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The New York Times: Russia Gas Standoff With Belarus Intensifies

Published: December 30, 2006

MOSCOW, Dec. 29 — For Gazprom, the Russian energy monopoly, 2006 is ending as it began: in a dispute over prices and control of a pipeline in a neighboring country that is threatening the smooth flow of natural gas to Europe.

But this time, the price increase was levied on a Russian ally, Belarus, a country whose foreign policy is aligned with Moscow in all but one important aspect: support for increasing cash flow at Gazprom.

“All this means destruction of our relations” with Russia, Belarus’s president, Aleksandr G. Lukashenko, said in comments carried on state television on Friday.

Mr. Lukashenko, often referred to as Europe’s last dictator, called Gazprom’s position “blackmail” and said Belarussians would rather live in unheated dugouts than pay the higher price.

Russia’s deputy prime minister, Dmitri Medvedev, who is also chairman of Gazprom, retorted that Belarus was “blackmailing” Europe by threatening the transit pipelines that cross that country.

The latest price increases have added to concerns about the reliability of the oil and natural gas flowing from Russia, which is a major supplier to Europe but has increasingly wielded its energy resources for political leverage.

Before this latest dispute with Belarus, Gazprom price increases had hit countries at odds with Moscow’s foreign policy goals, like Georgia, which is locked in a conflict with Russia over separatist enclaves, and Ukraine, where price increases in January undermined President Viktor A. Yushchenko’s pro-Western government.

Amid the dispute with Belarus the political gains for Russia stand out less starkly. But some analysts say that, beyond being merely a tool of Russian foreign policy, increasing the cash flow at Gazprom is an important, even central, tenet of Russian foreign policy in its own right. That interest may outweigh support for Belarus as a client state.

The financial gains for Gazprom shareholders and the government are indisputable. Gazprom could earn $1.1 billion in profit by pressing its demands, with no outlays, like investments in pipelines or gas wells. Even by the standards of Gazprom, a company swimming in cash because of high energy prices, this would be a significant jump in profit.

Gazprom grew this year to become the world’s fourth-largest company by market capitalization in part by assuring investors it would seek higher prices from former Soviet customers. Partly as a result of raising rates in Ukraine, the company reported second-quarter 2006 profits of $5.2 billion, up 123 percent from the year before.

The company is actively opening new markets in Europe and Asia, helped by the Kremlin; just this month, Gazprom bought a majority stake in Shell’s Sakhalin 2 liquefied natural gas development in Russia’s Far East in what critics called a forced nationalization.

On Friday, the company reiterated its plan to double what Belarus pays, to $105 per 1,000 cubic meters from the current $47, to be paid in cash or a mix of cash and equity in Belarus’s national gas company, Beltransgaz. Under this formula, Gazprom would gain a 50 percent stake in Beltransgaz over four years.

Gazprom’s spokesman, Sergei V. Kupriyanov, called this offer the lowest price in the former Soviet Union. “I don’t see any reason why Gazprom would make better proposals,” he said.

“A breakdown in talks will bring serious consequences to the economy of Belarus,” he said. On Friday, a large Belarussian fertilizer plant said it would shut down if gas supplies were halted.

Belarus’s democratic opposition has endorsed Gazprom’s price increase as justified, but opposed a sale of the pipeline company.

“On the economic level, the goal should be a gradual rise in prices,” Aleksandr Milinkevich, a former opposition candidate for president, said in a telephone interview. “We need to reform the economy; there is no other solution. Belarus is not ready for realistic energy prices.”

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