For Russia, true friendship is a pipe dream
By John Helmer
MOSCOW - The legendary Marshal Winter who defeated Napoleon Bonaparte and Adolf
Hitler and forced their eventual destruction has been unseasonably
mild-tempered this year, allowing Russian President Vladimir Putin to withstand
a rain of arrows from the German Chancellery, the European Union, and the Poles
and demonstrate that energy supply for Europe can't be extracted from Russia by
pressure tactics, or stealing.
The Druzhba (Friendship) Pipeline will now resume deliveries of crude oil for
friends. The lesson of the week-long conflict, which
had The Financial Times thundering in London about Russian perfidy, is that
Druzhba is not open to enemies.
In a telephone call on Wednesday, Putin agreed with his Belarusian counterpart,
President Alexander Lukashenko, to restore the status quo ante for
crude-oil exports; end a US$45-per-tonne oil-transit fee imposed last week by
Belarus on Russian crude piped to Europe; and renegotiate the sharing of
revenues from an oil-export tax that the two countries have agreed to collect
at Belarus's western border. A deadline for finalizing the new deal was fixed
for the end of the week, while Belarusian Prime Minister Sergei Sidorsky is in
Moscow.
A 35-cent-per-barrel maintenance fee charged to Transneft, Russia's pipeline
company, by the Minsk government for pipeline transportation of oil headed for
Germany and Poland will remain. But Russian negotiators have agreed to drop
their January 1 export duty of $180.70 a tonne, payable by Russian oil
companies at Belarus's eastern frontier, on condition that Minsk agrees to
honor its 1995 agreement to share the oil-export duty collected on its western
border. That agreement has been in abeyance since 2001, while Minsk collected
and kept Russia's share of the revenues - about $3.5 billion per annum - for
its own Treasury. The original pact allowed Belarus to collect the tax, but
keep only 15% of the revenues as a combination of transit fee and subsidy for
its refining industry.
Of the 60 million tonnes per annum (1.2 million barrels per day) of crude
Transneft has annually piped through Druzhba across Belarus, about 20 million
tonnes (384,000 barrels per day) went to the Belarusian refineries, and almost
a million barrels went on to central European destinations. The most hostile of
them, Poland, has tried rattling trade threats against Moscow for months, but
failed to draw European Union support for anything tougher than jawboning from
Andris Piebalgs; he has been the EU's energy commissioner since 2004, and was
once a Latvian schoolteacher.
A cut in Russian output at the wellhead had been forecast if the conflict
continued; last year's Russian production averaged 9.7 million barrels daily.
The new uncertainty follows reports of a 3% decline in Russian crude-oil
production in December. The international oil market did not believe Lukashenko
would, or could, hold out against Putin; and the temporary cutoff in pipeline
deliveries failed to stop the oil marker price falling throughout this week.
Putin's deal nicely saves his oil constituents, Russia's oil companies, all of
which use the Druzhba pipeline route to export markets, and which would be
obliged to pay the proposed new oil-export duty or suffer the loss of the
export route. Industry estimates in Moscow have calculated that the shutdown,
which began on Monday and was likely to end on Friday or Saturday, has been
costing the Russian exporters $25 per barrel in export netbacks, and $7.5 a
barrel in net loss. Surgutneftegas is the exporter most affected, with almost
$3 million in losses calculated for the week.
An end to the spat raises both strategic questions and political ones.
Lukashenko has been reluctant to agree to any deal over oil-export
revenue-sharing for more than nine months, and his readiness to retaliate with
the transit fee, followed by the siphoning off of crude oil from the pipeline
to "pay" the new fee, left him, and Belarus's domestic economy, dangerously
exposed within hours. The US government, which has been plotting to overthrow
Lukashenko, was in no position to back his move and was uncomfortable, too, in
appearing to endorse Putin's position.
That will now proceed in the direction of developing additional oil-export
capacity to bypass Belarusian territory. As the Kremlin has already decided to
close pipeline shipments to the Baltic states, and minimize dependence on their
ports for tanker loadings, the obvious option is to increase Russia's capacity
to ship out of the new Gulf of Finland oil port of Primorsk, near St
Petersburg. But increasing tanker loadings there means more Russian oil passing
through the Baltic Sea to the narrow Danish Straits, a North Atlantic Treaty
Organization (NATO) chokepoint. A southward pipeline project, from the
Bulgarian port of Burgas to the Greek port of Alexandropouli, is another option
Putin has been accelerating in the past six months. An eastward pipeline to
ship oil to China, and eventually to the Sea of Japan, has started
construction; the China leg will be first to start operation in about three
years.
Why did Lukashenko agree to higher payments for Russian gas in December, but
starting a month earlier, put his foot down over crude oil? A fit of pique - or
of politics?
In cliff-hanging negotiations at the end of last year, the Minsk government
agreed to pay $100 per thousand cubic meters of Russian gas starting January 1,
with a four-year transition period to higher prices on a parity with Western
Europe. In an unusually detailed transcript of Putin's meeting with his
ministers this Tuesday, the president described this outcome as exceptionally
advantageous for Lukashenko. ''The Russian Federation agreed that this year it
would sell Belarus gas for $100, therefore below market price. This is the
lowest price in the Commonwealth of Independent States. Even a country such as
Armenia, a country that also has quite a few problems, pays $110 per 1,000
cubic meters of gas. And let us not forget that Russia is not collecting export
duties while exporting our gas to Belarus." Belarus paid $47 in 2005. By
contrast, Poland pays $270 for its Russian gas.
A political theory of Lukashenko's behavior is dusted off regularly in Moscow,
and has reappeared again this week. According to this one, Lukashenko is using
the confrontation over energy supplies to arouse domestic Belarusian sentiment
against a closer form of union with Russia, which might see a new federal
constitution adopted, and Lukahsenko himself subordinated to a union
presidency. Guess who, according to this theory, would become the new president
of the union of the two states, when his term as president of Russia runs out
in March 2008?
At the moment, there are unlikely to be many Russians or Belarusians who would
not favor such a change, and vote for Putin, if they get the chance. But this
theory has had a long history of not materializing; it was trotted out when
former Russian president Boris Yeltsin was looking for ways to prolong his term
in the Kremlin. Lukashenko survived Yeltsin. Now that Russian gas and oil will
flow into Belarus, his countrymen will survive Marshal Winter. But what reward
will Putin seek for this victory over cold adversity?
The last word cannot come from the Latvian schoolmaster, speaking as if for all
of Europe, when he called on Thursday for a change in EU energy policy. "If we
do not act," Piebalgs said, ' by 2030 we would be using more energy, importing
more oil and gas from Russia and OPEC" (the Organization of Petroleum Exporting
Countries). In short, enemy states. Latvia is backing the US and NATO in a
campaign to unseat Lukashenko and pull Belarus into an anti-Russian alliance of
Baltic states. Starting with the confrontation over Russian gas supplies to
Ukraine, that strategy boomeranged spectacularly in Kiev last year, leaving the
pro-American president there, Victor Yushchenko, discredited, and isolated
domestically.
Even the Americans should be happy, as the world's most avid consumers of crude
oil enjoy the fall in the Brent price to $53 and concomitantly see their dollar
grow in exchange-rate and purchasing power.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
