Belarus cuts Russia gas transit, EU says affected

MINSK Wed Jun 23, 2010 3:02am IST

An oil refinery is seen located at a branch of the Druzhba oil pipeline near Mozyr some 300 km (186.3 miles) southeast of Minsk in this January 8, 2010 file photo. REUTERS/Vasily Fedosenko

An oil refinery is seen located at a branch of the Druzhba oil pipeline near Mozyr some 300 km (186.3 miles) southeast of Minsk in this January 8, 2010 file photo.

Credit: Reuters/Vasily Fedosenko

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MINSK (Reuters) - Belarus moved to cut the transit of Russian gas to Europe on Tuesday in a debt spat with Moscow, with Belarus President Alexander Lukashenko calling it a "gas war" echoing Russia's 2009 quarrel with Ukraine.

The EU said Lithuania, Poland and Germany had been hit by the gas supply cuts, but Russia said it had no confirmation that gas levels leaving Belarus had been reduced.

Russia, the world's largest energy exporter, supplies Europe with 25 percent of gas needs, with four-fifths of those volumes flowing via Ukraine and one fifth via Belarus.

Ukraine has already promised to ship more Russian gas to Europe to help Moscow plug the potential gap in a move showing Kiev's commitment to further improve ties with Russia and persuade Moscow not to build new pipelines to bypass Ukraine.

"This is a very bad signal for our citizens," European Parliament President Jerzy Buzek told Reuters after meeting Russian Energy Minister Sergei Shmatko in Moscow.

"The early warning mechanism between Russia and the EU did not work this time," Buzek told Shmatko. He said Lithuania, Poland and eastern Germany had reported reduced supplies.

Shmatko said Russia alerted the EU commission to possible gas supply problems on Saturday and that so far Polish companies had not reported a fall in the pipeline pressure.

Russia's gas export monopoly Gazprom has said Belarus had amassed a debt of $192 million for gas deliveries since January and on Tuesday reduced supplies to 70 percent of normal volumes, doubling a 15 percent cut imposed on Monday.

Belarus for its part says Gazprom owes it $260 million for gas transit but Gazprom says Minsk had blocked payments.

"I ordered to the government to cut the transit via Belarus until Gazprom pays for transit," Lukashenko said during talks with Russian Foreign Minister Sergei Lavrov.

Gazprom shares fell 2.1 percent on Tuesday, underperforming the broader market index, which lost 1.3 percent.

Close ties between neighbors Russia and Belarus have been increasingly strained as Lukashenko has sought to use Russia's eagerness to maintain an ally on its Western flank to persuade Moscow to leave Soviet-style economic subsidies in place.

Relations between the two states have also soured since they failed to agree on unified customs rules and Belarus gave refuge to ousted Kyrgyz President Kurmanbek Bakiyev, despite Moscow's support for the new Kyrgyz leadership.

Belarus pays the lowest price among Russian gas customers and has bridled at recent increases, saying it should pay less for oil and gas if Russia is serious about close relations.

Gas cuts could hurt Russia's already frayed reputation as a source of energy.

"The gas conflict will lend more political weight to promoters of Europe's numerous liquefied natural gas and gas pipeline projects that will compete with Gazprom," said Oleg Maximov from Troika Dialog brokerage.

UKRAINE OFFERS HELP

The European Union said it expected all gas contracts to be honored while analysts said they anticipated the damage from any cuts to be minimal because of low European gas demand.

Previous pricing disputes with Minsk led to supply cuts, with Poland and Germany being affected most. Poland gets about 40 percent of its Russian gas through Belarus.

A similar standoff with Kiev halted the much larger Russian gas supplies across Ukraine for almost two weeks in January 2009, leaving many Europeans without fuel during a cold snap.

Russia and Ukraine have had two major gas disputes since 2005 amid strained political relations between the Kremlin and Ukraine's former pro-Western President Viktor Yushchenko.

Bilateral ties have dramatically improved since Yushchenko was replaced by Viktor Yanukovich, seen as much more loyal to Moscow. He agreed new gas and military base deals with the Kremlin after taking power earlier this year.

Gazprom has said it was working on new alternative routes to deliver gas to Europe and Ukrainian Premier Mykola Azarov said on Tuesday his country was ready to boost Russian gas transit.

Lithuania, Poland and Germany have not confirmed the EU parliament head Buzek's statement that their supplies of Russian gas had been reduced. Germany's gas supplier E.ON Ruhrgas and utility firm RWE said earlier on Tuesday there were not affected by the row.

Prices in European gas markets were softer on Tuesday, in contrast to a sharp rise in prices seen during Russia's rows with Ukraine in 2009.

(Additional reporting by Vladimir Soldatkin and Vera Eckert, Writing by Dmitry Zhdannikov and Dmitry Sergeyev; Editing by Sofina Mirza-Reid)

(For more news on Reuters India, click in.reuters.com)

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