Lukashenka publicly accused Russia of non-compliance; Minsk is gearing up for fierce disputes over oil and gas

At the Supreme Eurasian Economic Council (EEU heads) meeting, Alexander Lukashenka accused Russia of failing to comply with her EEU commitments in terms of creating common oil and gas markets, proposing unfair terms of gas supply to Belarus and putting barriers for Belarusian goods on the Russian market. Belarus aspires to settle the issue with the compensation for the tax manoeuver in the Russian oil industry by the year-end.

At the opening of the SEEC meeting, while all the media was filming in full, Alexander Lukashenka started a dispute with President Putin. He did so for several reasons: to strengthen Belarus’ negotiating positions in a dispute over oil and gas supplies, and improve Belarus’ image in the Russian media. That said, in the past six months, Russian economic authorities spoke of Russia’s commitments to Belarus as “assistance” to weaken Belarus’ negotiating positions.

In addition to the value of Belarus as a transit country and her participation in the Unions with Russia, her reputation is an important element in the negotiations. Belarus wants Russia to confirm her commitment to creating equal conditions on the EEU markets (and in the Union State) before 2025, and by mid-2019 to determine the terms of gas and oil supplies in 2020-2025.

That said, major issues include the following: clear agreements between Belarus and Russia on gas and oil supplies are only valid until 2019. Moreover, Belarus failed to secure fair gas prices under the existing agreement, in particular, the gas transit tariff for Belarus is triple that for Russia, and Russia compensates for Belarus’ losses due to the export transit tariff through the mechanism of “peretazhmozhka” (‘double customs clearing’), transferring export levies on petrochemicals worth 3 million tons of oil to the Belarusian budget. However, this agreement was constantly interrupted by Russia due to disputes over the supply of oil and/or petrochemicals.

It is also important to note that in 2019, Gazprom’ long-term contracts (“take and pay”) for the supply and transit of gas with many of Belarus’s neighbours expire, including Ukraine, Poland, etc. This means fierce disputes with Gazprom on the terms of gas supply are yet to come. Hence, Belarus, which would remain a significant transit channel for Russian gas even after 2022 (the approximate year of Nord Stream 2 commissioning), seeks to secure her positions before Gazprom signs its agreements with Ukraine and Poland.

Equally complicated negotiations are coming up for Belarus in the view of the tax manoeuvre in the Russian oil industry and the terms of oil supply as such. Firstly, because this issue, due to previous agreements, is linked to gas prices for Belarus: this “transfer” of export levies on oil is the compensation for the unfair gas price set by Russia. Due to the tax manoeuver, which consists in the fact that export levies on oil in Russia would be reduced proportionally to the increase in the mineral extraction tax, and Russian oil refineries would receive a compensation for the alleged losses, the volume of “double customs clearing” would reduce in 2019. Secondly, because Russia’s decision to compensate for Russian refineries for losses due to the tax manoeuver puts Belarusian refineries in unequal competitive conditions.

Furthermore, in addition to these critical issues, Lukashenka criticized Russia’s unwillingness to fulfil her commitment related to the establishment of a common market, as she continued to put barriers for Belarusian and other EEU member state products to access the Russian market.

Finally, apparently, Lukashenka was assured that at least the issue with the tax manoeuver would be agreed before the year-end. Putin and Lukashenka agreed to meet again before the New Year.