How Gas Fuels Belarus-Russia Long Lasting Love-Hate Relationship

The energy sector is one of the cornerstones in love-hate relationship between Belarus and Russia that occasionally spark serious disputes. This year the never ending story got another twist. 

A union is impossible without equal conditions,” Belarus President Lukashenko said at the Eurasian Economic Union (EAEU) summit in Russia’s Saint Petersburg last week.

He particularly focused on prices for energy resources, elimination of barriers and exemptions on the EAEU market, as well as formation of common markets.

According to the president, the price Belarus pays for Russian natural gas is highly unfair.

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“Gazprom charges Belarus nearly $3 per 1,000m3 per 100km for transporting natural gas, while the internal Russian tariff is about $1.The price structure for Belarus for gas transportation throughout Russia is 70%.”

Responding to the claims, Russia’s President Vladimir Putin said:  “Today Belarus pays $129 per 1,000m3 of Russian natural gas and will pay $127 next year. Meanwhile, Germany pays $250. The current state of affairs is a major advantage for our allies.”

However, he agreed that the sides should strive for unification that will require time and a different level of integration.

Dependence and disputes

For a long time, close relations between the two countries and willingness for political integration had made it possible for Belarus to purchase gas from Russia at heavily discounted prices.

In 2006 Belarus paid only $46 per 1000 m³, while Germany paid $290 per 1000 m³. Over time, prices repeatedly increased that led to commercial and diplomatic disputes over gas and oil supplies in 2004 and 2007.

Almost all hydrocarbons in Belarus is imported from Russia. There have been attempts to supply oil from Venezuela, Azerbaijan and Iran, but duty-free Russian oil costs less. Belarus buys it at about 75% of the world market price.

According to the National Statistics Committee, in January-June 2018, the country imported 9 million tons from Russia for $3.4 billion. The price was $377 per ton ($50.4 per barrel).

Over the same period, the average price of Urals oil on the world market was $68.83 per barrel.

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In 2017, Moscow and Minsk agreed to supply 24 million tons of oil per year, 18 of which are actually supplied. The duties for the rest 6 million tons go directly to the budget of Belarus.

According to expert estimates, it brought Belarus $550-600 million last year. This autumn, questions associated with rising oil prices that affect income to the Belarusian budget arose. As a result, Moscow paid Minsk $263 million.

Cost of a tax maneuver

In June this year the Russian government approved changes in oil taxes that will see oil export duties being gradually cut over the next six years.

Due to a tax maneuver in Russia Belarus has already lost almost $3.5 billion. By 2024 the losses may reach up to $10.8 billion.

The changes imply that starting 2019, the export duties on oil will decrease from 30% to 0%. According to Belneftekhim, the oil price for Belarus in 2019 may rise to $416 per ton.

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Taking into account  that Belarus plans to import 18 million tons of oil next year, the hydrocarbons for Belarus may rise in price by more than $20 per ton.

At the same time, the mineral extraction tax will increase. It is expected that in 2019 it will grow to $416 per ton. At the moment it is about 75% of the world market price for oil.

Deeper integration

Russian Prime Minister Dmitry Medvedev and others suggest that the volume of econ support depends on how far Belarus is ready to go with integration.

The position of the state was voiced during the Russia-Belarus Union State’s Council of Ministers in Brest on 13 December.

“Russia is ready to continue to follow the path of the Union State, including to set up a common money issuance center, a common customs service, a common court, a common audit chamber and so on, as provided by the Union State Treaty of December 8, 1999.

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In this case, we will be able to pursue a common tax policy, a common pricing policy and a common tariff policy in respect of the part that is now referred to the Eurasian Commission,” he said.

Visa recognition

Meanwhile, Minsk and Moscow postponed signing of agreement on mutual visa recognition.

According to Belarus Prime Minister Sergei Rumas, Belarus has not yet completed the internal procedures to approve its agreement with Russia.

The agreement on mutual visa recognition will enable legal conditions to allow third-country citizens to travel in Belarus and Russia using a visa obtained from either country.

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President Lukashenko also explained the delay with continuing domestic procedures in Belarus.

“I do not foresee any problems with the Union ‘Schengen’. Most importantly, I have not seen it. It was submitted to me last night,” Lukashenko told Russian journalists in Minsk on 14 December.