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. Last Updated: 07/27/2016

Belarus, Russia Fail to Agree on Loan

Itar-TassSergei Sidorsky and Mikhail Fradkov preparing for talks Monday in Moscow.
Russia and Belarus on Monday failed to reach an accord on a $1.5 billion loan for Minsk to pay off its debt for natural gas supplies, raising the prospect of another pricing dispute that could affect Gazprom deliveries to Europe.

Prime Minister Mikhail Fradkov and his Belarussian counterpart, Sergei Sidorsky, agreed to continue hammering out the terms for the Russian state loan, however.

Belarus wants the loan to pay an outstanding bill of $500 million that it has run up since Gazprom began charging a higher price for its natural gas at the start of the year. The deadline to pay back that debt expired July 23, prompting a round of negotiations between Belarus and Gazprom.

Belarus made the loan request in February, but the countries have failed to negotiate the terms since then.

The delay comes because Belarus may now want a bigger loan or seek an unacceptably low interest rate, said Alexander Fadeyev, an expert on the country at the CIS Institute think tank.

Fradkov described the latest talks as "productive" and said the government agreed to "do its homework" on the Belarussian proposals, according to a statement posted on the Cabinet's web site Monday.

"The issue is difficult and it cannot be resolved overnight," he said.

Sidorsky expressed confidence that Belarus would receive the money. "We believe that the loan will be extended in the near future," he said after the talks, the Belarussian government web site reported.

Fradkov and Sidorsky also debated the loan at their meeting Sunday, when they took part in a bilateral session of ministers, the Belarussian government web site reported.

"We are interested in continuing cooperation with Belarus on market conditions," Fradkov said at the meeting, the web site reported.

Belarus may now be seek a loan of $2 billion at an interest rate that is lower than the market level and therefore unacceptable to the Russian government, Fadeyev said.

"This, of course, is a stumbling point," he said.

Finance Minister Alexei Kudrin said Saturday that the Cabinet had preliminarily agreed to issue a loan to Belarus, but had not yet decided on its terms and the size. The State Duma would need to approve the loan when it reconvenes in the fall.

Belarussian state representatives and Gazprom also held talks Monday to settle the country's gas debt, a company source said, declining to be identified because of the sensitivity of the talks.

Gazprom increased the price from $47 to $100 per 1,000 cubic meters of gas from the start of the year. The firm agreed to charge $55 for the first half of the year in advance of payment of the outstanding sum by July 23, however. Belarus is still paying only $55 per 1,000 cubic meters, the Gazprom source said.

As part of the pricing arrangement, Belarus agreed to sell half of its national pipeline operator, Beltransgaz, to Gazprom for $2.5 billion. Gazprom paid $625 million for the initial 12.5 percent of the company last month.

Belarus deposited the payment in its Finance Ministry accounts to fund investment projects, instead of using the money to repay the gas debt, Fadeyev said.

If Belarus and Gazprom fail to agree on debt repayment, Gazprom could reverse its pricing agreement with the country and demand a higher price, Fadeyev said.

Last year, Gazprom threatened to shut off supplies to Belarus starting in January in a pricing dispute that came to an end minutes before the New Year.

Relations between Gazprom and Belarus are closely monitored by analysts and politicians in Europe, since gas-pricing disputes between the two sides have threatened to disrupt the flows of Russian gas to Europe. Belarus is a transit route for around 20 percent of Russian gas exports to Europe.