The Oil and the Glory

Time for the annual gas rumble in Europe

It’s again the time of year for a gigantic row over utility arrears in the Russian space. When Russia, Ukraine and Belarus engage in this game of roughhousing — as they have every year since 2006 — they might find it fun, but large swaths of Europe suffer, because their gas supplies invariably get cut ...

It’s again the time of year for a gigantic row over utility arrears in the Russian space. When Russia, Ukraine and Belarus engage in this game of roughhousing — as they have every year since 2006 — they might find it fun, but large swaths of Europe suffer, because their gas supplies invariably get cut off in the ruckus.

So it is now in Belarus. Over the last two days, Russia’s natural gas giant Gazprom has cut off 30 percent of its supply to Belarus over a disputed $195 million utility bill that, according to Gazprom, has accumulated since March. In response, the Belarusians say Gazprom owes them $260 million in unpaid natural gas pipeline transit fees, so that it is they, and not Russia, who is the aggrieved party.

Here is Reuters TV on the latest spat.

 

Gazprom supplies about 25 percent of Europe’s natural gas, and a fifth of that is shipped by pipeline through Belarus. In response to Gazprom’s actions, Belarus President Alexander Lukashenka ordered all of Gazprom’s shipments to Europe suspended. He referred to the tit-for-tat as a "gas war." Today, Jerzy Busek, the president of the European Parliament, said that already the dispute has reduced gas supplies to three European countries – Germany, Lithuania and Poland.

In a telephone news conference today with reporters, Gazprom spokesman Sergei Kupriyanov said that the bill claimed by Belarus reflects higher transit fees that the country is seeking for the natural gas shipped across its territory. Gazprom wants to pay the bill, Kupriyanov said, but Belarus won’t accept it. The transit debt "is being used by Belarus for leverage in the negotiations," Kupriyanov said.

Similarly, Belarus’s debt reflects a hike in the price that Russia wants for its natural gas. Belarus was charged $150 per 1,000 cubic meters of gas last year, but Russia raised the charge to $169.20 in the first quarter of this year, and $184.80 in the second. Belarus has been paying its gas bill, but at last year’s rate. The $195 million debt represents the difference in price Russia is seeking.

Many questions have been left unanswered, principally why the Russians, the Belarusians and the Ukrainians don’t take their disputes to international arbitration rather than annually going through another spectacle. Edward Chow, a former Chevron executive and a fellow at the Center for Strategic and International Studies, says he has the following questions of Gazprom:

Does your supply contract require international arbitration of disputes?  Then, why the cutoff?  Belarus claims it paid according to the previous gas price, not the higher price as agreed.  Did you accept those lower payments?  Does Gazprom not have a similar option on the transit fee?

The row has not been without humor. Lukashenka offered to pay off the gas debt with barter, to which Russian President Dmitry Medvedev replied that Gazprom would not accept "pies, butter and cheese." (Just out of curiosity, is there any other major president on the planet who handles the gas bills himself?). Lukashenka understandably took umbrage at the remark. "I am sorry, when they start humiliating us with either cutlets or sausages or butter or pancakes, we perceive this as an offence to the Belarussian people," the Belarus president said.

Food jokes, it seems, are a step too far in the utility wars.

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