Belarus faces further gas cuts

Belarus says it will pay it's outstanding debt to Russia for its gas supplies in two weeks. The details of the offer are still unclear and the taps remain partially closed.

This is a dispute about contracts and money. Belarus has long been the benefactor of Moscow's generosity when it comes to gas supplies. But Russia wants to become a more established market economy even with regard to its nearest neighbours and traditionally that means receiving cash payments for its products, as President Medvedev was quick to point out.

“They should pay according to the contract and it assumes the payment should be made in the foreign currency. Everything else contradicts our financial legislation. Gazprom cannot take anything else as payments – pies, butter, cheese, crepes – are not real means of payment and our Belorussian partner should understand this.”

There is a question over Belarus's ability to pay in hard cash. It's a small economy with low income per capita and has limited access to credit with a large need to pay for other infrastructure projects, says Ben Aris, Chief Editor of Business New Europe.

“High currency reserves it has. It is enough to pay a bill of $200 million dollars in cash and not just pancakes as the president suggested. However gas remains one of the biggest outgoings for the government and they have a lot of money they need to spend doing basic investment into the infrastructure, supporting society and the economy as it comes out of the crisis and they would rather spend the money on other things.”

But even if Belarus is unable to pay within two weeks as it says, thereby dragging the dispute out, there seems little prospect that it will have a serious impact on Gazprom's European customers. Belarus accounts for one third of Gazprom's transit capacity to Europe, but demand is low at the moment and there are other routes for the fuel to take, says Konstantin Simonov, General Director of the National Energy Security Fund.

“Of course the consumption in summer is not so serious as in January 2009 – that is why now it's not a problem. Another argument is that the consumption of Russian gas in 2010 is less than in 2008 – so the situation is not so dramatic. And it's also possible to increase the transit through Ukraine territory.”

Some commentators have noted with interest that Gazprom has brought this dispute to a head in high summer rather than the depths of winter as happened with Ukraine in 2009. They say it suggests that Russia wants to enhance its reputation as a reliable partner for Europe.