August 2, 2007 / 12:15 PM / 12 years ago

UPDATE 3-Belarus slams Russia, but to pay gas debt

(Adds Gazprom comment)

By Andrei Makhovsky and Douglas Busvine

MINSK/MOSCOW, Aug 2 (Reuters) - Accusing Russia of launching a hostile economic takeover of his country, Belarussian President Alexander Lukashenko grudgingly promised on Thursday to repay a half billion dollar gas debt.

Lukashenko launched his tirade a day before Russian gas monopoly Gazprom (GAZP.MM) was due to make good on a threat to halve deliveries to Belarus, a vital transit route for oil and gas shipments to Europe.

Gazprom said Lukashenko’s pledge to repay the $456 million gas debt provided “hopeful signals.” But his harsh rhetoric could yet herald a slide in relations as Russia prepares for parliamentary and presidential elections.

Lukashenko, who runs a Soviet-style command economy and has been dubbed by Washington as “Europe’s last dictator”, accused Russia of using its energy power to seize economic control.

“Russia wants to privatise not only individual businesses — and even grab them for free. It wants to privatise the whole country,” he told journalists in Minsk.

State-controlled Gazprom, which put a squeeze on Russia’s poor western neighbour by doubling export prices to $100 per 1,000 cubic metres in January, said emergency talks would resume on Friday.

“The latest statements from Belarus are hopeful signals,” Gazprom spokesman Sergei Kupriyanov told Reuters television.

“A delegation from Belarus arrives tomorrow and talks will continue... We still have time to reach a deal.” Gazprom has threatened to turn down the gas taps from 10 a.m. (0600 GMT).

CHAVEZ TO HELP?

Lukashenko, according to news agency reports, said Belarus would draw on its limited financial reserves to repay the debt after a grace period expired on July 23.

He has also appealed to Hugo Chavez, the populist president of Venezuela, for financial help. “Our reserve fund will be laid bare, but other states are prepared to step in and help — including Chavez and foreign commercial banks,” Lukashenko said.

Analysts say that Russia, having supplied Belarus with subsidised energy for years, feels let down by Lukashenko’s lack of loyalty towards Moscow and reluctance to open his country up to investment.

And, as Kremlin strategists seek to orchestrate a smooth succession to Vladimir Putin at next March’s presidential election, a troublesome Belarus is the last thing they want.

“Russia is clearly flexing its muscles to put pressure on the political regime in Belarus,” said Dieter Helm, an economist at Oxford University in England.

“No doubt there will be some hurried settlement, but ... the issue in respect of Belarus will not get resolved until something happens to remove Lukashenko.”

Gazprom’s threat echoed previous disputes between Russia and its neighbours — Belarus and Ukraine — which caused gas and oil supply cuts to Europe in the past three winters, underlying Europe’s heavy dependence on Russian energy resources.

This time, Gazprom has told European customers it is ready to use alternative routes to ensure steady supplies, and take legal action if Belarus siphons off gas from transit pipelines.

Analysts said any potential supply disruptions to Europe would be limited, as gas demand is relatively low in the summer and Gazprom it can pump more gas westward via Ukraine.

The dispute will boost Russia’s resolve to build new export pipelines, such as a subsea link across the Baltic to Germany, to bypass troublesome neighbour states, the analysts also said. To see a story on Gazprom’s threat to cut gas [ID:nL0191047] To read an analysis on the Belarus gas row [ID:nL01775070] To see a factbox click on [ID:nL01299567] To see analysts view on the dispute [ID:nL02847474] (Additional reporting by Barbara Lewis in London and Anatoly Titkin in Moscow)

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