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. Last Updated: 07/27/2016

Gazprom Threatens Price Hike for Belarus

Prime Minister Mikhail Kasyanov on Saturday ordered the government to analyze a proposal by government-controlled Gazprom to stop selling to neighboring Belarus at low Russian prices.

Gazprom threatened on Friday to charge Belarus more for gas after the landlocked country refused to set up a joint venture to manage pipelines running through it to Poland and Germany.

Analysts said the move was also backed by the Kremlin, increasingly unhappy with the policies of Belarussian President Alexander Lukashenko, who has been criticized in the West for stifling democratic freedoms and violating human rights.

They also said Western clients of the world's largest gas firm were unlikely to suffer if Gazprom raised prices for Belarus because Minsk does not have the technical means to pilfer gas from export pipelines.

"We see no reason why we must keep supplying Belarussian consumers at Russian domestic prices, generating no profit. If we cannot agree [on the venture] we should switch to market conditions," a Gazprom spokesman said.

The hike would kick in next year, Gazprom said. Belarus currently buys Russian gas at a substantial discount.

Russia and Belarus agreed last year that state-controlled Gazprom would supply Belarus with 10.2 billion cubic meters per year at a price of $30 per 1,000 cubic meters. By comparison, the company, which supplies Europe with one quarter of its gas needs, sells gas to Western consumers at $90 to $140 per 1,000 cubic meters and at $30 at home.

The deal also called for Gazprom and Belarus to set up a venture to manage Belarussian pipelines, which export 20 bcm to Europe, but Belarus has not taken any real steps so far.

Analysts said they believed gas supplies and pipeline ownership issues were not the only reasons for the move.

"I think there is a major crisis of Russian and Belarus relations," said Valery Nesterov from Troika Dialog.

Former President Boris Yeltsin agreed with Lukashenko to unite the two states in 1996, and President Vladimir Putin urged Lukashenko to adopt the ruble as a single currency from 2005, but Lukashenko ruled out the idea last week, saying it was premature.

"The ruble issue became a litmus test for the Belarussian president. His answer showed that the integration was moving nowhere," said Leonid Zaiko from East-West, a pro-Western fund.

Nesterov said he did not believe that after a price hike Belarus would start pilfering gas, as has been the case in Ukraine in recent years.

"We have never had modern meters in Ukraine, but they exist in Belarus. They will have to pay in the case of illegal pilfering," a source at Gazprom said.

(Reuters, AP)