After months of dispute over Russian supplies of oil and natural gas to Belarus, the countries reached a compromise solution, news reports said on October 11: Minsk will repay its debt for previously supplied gas and cancel tariff hikes for the transit of Russian oil, while state-controlled Gazprom will cut the gas price for Belarus in 2016-2017 with support from the Russian government.

The new gas price was not formally disclosed, but sources told Russia's Kommersant daily that the contract price for Belarus will be cut by 30% in 2016 and be fixed next year at RUB6,000 ($96) per 1,000 cubic metres.

“Yesterday [October 9], I received a government report on oil and gas disputes with Russia. I understand that the latest dispute is over and that we were able to sign a relevant document. All the problems, at least as of yesterday, were settled,” Belarusian President Alexander Lukashenko told a government meeting.

Minsk buys Russian gas for $132 per 1,000 cubic metres, but had insisted on paying in future $68-$70, which it regards as a fair price. In May, Gazprom subsidiary Gazprom Transgaz Belarus filed a lawsuit to arbitrators at the Belarusian Chamber of Commerce and Industry against state-controlled regional gas distribution companies that it says owe at least $270mn for gas volumes previously supplied.

According to the subsidiary, it is protecting its interests under the terms of contracts signed with the Belarusian side. Minsk previously rejected the existence of any debt, citing several bilateral agreements reached in 2011, and the Treaty on the Establishment of the Eurasian Economic Union (EEU) signed in May 2014.

The pricing row triggered a rapid escalation of measures by both sides. Since the start of July, Russian oil pipeline monopoly Transneft pumped some 40% less oil to Belarus than in the second quarter because of the alleged debt to Gazprom. In retaliation, Belarusian authorities hiked tariffs for Russian oil transit through the country’s pipeline network by 50%.

New gas deal

Without specifying the new price, Belarusian Deputy Prime Minister Vladimir Semashko said it will be formally reduced from July 1. Meanwhile, Belarus should repay its debt to Moscow by October 25. However, Semashko said he will ask his Russian counterparts “for an installment plan, perhaps until the end of the year”, BELTA news agency reported.

Following contacts between the governments to contain the dispute, anti-monopoly authorities in Belarus on October 11 cancelled the 50% tariff hike on the transit of Russian oil. Later on the same day, Russian Prime Minister Dmitry Medvedev discussed the energy deal with his counterpart Andrei Kobyakov. The two premiers said the gas price for Belarus will be set this year according to the 2015 formula, while Minsk will pay off its debt, the Belarusian government’s media office said.

“At the same time, the Russian side confirmed its readiness to apply the mechanism of inter-budget compensation, which will be used by the Belarusian side above all to reduce the price of gas for domestic consumers,” a press statement said.

Belarus and Russia should reach equal gas prices for power plants by July 1, 2019, and for all other consumers by January 1, 2025. “The Belarusian side views this decision as a compromise that meets the interests of both sides,” it added.

Kommersant also reported that the Russian government had agreed to pay Gazprom $1.3bn to supply Belarus with cheaper gas. The repayments will reportedly be spread over the next two years, with Gazprom receiving $400mn by the end of 2016 under the arrangement.

Meanwhile, the reported 30% price reduction in 2016 will also help Minsk to save $400mn this year. As part of the agreement between the two countries, Belarus also pledged to enter into a common energy market with Russia, the paper’s sources said.

The Belarusian economy is heavily dependent on Russian energy subsidies in the form of discounted natural gas prices and cheap oil that is refined in Belarus. According to the International Monetary Fund (IMF), energy support from Russia stood at 12.7% of Belarus’ GDP in 2013, and up to 14.9% of the country’s GDP in 2012.