Belarus Seeks Greater Energy Independence

UNCLAS MINSK 000025 SIPDIS SIPDIS E.O.12356: N/A TAGS: ECON ETRD EPET ENRG BO SUBJECT: Belarus Seeks Greater Energy Independence REF: A. 07 Minsk 003 ¶B. 07 Minsk 037 ¶C. Minsk 018 Summary -------------- ¶1. Following Belarus' dramatic dispute with Russia in late 2006 over energy price increases, the GOB intensified efforts to reduce energy consumption and diversify energy supplies. Announced plans include inviting foreign investors to upgrade industry, burning more locally available fuel, and developing alternative energy sources. End summary. Past Growth Built on Cheap Energy Imports -------------- ¶2. According to official statistics, from 1997-2006 Belarus maintained GDP growth without higher energy consumption. However, energy efficiency of the GDP was 1.5 to 2 times lower than that of industrially developed countries with similar economies and climate. ¶3. The GOB believes the country has become overly dependent on energy imports, which led to a rapid increase in its trade deficit in 2007. Though energy imports make up 85 percent of the country's current energy consumption, energy prices were not considered a major issue until Russia, Belarus' main supplier of energy resources, announced it would raise oil and gas prices for Belarus to European market levels in the next few years (refs A and B). ¶4. In June 2007, President Lukashenko issued Directive Number 3, which outlined the country's new energy policy. The government plans to: -- streamline and tighten control over the production, transportation and consumption of energy resources; -- set energy tariffs and control fuel prices; -- upgrade power generating facilities and grids; -- diversify energy supplies/imports; -- use more locally available fuel; -- tighten liability for energy inefficiency. ¶5. In mid-September Lukashenko promulgated the Concept of Belarus' Energy Security, which outlines the country's long-term energy production and usage plans until 2020. The government will use the figures in the plan to develop short and mid-term policies and plans. ¶6. The Concept expands on Directive Number 3's calls to diversify energy supplies. The Concept calls for Belarus' first nuclear power plant to be put into operation in five to seven years. At least 25 percent of Belarus' electric and thermal energy producers will burn local fuel (wood, peat, brown coal) and use alternative energy sources by 2012. After 2020, no more than 65 percent of energy imports from one country will be allowed. ¶7. Energy conservation is another important part of the Concept. The GOB has proposed that by 2010 the country will have cumulatively saved 7.7 million tons of energy resources by increasing energy efficiency 26-30 percent compared with 2005. By 2015 the increase in efficiency will reach 50 percent, with the target at 60 percent for 2020. ¶8. Furthermore, both the Directive and the Concept oblige the government to make Belarus' economy more open and attractive to private capital and foreign investment, especially for the purpose of increasing energy production and efficiency of the economy. ¶9. In 2006-2010 the government plans to invest: -- USD 2.56 billion to upgrade production facilities; -- USD 1.85 billion to increase energy efficiency; -- USD 747.8 million to develop local energy sources. Comment: Significant Reform for Conservation Doubtful -------------- -------------- ¶10. The GOB's plans are an ambitious mix of market and command economy measures, aimed to a great degree at weaning Belarus from energy dependency on Russia. With budget deficits predicted (ref C),it is doubtful that the economy can generate sufficient funding to reach investment goals. More importantly, the government is unlikely to give up much of its control over the economy to improve the business climate. Increasing trade deficits, while posing a real threat, are unlikely to provide the quick near term shock that would make such liberalizations possible. Moore