Belarus signs contract with Gazprom

Belarus has signed a five-year contract with energy giant Gazprom that doubles the price it pays for natural gas and gives the Russian monopoly control of half its pipeline network.

The deal was agreed two minutes before a deadline on Monday morning after days of wrangling and threats from both sides to turn off a pipeline through Belarus which delivers gas to western Europe.

Exactly a year after a similar price row saw Gazprom halt gas deliveries to Ukraine, Minsk agreed to pay $100 (€75.30) per 1,000 cubic metres of gas after reports that Gazprom had built up huge stockpiles of gas in Germany and Austria.

A Gazprom spokesman said that whatever the outcome of the Belarus negotiations, there was "no cause for concern" among European customers.

It is believed that Gazprom has built up at least four billion cubic litres of gas - 5 per cent of Germany's annual gas consumption - in storage facilities owned by the German chemical company BASF.

In theory, that would allow Gazprom to continue to supply gas to its customers in western Europe - who pay an average unit price of $290 - while squeezing supplies in the former Soviet republics. Gazprom is working with BASF and German energy giant Eon on a new €4 billion undersea pipeline between Russia and Germany.

News of the gas reserves, like the announcement of the pipeline in 2005, will cause unease in countries once in the Soviet sphere of influence. For them, threats to halt supply to western Europe through the Yamal pipeline that passes through Belarus and Poland had been one of their few sources of leverage against hefty price increases demanded by the Russian gas monopoly.

Poland is particularly dependent on Russian gas and is concerned that it will see energy used as a means of exerting political influence. Moscow's ongoing ban on Polish meat products lead Warsaw to veto negotiations last month on a new bilateral treaty with Russia.

Russia supplies a quarter of Europe's gas with 80 per cent going through Ukraine and the other 20 per cent through Belarus. As other former Soviet republics turn westward, Belarus was seen as a staunch ally of the Kremlin. However, the price dispute has been seen as an expression of Moscow's displeasure with the country's Soviet-style economic planning. Gazprom says the new price agreement is part of a drive to bring gas prices in former Soviet states in line with other European levels.