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Thursday, March 22, 2018

The gas dispute with Belarus ended in Moscow’s favour

Belarus and Russia announced a complete restoration of their energy relations. As soon as Minsk will repay my debt for Russian gas, the two sides will renew oil relations in the same way. Most importantly – was able to resolve the dispute on the price of gas. What made the Belarusian President to back down?

Belarus and Russia resolved the problematic issue in the sphere of energy supplies. First, this was announced in Minsk, and then confirmed in Moscow. The evening telephone conversation of the Prime Ministers of two countries of Dmitry Medvedev and Andrei Kobyakov. We are talking about settlement of both oil and gas issues.

“The price delivered to Belarus gas remains the same and is calculated according to the existing formula. No adjustment is made”

Belarus has officially recognized the debt to Russia for gas already delivered and expressed willingness to pay it. Once this is done, oil and gas relations between the two countries will return to normal. Minsk will return to compliance with the gas contract and continue to pay for gas at the price stipulated in the contract on the basis of the current formula. Belarus has achieved from Russia for more help.

The oil of relationships

As told the Vice-Premier of Belarus Vladimir Semashko, Belarus to reverse its decision to increase tariffs on oil transit, in exchange, Russia will restore the supply of crude oil in the country.

“You know that in the third quarter blocked half of the oil supplies to Belarus. We were supposed to receive 6 million tons, and now actually get only 3 million tonnes. Now everything is restored. Until October 20 needs to recover the oil supply in full under full utilization of our refineries,” – said the Belarusian Vice Premier.

Minsk”, also made compromise steps.” “Recently there have been a few raised tariffs on oil transit. We returned back. That is, are those the rates that were in effect as of 1 October,” – said Semashko.

Just a week ago Minsk has unilaterally raised one and a half times the tariffs for transit of Russian oil via the inherited from the Soviet era oil pipeline “Friendship”. Thus Minsk has decided to put pressure on Moscow. Russia earlier in response to the debt for gas used the other arm that limited the supply of crude oil to Belarus, which get it at the price of domestic duty-free and bisaccate. Under the agreement, the Minsk part of the petroleum products (processed from Russian oil) to give back Moscow.

First Vice-President of the government of the Russian Federation Arkady Dvorkovich confirmed that the oil agreement. Russia will resume deliveries to 24 million tons of oil to Belarus in exchange for oil deliveries of 1 million tons to Russia. According to him, there are some nuances to the regime and volume of oil processing at Belarusian refineries, as well as price. “On this subject will be prepared by a separate agreement between the energy ministries of the two countries,” said Dvorkovich.

Plus Moscow has promised next year to offer Minsk for more mutually beneficial projects in the sphere of economic cooperation. “But it is also a moral obligation that I think can potentially lead to the expansion of cooperation in trade and investment spheres,” – said Dvorkovich.

Minsk for the first time recognized the gas debt to Moscow

The oil relations between the two countries deteriorated against the backdrop of the gas dispute. Therefore, their restoration will happen after Belarus will pay off its debt for Russian gas, which amounted to more than $ 300 million.

Since the beginning of the year Belarus pays Russia for gas at the price that feels fair. Meanwhile, Gazprom invoiced under the contract, and the price difference is converted into the debt of Belarus to Russia for gas.

Belarus wanted to get Russia to lower gas prices. Is $ 132 per thousand cubic meters (the current price of the contract), Belarusians wanted to pay 73-80 dollars. Gazprom insisted on the fulfilment of contractual obligations. Moreover, this price is already the lowest in Europe. According to the contract, it is formed so: the price of gas in the Yamalo-Nenets Autonomous Okrug 36 dollars plus 90 dollars for the transportation of gas to Belarus plus six dollars for the storage of gas in the Russian UGS (underground gas storage).

Now the parties have agreed that Minsk will pay up to the end of this month the debt in full. Arkady Dvorkovich said that Belarus should pay off the debt until October 20, Semashko called by another term – 25 Oct.

The price formula will remain unchanged

As for gas prices, the first Semashko said that in exchange for the payment of the debt for gas Moscow will reduce gas prices for Minsk. “We have the money to return back. But instead we got a simultaneous significant reduction in the price of gas already this year and other support from Russia. And next (we have outlined and the Protocol) outlined a trajectory of decline rates in subsequent years”, – said the Belarusian Vice Premier.

