venture is questioned by many experts.
Business atmosphere in Belarus is very complicated. The state is actively using the golden share (a nominal share that can outvote all other shares in certain specified circumstances), which provides an opportunity for unlimited nationalisation. The republican tax system is absurd, as taxes exceed revenues. Belarusian companies are working under the watchful eye of dozens of controlling bodies and rely only on the goodwill of the Belarusian president, which does not encourage major investment in the republican economy.
Therefore, the establishment of a Gazprom-Beltransgaz venture can take months, if not years, of fighting over every dot and comma. The appointment of the joint venture’s directors does not mean it will be allowed to work or control Russian gas transit to Central Europe. Lukashenko, with the golden share and the court on his side, can block any decision of the joint venture’s board. And 50% of shares is not a controlling stake.
So, the Belarusian leadership will not risk anything even if it turns over 50% of Beltransgaz shares to Gazprom, but will receive natural gas cheaply in 2007 and retain control of the Russian gas transit. The establishment of the joint venture can take years, with Gazprom management unwittingly involved in an endless process of resuscitating the joint gas transportation company.
December 31 is less than three weeks away, and Minsk may agree to set up a front company with Gazprom, turning over the stake to Russia for several billion dollars.
However, a crisis scenario cannot be ruled out.
President Lukashenko is known for his ability to take inordinate political decisions. In the past few days, the Belarusian leadership has been amassing funds without displaying eagerness to sign documents of association with Gazprom. Contracts on gas deliveries and transit in 2007 have not been signed. Lukashenko may be hoping that the EU and the Untied States will help him in case of a gas spat beginning on January 1, 2007, because Ukraine received Western information and political support in a similar situation in January 2006.
However, Minsk may also have to go over to paying an average European price for Russian gas, which will take into account the cost of transportation to the Belarusian-Russian border, in the spring of 2007. This would be a heavy blow to the Belarusian economy, but it will survive, although not without major losses.
One way or another, it will be a new chapter in Russian-Belarusian relations.
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