Just minutes before Gazprom implemented their threat to cut of gas supplies to Belarus, a deal was reached to secure gas deliveries until 2011.
Under the terms of the deal, Belarus will pay $100 per thousand cubic metres this year, but the price will steadily rise until it reaches around $250 per thousand cubic metres in 2011. This will bring prices into line with the current market rate.
Belarus also – reluctantly – agreed to sell half of their gas distribution network to Gazprom for $2.5 billion. Not such a great deal when you consider they originally valued the network at $16 billion. The decision to sell a 50% stake was odd too – usually stakes of 49% or 51% are sold, to give someone overall control. I’m at a loss to explain this aspect of the deal.
As you can imagine – the Belarussian Prime Minister wasn’t happy:
“As you know, 60 percent of the Belarusian people are victims of Chernobyl [nuclear disaster]. So, we have to go to these victims of Chornobyl, we have to go to the elderly and explain to them that the price for gas has been raised twice more than we expected.”
So, don’t expect relations between Russia and Belarus to be quite as cosy as they have been over the past few years.
But there is one small upside - Russia’s main gas ‘weapon’ in recent years has been the threat of ending gas subsidies to former Soviet states. Once Belarus begins paying market rates, the Russian government will lose one of its main foreign policy levers.