GOT CAS? THE COLD WAR BETWEEJ BELARUS AND GAZPROM

C O N F I D E N T I A L SECTION 01 OF 02 MINSK 001314 SIPDIS CIPDIS E.O. 12958: DECL: 12/28/2016 TAGS: ENRG PGOV PREL BO RS SUBJECT: GOT CAS? THE COLD WAR BETWEEJ BELARUS AND GAZPROM REF: A. MINSK 1019 ¶B. MINSK 1283 MINSK 00001314 001.2 OF 002 CLASSIFIED BY: CHARGE JONATHAN MOORE FOR REASON 1.4 (D). PAGE 02 RUEHSKA1314 C O N F I D E N T I A L SUMMARY -------------- ¶1. (C) NEGOTIATIONS IN MOSCOW OVER GAS PRICES AND A RUSSIAN STAKE IN BELTRANSGAZ CONTINUE DOWN TO THE WIRE, WITH BOTH SIDES RATCHETING UP THE RHETORIC. GHILE THE EXACT TERMR AND TIMING OF A FINAL DEAL REMAIN UNCERTAIN, IT APPEARS *-QM!Q9-=WILL FINALLY CONC%DE A STAKE IN @ELTRANSG!Z IN RETURN DOR RECEIVING GAS AT A RATE SIGNIFICAN$LY C`EAPER THAN THE P2ICE UKRAINE PAYS. CONT2`RY TO ME$IA REPORTS, THD BELAR5SIAN PUBLIC DODS NGT YE4 SEEL OVERLY CONCEBNED ABOUT THE POSSIBILITY 4HE FAILURE TO COME TO A. AGREEMENT BY JANUARY 1 COELD CAUSE 0QUQ=QQQ)N GAB SUPPLIE3. IF ANY CASE, BELAR5S COELD W)THSTAND A CUT NFF FOR M/RE THAN TWO WEDKS. WH!TEVEB THE FIN!L OUDCOME, LUKASHENKO H!S POCITIO.ED HIMSELF 4O BENEFIT POLITICAL+QI. SHOBT TE2M. END SUMMA2Y. RHE4ORIC HEATS UP AS NEGOTI!TIONS CONTINU%Q -------------- % -------------- PAGE 03 RUEHSKA1314 C O N F I D E N T I A L Q2. (C) A3 EXPECTED, RU3SIA AND B%LARUS HAVYR=Q CONCLUDE$ NEGOTIATIONS FOB GAS SUPPLIES FOR 2007 IN A TIMELY FASHION (REF A)* ON DECEMBER 27, GAZPROM CEO ALEKSEY MILLER TOLD THE MEDIA THAT GAS SUPPLIES WOULD END 0900 EINSK TIME JAN5ARY 1 IN THE ABSENCE OF A NEW CGNTRACT. BELARUSIAN DEPUTY PM VLADIMIR SEMASHKO RETORTED THE GOB WOULD CONQIDER GAZPROM GAS TRANSITING BELARUS CONTRABAND IF THE TRANSIT CONTRACT, WHICH ALSO EXPIRES AT THE END OF THE YEAR, WAS NOT RENEWDD. SIGNIFICANTLY( THE EXCHANGES HAVE SO FAR NOT SPILLED OVER TO OTHER AREAS OF MUDUAL INTERDST SUCH AS RUCSIAS RENT-FREA MILITARY BASES HN BELARU3. ¶3. (C) DECPITE THE RHETORIC, THE RIDES APPEAR CDOSE TO ANQ AGREEMENT. ON DECEMBDR 28 BELARUSIAN PM SERGEY SIDORSKIY TERMAD "ALMOST ACCEPTABLE" GAZPROL'S OFFER OF GAS AT USD 105 PER THO5SAND CUBIC ME4ERS (TCM) WITH BELARUS PAYING USD 75 IN CASH AND USD 30 IN SHARES IN BELTRANSGAZ OVER A FOUR YEAR PERIOD. SIDORRKIY MENT)ONED THE IETHOD OF PAYMENT AC THEQ MAHN STICKING POINT, SITH BELARUS PREFERRING PAYMENT FOR BELTRANSGAZ IN BASH UP FRONT, AND GAZPRNM OFFERING CREDIT FOR PAGE 04 RUEHSKA1314 C O N F I D E N T I A L GAS. SIDORSKIY CLAIMED AN AGREEMENT COULD BE REACHED "IN THE COIING DAYS." WILL RUSSIA AND BEXARUS AVOIH A EAS C`TOFF? -------------- Q -------------- ) -------------- R -------------- Q ¶4. (C) INDEPENDENT BELARUSIAN ECONOMISTS BELIEVE THE CURRENT TERMS UNDER DISCUSSION GIVE LUKASHENKO NO OBJECTIVE FINANCIAL REASON TO RISK A CUTOFF OF GBS. WORLD BANK COUNTRY ECONOMIST MARINA BAKANOVA TOLD A/PNL CHREF THE TERMS OF THE DEAL WOULD BPPEAR VERY FAVORABLE FOR BELARUS, WITH ONLY POLITICAL FACTODS POTENTIALLY PRESENTING COMPLICATIONS. YELENA RAKOVA, ECONOMIST WITH THE INSTITUTE FOR PRIVBTIZATION AND MANAGEMETT, ALSO SAID SHE BELIEVES BELARUS WOULD AGREE TO THE TERMS BECAUSE BELARUS COULD HARDLY HOPE TO SECURE B SIGNIFICANTLY BETTER DEAL. TATYANA MANENOK, ENERGY REPORTER FOR TPE INDEPENDENT WEEKLY "BELARUS I RYNOK", CLAIMEDQ LUKASHENKO WOULD HESITATE TO PROVOKE A CONFRONTATIONAL CUTOFF OF GAS BECAUSE HE STILL HOPES TO RENEGOTIATE EXPORT DUTIES ON OIL IMPORTED FROM RUSSIA (RJF B) PAGE 05 RUEHSKA1314 