However, the Prime Minister of Russia Dmitry Medvedev later denied the discount on gas for Belarus. “To avoid wrong interpretations, just wanted to emphasize the fact that the price supplied to Belarus gas remains the same and is calculated according to the existing formula. No adjustment is made”, – said Dmitry Medvedev, reports TASS.

“Losing deliveries of Russian oil, Belarus loses much more than it would save on the discount on gas”

Telephone conversation, which took place on Monday evening, Medvedev with Prime Minister of Belarus Andrei Kobyakov has allowed misunderstandings. As explained by the Council of Ministers of Belarus, Minsk and Moscow agreed on the intergovernmental payment for gas supplies.

“The volume listed in the sphere of interbudgetary compensation funds will ensure the trajectory of the sequential approach the price of natural gas for Belarusian and Russian consumers, so that by 1 July 2019 to ensure equal conditions for the price of gas for energy producers by 1 January 2025 for all other gas consumers,” – said the Belarusian Council of Ministers.

There’s also reaffirmed their readiness to transfer money to a Russian account to pay the debt for gas, and the constancy of the mechanism of formation of gas prices for Belarus. Data is the decision of the Belarusian side “is considering as a compromise and to meet the interests of both sides.”

Meanwhile, it is not entirely clear what lies behind the budgetary compensation from Russia. Whether we are talking about a certain loan or direct allocation of money for Belarus now or this is for the future, when the EEU will create a single gas market? Alexey Grivach believes that we are not talking about ongoing cash infusions.

“We are talking about the fact that when, by 2020, will create a single gas market within the EAEU, then there will be developed a unified conditions for economic entities in full. Then there will be adopted a single pricing system. The mechanisms are still the subject of multilateral negotiations,” – says Grivach.

“I regard it this way: first, pay your debt, we will restore oil cooperation, and then will continue the negotiations as civilized people in a way that is in the spirit of the agreement on the Eurasian economic Union, in the framework of balance of interests of Gazprom and the consumer. That’s a promise for the future,” says the source.

Who won and lost

“Overall this is a victory for common sense. It is impossible for the partners to behave” – says Grivach. Moscow has won that has made payment of the debt for gas already delivered and defended the terms of the gas contract. In turn, Minsk surrendered in the gas for recovery of oil and other economic ties with Moscow, from which he wins a lot more.

“These agreements are a positive signal that the parties can come to agreement, despite the presence of apparent contradictions. And play the bone like playing against Ukraine, Belarus will not. Minsk traditionally tries the ground under their feet, and some, realizing that we stand firmly on both feet, retreats. Sacrifice their people, as in Ukraine, Belarus will not be”, – says the associate Professor of the higher school of Ranepa, senior researcher of the sector of the energy policy Institute of Economics of RAS Ivan Kapitonov.

Minsk could not agree on the fulfillment of the gas contract. Because the price of further delay in the gas dispute was too high for the country. Losing deliveries of Russian oil, Belarus loses much more than it would save on the discount on gas.

Belarus receives Russian gas, and so the lowest price is $ 130 per thousand cubic meters. Would have saved it for the discount account, which insists, a little more than $ 300 million per year (savings is equal to the sum of the debt to Russia). If Belarus loses duty-free crude oil from Russia, loses twenty times as much. In this case, the Belarusian oil refineries would have stopped, thousands of people in the country would have lost her job, but would have lost revenue from the export of petroleum products. In 2015 the revenue from this amounted to more than $ 6.8 billion. And although the money is a third less than it was in 2014-m year, it’s still an important part of the Belarusian economy. Thus, Minsk is advantageous to return to normal relations in the gas sector (that is, the execution of the gas contract) for the sake of the joint oil business with Russia.

Finally, Minsk could come to their senses and compromise because of the recent trend of rising world oil prices. Not by chance in previous years, Belarus was satisfied with the contract formula gas prices, and the conflict erupted just this year. The reason for the discontent of Minsk is connected with change of market conditions: rising dollar and falling oil prices has led to the fact that the price of gas contract for Belarus was not so very different from other buyers of Russian gas.


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