RUSSIA AND BELARUS: CRISIS SETTLED, BUT QUESTIONS REMAIN


15.01.07
MOSCOW. (Sergei Kolchin for RIA Novosti)

On January 12, Russia and Belarus signed an agreement in Moscow on cooperation in oil and petrochemicals exports. The worst part of the conflict has passed, but the terms of the "truce" raise certain questions.

The roots of the Russian-Belarusian energy confrontation lie in their completely different interpretations of the Union State. Belarusian President Alexander Lukashenko seems to believe that domestic Russian oil and gas prices should apply in his country as well. The Russian government is tired of waiting for Minsk to do what is called for by the Union State agreement. There are still very few real signs of its existence. There is also pressure from the West, which started speaking of the unacceptability of double standards in Russia's relations with its neighbors during the Russian-Ukrainian gas conflict a year ago. The West believes that Russia's subsidies help the Lukashenko regime remain in power, creating unjustified favorable conditions for the Belarusian economy. So the reasoning of the West and Russia seems to have coincided this year, but later developments showed that Minsk had its own trump cards and did not hesitate to use them.

After Russia introduced oil export duties for Belarus, Minsk did the same. The reasoning behind this $45 per metric ton tariff is not quite clear, as it has no analog anywhere in the world. It can hardly be viewed as an import duty, because the latter usually seeks to protect national producers from foreign competition, but Belarus does not produce oil in any significant amounts. It is also wrong to view it as a transit duty, because there are already transit tariffs, which, by the way, Minsk has raised this year. So this duty was just an addition on top of export duties paid by Russian oil companies and made Russian oil exports via Belarus almost completely unprofitable. Moreover, on January 6, Minsk began to siphon off oil going to the West.

Unexpectedly for Russian officials, this response turned out to be quiet effective. Unlike in Ukraine, the West does not have any real leverages to put pressure on Belarus. The country is not a WTO member, and the Lukashenko regime has a poor reputation as it is. Besides, Europe is inclined to blame the conflict on Moscow and Minsk equally, as it is interested only in its own energy security. So the EU resumed talks of Russia's unreliability as an energy exporter and of the need to find an alternative.

Russia has announced its intention to increase the number of export routes it uses, but so far the search for alternatives has not yielded promising results. Notably, it says it intends to increase oil exports via the Baltic Sea to 110 million metric tons annually, but this will take time and money. The announced plans for expanding oil exports by railway and river transport will also be hard to carry out, and even the Russian government acknowledges that there is no additional pipeline capacity available.

The Moscow talks allowed both parties to save face. Russia ensured that new negotiations would begin only after Belarus abolished the illegal duty and returned the oil it had siphoned off. Belarus in turn received significant privileges in oil contracts (as had been the case with gas as well).

According to preliminary information, the essence of the agreement is that export duties on Russian crude will be lowered to $53 per metric ton for 2007 (for oil consumed in Belarus).

The parties also consented to return to the previously reached agreement on the division of export duties, whereby Russia was to receive 85% and Belarus 15%. However, its implementation will take three years and will not be completed until 2009. In any case, some disagreements will most likely remain and will be inherited by the next Kremlin administration.

An important aspect of the latest agreements between Moscow and Minsk is the harmonization of export duties on petrochemicals. Belarusian duties are significantly lower than Russian ones, giving substantial preferences to local exporters. Now the country will share this income with Russia in exchange for lower oil export duties.

This raises several questions. First of all, how real are Russia's losses from duty-free oil trade with Belarus (estimated at $1 billion annually) and to what extent are they related to the desire to develop the Union State? Why has Russia viewed this showdown as inevitable for so many years?

Apparently, Belarus was not the only one interested in the previous supply scheme. Russian oil giants holding big stakes in Belarusian refineries (in Mozyr and Novopolotsk) must have lobbied for the status quo under the banner of a brotherly union. It was no coincidence that Minsk's key arguments in the debates with Moscow were the desire to limit Russian ownership of assets in Belarus and insufficient refining capacities in Russia.

Russia responded with a threat to cut oil production, but this was aimed at the international community rather than the Belarusian authorities. In any case, because of Moscow's greater involvement in the global economy, its position in the conflict seems more vulnerable, at least for the time being.

Dr. Sergei Kolchin is a senior research fellow at the Institute of Economics of the Russian Academy of Sciences.
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