BELARUS, RUSSIA, AND NATURAL GAS: WHEN HIGH PRESSURE IS A

UNCLAS SECTION 01 OF 02 MINSK 000269 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ENRG PREL EFIN BO SUBJECT: BELARUS, RUSSIA, AND NATURAL GAS: WHEN HIGH PRESSURE IS A GOOD THING REF: MINSK 264 MINSK 00000269 001.2 OF 002 Summary -------------- ¶1. (SBU) Although the Belarusian and Russian presidents agreed in principle December 22 on a new natural gas supply and payment formula for 2009, actual numbers are still being sorted out even as the new year arrives. Gazprom has not released Belarus from its contractual obligation to pay the world price for natural gas starting in 2011, but the much-reduced price of oil suggests that the world gas price will be somewhat lower than feared. In the context of the growing effects of the global financial crisis and the complicated political situation with regard to Russian loans, the now-annual gas price kabuki between Gazprom and Minsk is a useful indicator. End summary. Background and recent talks -------------- ¶2. (SBU) Belarus is utterly dependent on Russian gas, and until 2007 enjoyed subsidized rates of USD 46 per 1,000 cubic meters (tcm) -- a major factor in the now-forgotten "Belarusian economic miracle." Based on a contract between the GOB and Gazprom, the price has increased more than 300 percent since January 2007 to USD 128/tcm, and is supposed to increase a bit each year before reaching the full world price in 2011. Earlier this year -- before the effects of the global financial crisis and the collapse of oil prices, the Russian Ambassador in Minsk implied that the 2009 price would be about USD 200/tcm. (Note: Even without a price hike, Belarus will have to pay close to USD 3 billion for the anticipated gas supply of 22.1 billion tcm in ¶2009. End note.) ¶3. (SBU) In an atmosphere charged by Belarus' increasingly desperate economic situation -- underlined by a new GOB request for a RUR 100 billion (USD 3.5 billion) loan, building on a previous if incomplete USD 2 billion loan -- Presidents Dmitriy Medvedev and Alyaksandr Lukashenka met in Moscow December 22 to discuss Russian natural gas supplies to Belarus in 2009, among other topics. No numbers were announced after the meeting; as of December 31, we are told the figures are still being negotiated. However, Lukashenka commented December 23, intriguing the public with the news that the gas price would fall "two and one-half to three times" over the course of January-December 2009. (Comment: Post's best mathematician was PNG'd in the spring, but we doubt that Gazprom will ever pay Belarus to receive natural gas. End comment.) For Gazprom's part, spokesman Sergey Kuprianov confirmed to Ekho Moskvy December 27 that Belarus' price will be higher than the current price of USD 128/tcm, while noting that the world price would be further reduced making the average price for Belarus somewhat lower than previously anticipated but clearly still higher than in 2008. National Bank chair not optimistic about Russian help -------------- -------------- ¶4. (SBU) National Bank chair Pyotr Prokopovich shared his perspective with Charge December 29. Prokopovich said that he does not expect the second tranche of the USD 2 billion Russian loan until February at the earliest and that he had no indication that Moscow would support a second loan at the USD 3.5 billion level. Prokopovich was more hopeful about credits from IFIs and other bilateral lenders, but confirmed that discussions with Moscow would continue. Independent views: It's not just the economy, stupid -------------- -------------- ¶5. (U) Independent economic observers see this issue in the context of the larger bilateral situation between Minsk and Moscow as well as the global financial crisis. Alexander Chubrik of the Institute of Privatization and Management Research Center believes that Russia needs to compromise on the price for the sake of getting timely payments from Belarus. Chubrik thinks that Russia may agree to provide the USD 3.5 billion loan requested by Belarus to ease the transition to payments for Russian natural gas in Russian rubles. Director of the Strategy Analytical Center Leonid Zaiko agrees that political reasons are in play, arguing that Gazprom has enough ongoing headaches with Ukraine over non-payment, keeping in mind potential problems with complete and timely supplies to EU customers, Gazprom does not want the same turbulence with Belarus. Comment -------------- ¶6. (SBU) From our limited perspective, we feel it is likely that agreement will be reached for a price in the range of USD MINSK 00000269 002.2 OF 002 140-150/tcm. Keeping the price flat -- or reducing it -- would be an indicator that the GOB has reached broader accommodation with Russian partners, on political topics as well (we have not seen other signs of that). At the same time, while doubting that Moscow is as desperate to perform favors for the GOB as the GOB is for assistance, too much of an increase -- higher than USD 170/tcm -- would be seen here as a blatant slap to Lukashenka. With significant (20 percent) devaluation of the Belarusian ruble expected very soon (reftel),the regime's pronouncement that gas will actually become cheaper in 2009 -- likely for the world price, unlikely for Belarus -- is little more than bluster to convince the populace that the Belarusian economy is stable. ¶7. (U) Happy New Year from Minsk. MOORE