Updated at 11:50,16-10-2017

Minsk and Kremlin seek to resolve gas conflict

belarusinfocus.info

Both Minsk and the Kremlin are equally uninterested in a bilateral escalation over energy supplies. The parties are likely to make mutual concessions: resume duty free oil supplies to Belarusian oil refineries and repay overdue debt for the Russian gas supplied at a discount in H1 2016. That said, both, Minsk and the Kremlin attempt to avoid open clashes at the highest level and do not want to politicise tension over energy supply.

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At a press conference in Minsk, Beloptgaz CEO Leonid Rudinskiy said that Belarus and Russia managed to move forward in the negotiations on the gas price.

Due to the fall in energy prices, Minsk demanded to lower gas price from USD132 to USD 73 per 1000 cubic metres as of late 2015. Belarus regarded such price as fair and therefore used it to pay for the gas supply from Russia. In return, Russian Energy Ministry said that Belarus had a USD 270 million debt for energy supplies.

In response to the partial non-payment for Russian gas, as of early July 2016, Russia cut duty-free oil supply to Belarus by 37%. Overall, Belarus potential loss from cuts in oil supplies are estimated at USD 200 million in Q3 alone, which negates benefits of fair gas price for Minsk and only increases the risks and deteriorates the conflict. The Gazprom Transgaz Belarus management appealed to the International Arbitration to recover the debt.

According to Semashko, the parties worked out a compromise to be announced soon: the prime ministers of both states were requested to prepare by the end of this month a protocol solution to the problem acceptable for both sides.

That said, both, Minsk and the Kremlin avoided translating the gas/oil conflict into political dimension. For instance, President Lukashenka refrained from any comments on oil supplies or gas debt. Simultaneously, both leaders demonstrated warm and amicable relations.

Minsk has several arguments, which reinforce its position on the reduction of the gas price by Russia. For example, recently, Gazprom has repeatedly reduced the gas price for foreign consumers, including for the EEU members (Armenia). In addition, Belarus insists that gas transportation costs from Yamal to Belarus and gas storage costs in Russia are unreasonably high.

Apparently, the Belarusian authorities are satisfied with the reduction in gas prices by Gazprom for the next six months and would pay in full for the earlier supply as Russian monopolist required. It is worth noting that during the last gas war in 2010, the Kremlin has significantly reduced gas supplies through Belarus, which led to a conflict. The conflict has damaged Gazproms reputation. In 2011, Belarus has lost control over the gas transit through Belarus due to the final transfer of gas transportation system to Gazprom. That said, Russia supplies only non-critical volumes of gas to Europe through Belarus.

Nevertheless, Belarus still has a strong argument regarding the Russian oil transit through Belarus, as she owns the main oil pipeline. In addition, the Russian Energy Ministry had violated Russias contractual commitments to Belarus when it cut oil supplies to Belarus.

The Kremlin is likely to insist on its terms when resolving the conflict with Minsk over the gas price. However, Belarus is likely to win some benefits or discounts on gas price in H2 2016.