On Aug 25, the gas conflict between Belarus and Gazprom entered the final straight, and this time the winner may well be Belarus as the Russian monopolist is reported to have made serious concessions. But things are not the way they may look at first glance, especially for the Belarusians.
The first time they expressed displeasure with Gazprom’s price was last year, when they asked the Russian company to revise its price. The current price of $132 per 1,000 c m is based on the three-year contract signed in 2014 and the cost of the gas produced in Russia’s Yamalo-Nenets Autonomous Okrug plus transportation costs. Gazprom refused to revise the price for fear of losing part of its revenues due to depreciating RUR. The Belarusians reacted by a decision to pay the price they believed to be “fair” - $70-80 per 1,000 c m. As a result, they owe Gazprom as much as $300 million.
But the problem is that they owe the money not to Gazprom as such but to its Belarusian subsidiary, Gazprom Transgaz Belarus. As a result, Gazprom was forced to sue its own self with no hope to overcome the Belarusian laws. The political leaders of Russia and Belarus prefer not to politicize this matter. Now that Russia is facing difficulties, they in the Kremlin need no conflicts with their key Eurasian Economic Union partner. It is absolutely clear that they in the Kremlnin have been watching the situation closely, as they cut their oil supplies and keep insisting on compliance with the existing contract.
But, finally, Gazprom decided to give in. Now the price will be in RUR rather than USD. The basis will be the average gas price in Russia plus a multiplying coefficient, with the latter to be gradually reduced to just one in 2025. In order to avoid future disputes, the sides have decided to remove the point on equal netback pricing. If this happens, Belarus will get Russian gas for just 6,000 RUR per 1,000 c m.
It may seem that Belarus has managed to pressure Gazprom into serious concessions and that now Belarusian companies and power plants will enjoy almost the same prices as their Russian counterparts do and will become more competitive. But the fact is that the concessions are mutual and there are even some points where the Belarusians’ benefits seem quite doubtful.
First of all, the Belarusians will have to repay their $300 million debt to Gazprom. The only way for them to do it is to spend the second and, perhaps, even the third tranches of the EABR’s loan ($300 million and $500 million respectively). The second problem is that the existing contract expires in just four months. Obviously, the joy will not be long. So, this is more like Gazprom’s tactical victory. And the third problem is that the price the Belarusians regard as fair today may turn out to be unfair tomorrow. For the rest of 2016 the price is supposed to be 6,300 RUR per 1,000 c m, for 2017 it is expected to be 6,000 RUR, but things may change once oil prices go up and RUR revives. For Gazprom Belarus is an important but not vital market, so, its concessions will not be very painful.
So, nothing extraordinary has happened. Nobody doubted that the sides would have to come to terms one day. But now that they have done it, the Belarusians’ benefits - just as Gazprom’s losses - look quite doubtful. The Russians’ motives were not purely economic. Their political goal is to involve Belarus in their post-Soviet integration project and to get the remnants of its economy. So, we may very soon see the Russian leaders reminding their Belarusian colleagues of their promises to privatize their state property and to deepen their industrial cooperation with Russia. And this may well become a precondition for a lower gas price. In the meantime, according to the Belarusian Prime Minister’s Spokesman Vladislav Sychevich, the gas talks are underway.