07MOSCOW3777, RUSSIA ENERGY: ANOTHER BELARUS GAS STANDOFF

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Reference ID Created Released Classification Origin
07MOSCOW3777 2007-08-02 02:50 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO8748
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #3777 2140250
ZNY CCCCC ZZH
O 020250Z AUG 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2599
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEHSK/AMEMBASSY MINSK PRIORITY 5430
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 003777 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS WATSON 
DEPT FOR EB/ESC/IEC GALLOGLY AND GAVERICK 
DOE FOR HARBERT/EKIMOFF 
DOC FOR 4321/IEP/EUR/JBROUGHER 
NSC FOR MCKIBBON 
 
E.O. 12958: DECL: 08/01/2017 
TAGS: ECON ENRG EPET PREL RS
SUBJECT: RUSSIA ENERGY: ANOTHER BELARUS GAS STANDOFF 
 
REF: 06 MOSCOW 013174 
 
Classified By: ACTING ECON M/C KATHLEEN DOHERTY. REASONS 1.4 (b/d) 
 
1. (SBU) SUMMARY.  In a repeat of the New Year's gas standoff 
between state-controlled gas monopoly Gazprom and Belarus 
(reftel), Gazprom issued a press release on August 1 that 
Beltransgaz (BTG - the Belarusian gas pipeline operator) has 
been informed that gas deliveries to Belarus would be reduced 
by 45 percent starting 10:00 AM on August 3 for non-payment 
of gas debts for the first half of 2007. Belarus missed a 
July 23 deadline to pay the balance of its gas debt, roughly 
$500 million, although the GOB received $625 million in June 
from Gazprom as the first of four payments for a 50 percent 
stake in BTG.  END SUMMARY. 
. 
BACKGROUND 
---------- 
. 
2. (SBU) The December 31 agreement that prevented the New 
Year's gas cutoff included a scheduled increase in gas prices 
from the $47/tcm that Belarus paid in 2006 to $100/tcm in 
2007 (reftel).  Gazprom delivers about 20 bcm/year to 
Belarus. Gazprom agreed to a transitional phase to lessen the 
impact of higher gas prices on the Belarusian economy by 
allowing the GOB to pay about half of its gas bill for the 
first half of 2007 in cash and pay the balance, or roughly 
$500 million, by July 23.  When the GOB missed this deadline, 
they began negotiations for a loan from the GOR. 
. 
3. (SBU) Another part of the New Year settlement was an 
agreement by the GOB to sell 50 percent of BTG to Gazprom for 
$2.5 billion.  This was a GOB concession in exchange for 
Gazprom's agreement to a gradual increase of gas prices 
instead of an all-at-once increase.  Gazprom finalized the 
terms of its BTG purchase with the Belarusian Property 
Committee on May 18 with Gazprom paying $625 million annually 
for a 12.5 percent stake until 2010 when its stake would 
reach 50 percent.  The press reports that Gazprom made its 
first $625 million payment in June. 
. 
4. (SBU) On July 30, press reports indicate that PM Fradkov 
and Belarusian PM Sidorskiy failed to reach agreement on a 
$1.5 billion loan.  Belarus is seeking a loan significantly 
greater than its current debt at preferential rates from 
Russia.  Finance Minister Kudrin has said that agreement on 
the loan has been reached in principle, but the crux of the 
disagreement falls on the terms, according to press reports. 
. 
COMMENT 
------- 
. 
5. (C) As they did this past winter, the two sides will 
probably come to agreement on mutually acceptable terms at 
the last minute.  Since Gazprom paid the first tranche of its 
payment for BTG in June, which is more than enough to cover 
the balance of its gas debt for the first half of 2007, the 
GOB could find it difficult to sell the argument that it does 
not have the cash to pay for the gas.  On the terms of the 
loan that GOB is seeking, the GOR is probably unwilling to 
provide preferential rates to Lukashenko on a loan, which 
would just constitute replacing the gas subsidy with a loan 
subsidy.  Gazprom may try to leverage the debt for an 
accelerated transfer of BTG's 50 percent stake. 
. 
6. (C)  Should negotiations on the loan spiral out of control 
and a gas reduction actually does occur on August 3, the 
scenario would probably play out as we outlined it last 
December (reftel).  A Russian decision to reduce the pressure 
through BTG could lead to a Belarusian decision to siphon off 
gas destined for Germany, Latvia, and Poland.  In contrast to 
the December scenario, the lower summer demand for gas would 
probably lessen any impact that a gas supply reduction would 
have on Gazprom's European consumers.  END COMMENT. 
RUSSELL

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