LUKASHENKO AND RUSSIA: A TALE OF UNREQUITED LOVE?

C O N F I D E N T I A L MINSK 001184

SIPDIS

SIPDIS

E.O. 12958: DECL: 11/09/2016
TAGS: PREL ECON PGOV BO
SUBJECT: LUKASHENKO AND RUSSIA: A TALE OF UNREQUITED LOVE?

REF: A. MINSK 1079


B. MINSK 1019

Classified By: Ambassador Karen Stewart for reason 1.4 (d).

Summary
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1. (C) Lukashenko and Putin likely will achieve little during
a possible November 10 meeting in Moscow. Both countries
continue to play hardball with one another in energy
negotiations, which are expected to drag on until the end of
the year. Belarus will eventually have to settle for
increased gas prices, although Kyiv's deal has dampened fears
of a crippling price jump. Russia is also pushing to recoup
some of the four billion dollars in budget revenue lost
annually due to Belarus' status as a de facto offshore for
Russian oil companies. Sensing the beginning of Russia's
election cycle, Lukashenko apparently will opt to see who
succeeds Putin before deciding whether to reinvigorate the
integration process. End summary.

THE EMPIRE PREPARES TO STRIKE BACK AT LUKASHENKO
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2. (C) In September, Transneft announced technical problems
would cause it to reduce flows of oil through its pipelines
to Belarus by 1.5 million tons through the end of 2006.
Tatyana Manenok, energy correspondent for the independent
weekly "Belorusy i rynok" confirmed to Poloff that the
pipeline did need repairs. However, her sources told her the
problem could be fixed within two days and Belarus offered to
send its technicians to do the job. Transneft refused, and
analysts believe the reduced flows are intended to pressure
Belarus to share oil export duties with Russia. Manenok said
rail transfers were for now taking up the slack for reduced
imports via the pipeline. Still, the economic damage will
quickly amount to millions, as Polish Charge Aleksandr
Wasilewski explained to Pol/Econ Chief and Econoff that
railroad transfers cost an additional USD 7 per ton over
those via pipeline.


3. (SBU) Meanwhile, throughout October Belarus press devoted
much attention to a memo from Russian Deputy Minister of
Economic Development Arkadiy Dvorkovich asking Russian
regions which products currently procured from Belarusian
firms could be procured from non-Belarusian sources. Other
economic moves by Russia against Belarus included duties on
imports of Belarusian sugar and inspections of shipments of
Belarusian chocolates.

LUKASHENKO CONTINUES THE PROPAGANDA WAR
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4. (SBU) In the week before Lukashenko's presumed trip to
Moscow, Belarusian state television ramped up propaganda
depicting Belarus as getting a raw deal from an ungrateful
Russia. Panorama nedeli, traditionally the most-watched
weekly news program, devoted a segment on its November 5
edition to Russian military bases in Belarus. The program
noted Russia uses the two bases free of charge while the
United States pays host countries hundreds of millions of
dollars annually for its military bases abroad. Evening news
on November 6 claimed that deliberately slow work by Russian
customs clearing trainloads of sugar bound for Russia led to
the a passenger train from Brest to Moscow having to stop at
the Belarus-Russian border, thus implying Russia was de facto
re-establishing border checkpoints.


5. (C) Lukashenko also took the unusual step of appealing
directly to Russian governors, albeit simultaneously
notifying the Kremlin, to request that Russian regions
continue to purchase Belarusian goods. The letter bolsters
Lukashenko's rhetoric in his September press conference with
Russian journalists (ref A) that in all of Russia only the
Kremlin is hostile to Belarus.


6. (SBU) Belarus is also taking steps to at least appear to
satisfy the concerns of Russian industries that have been
complaining of unfair competition from Belarus. The GOB
announced that Russian firms will be able to compete on an
equal basis with Belarusian firms for state contracts.
Belarus will also host a conference on machine manufacturing,
in part to address complaints raised by Russian competitors.

HOW TO DIVIDE THE SPOILS OF HIGH ENERGY PRICES
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7. (C) With the Dutch firm ABN Amro not expected to finish
its appraisal of Beltransgaz until November 20, Putin and
Lukashenko will have a convenient excuse to avoid any serious
discussion of the ownership of the Belarusian state gas
pipeline and the linked issue of gas prices (ref B).
However, local analysts are already willing to predict the
final price for gas. All agree the figure of USD 140 per
thousand cubic meters suggested by Russian Ambassador Surikov
on November 3 is probably too high. With Ukraine having
settled for gas at USD 130, both Manenok and Aleksandr
Gatovskiy, an energy analyst with the Belarusian Ministry of
Economics Economics Research Institute, agree Belarus will
get at least a slightly lower price. The honorary chair of
the United Civic Party, Sergey Bogdankevich, suggested a
range of USD 70-90.


8. (C) In addition to fattening Gazprom's profits by
increasing gas prices, Putin hopes to weaken Belarus' status
as a de facto offshore for Russia oil companies. Oil exports
from Russia to Belarus escape Russian export duties, now
around USD 172 per ton. Belarus, after refunding VAT on oil
exports, effectively charges a nominal export duty of USD 10
per ton, with none of the duty going back to Russia. Russia
is pressing Belarus to raise its export duty to a level
approximating Russia's rate, and to split the proceeds, with
Russia receiving 85 percent. According to Manenok, Russia
will likely settle for a Belarusian duty at 80 percent of the
Russian level. Political analyst Valeriy Karbalevich
expressed doubts over Putin's ability to push forward such a
change, noting the interests of Russian oil companies and
Russia's vulnerability to Belarus restricting the transit of
oil to Europe.

COMMENT: LUKASHENKO WANTS TO WAIT OUT PUTIN
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9. (C) After successfully securing low gas prices for years,
it is no wonder Lukashenko bridles at Russia's renewed
efforts to secure its economic interests in Belarus.
Unaccountable to voters or any legal body in Belarus and
recently taking a shine to feel-good foreign visits to
countries such as Iran and Cuba to bash the West and promote
trade, Lukashenko cannot appreciate pressure from his most
important neighbor.


10. (C) Lukashenko's public relations strategy consists of
portraying Belarus as a true friend to Russia rudely being
asked to make economic sacrifices by an unappreciative
Kremlin leadership. This approach probably to a large degree
reflects his actual understanding of the bilateral
relationship. Lukashenko has made much of the closeness of
the Russian and Belarusian people. Given his belief that he
is genuinely popular in Belarus, he likely also believes he
enjoys a similar level of sympathy in Russia, and a future
Russian leader weaker than Putin may be less able to resist
Lukashenko's appeals for unity when it comes to issues of
vital importance to Belarus' economy such as gas prices.
Stewart