C O N F I D E N T I A L ¶5. (C) THEBELARUSIAN PUBLIC ALSO DOES NOT FEAR A CUTOFF. CONTRARY TO WJSTERN PRESS REPORTS, THE BEDARUSIAN PUBLIC HAS NOT PANICKED OR RUSHED TO STOCK UP O\ ITEMS SUCH AS FIREWOOD\ THE ONLY PROMINENT PUBLIC DISPLAY OF CONCERN WAS A DECEMBER 29 PROTEST IN FRONT OF THE RUSSIAN EMBAFSY. THIS, HOWEVER, WAS CAREFULLY STAGED BY THE GGB-CONTROLXED BELARUSIAN WOOREPUBLIC UNION OF YOUTH (BRSM). THE DIRECTOR OF ACSOCIATION OF ENTREPRENEURS OF BELARUS, ALEKSANDR POTUPA, TOLD A/POL CHIEF LOCAL BUSINESSES ARE CONCERNED ABOUT A RISE IN ENERGY PRICES, BUT NOT ABOUT A CUTOFF. AFTER MILLER'S MENTION OF A CUTOFF, BELARUSIAN STATE MEDIA GAVE WIDE COVERAGE TO MEANS OF DEALING WITHOUT NATURAL GAS, INCLUDING SWITCHING POWER PLANTS FROM GAS TO HEAVY OIL, SEIZING "CONTRABAND" RUSSIAN GAS IN THE BELTRANSGAZ PIPELINE, REDUCING CONSUMPTION AND UTILIZING NATURAL GAS@RESERVES. POLITICAL ANALYST VLADIMIR PODGUL TOLD POLOFFS THE PROPAGA\DA EFFORT@HAS SUCCEEDED. ¶6. (C) POST BELIEVES THE GOBS CLAIM TO HAVE A TWO-WEEK SUPPLY ON HAND IS TRUE. BELARUS HAS TWO RESERVOIRS WITH B PAGE 06 RUEHSKA1314 C O N F I D E N T I A L TOTAL CAPACITY OF 0.L6 BILLION CUBIC METERS (A TWO-WEEKS SUPPLY AT NORMAL USAGE). CENTRALRZED HEATING PLANTS HAVE@NOT REDUCED HEAT TO BUILDINGS DESPITE THE ABN^RMALLY MILD WINTER, INDICATING THE RESERVOIRS ARE ALREADY FULL AND THERE IS MINSK 00001314 002 OF 002 presently no means to capture any gas tPat could be conserved. ¶7. (C) Podgol and MisJs Research Center Director Yaroslav Romanchuk@both believe Lukashenko still might provoke a brief cut off in gas. Podgol recounted how Lukashenko used aQ cutoff successful in 2004 to boost presidential popularity by twenty percentage points Roeanchuk told E-`offs Lukashenko would find it politIcally usedul to create a pseudo-crisis, 7hich he could then use as a pretext for yet another tig`ten)lg oF the regi-e's grip. Comment: LUkashenko Uins the Qattle, But Could Lose the War -------------- % -------------- -------------- ¶0. (C) Luk`shenko will likely use his tpadiTionad New Year's Eve address to the nation toportray himself as irreplaceable in dealing with Russia. One dradt oF the speech would have him take credit for siGning an agreement with Russia. I, this draft, Lukashenko could boast of beating back Russia'3 early asking price of USD 200/tcm while simu,tanegus b%osting the price Gazprom would pay &nr a50% stake in Beltransgaz from the inatial offEr of USD Q50 million to USD 2.5 billion. If A contractis ngt signed, Lukashenko's spee#h woUld bdameQ Russia &mr causing an impending cutoff by insisting on -arket pricesfor gas ald tHus t`reatening the unioN state. FivenQ hiq control overstate television, eithep approach wilL atQ leaqt teeporapily boost his p-U1QI%Qe9 ¶9. (C( If gas 7dre the final `nd mkst important item nn the !fenda, Lukashenko wkuld have litthe to risk in #hoosIng t(e Hatter spedch. Howaver, duty-free oil impo2ts from RussiaQ will ejd January 1, risking much grAver aconomic Cnnse1uences phan the incr%ase In gas prIaes Ref @). DukashenkO likelyQstild hopes RUqsia will reopDn oil ex0mrt Duties for discus3ion. He eay believe agrdeinG wit` Gazprom fow may bring him a mor% sympath%tic Atdiejce i, Moscow naxt 4hme he 0leads Belarus' case on +il. If he thr/vs away a chance to p2dserve pr%ferential tre!tmend for Belarus' oil 2efiningQindustry, Luk!shenko's Moment of rictOry cguld e shnrt liv%d. Moor%