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Russia's State-Controlled Gas Monopoly to Triple Prices for Belarus

Russia's state-controlled gas monopoly, Gazprom, says it plans to triple the price that neighboring Belarus must pay for its gas. Gazprom has already raised the prices it charges some other former Soviet republics.

On the surface, Russia is a staunch supporter of Belarus and its controversial leader, President Alexander Lukashenko, who many in the West call Europe's last dictator.

Mr. Lukashenko has been in power for 12 years, and by official count, won an overwhelming victory for an unprecedented third term in last month's election.

Russia quickly congratulated the long-time ruler on his victory, which most of the world criticized as being marred by fraud.

The United States and European Union plan to impose new sanctions against the Lukashenko government in response to the elections.

Most analysts say Russia supports Belarus as a kind of buffer zone on its western border, and because the Kremlin is angered by what it calls Western meddling in what it considers its backyard - the former Soviet republics.

However, the Russian backing is not unconditional. And the move to increase gas prices is primarily seen as a means for Gazprom to gain control of Belarus's gas pipeline transit system, run by the state company Beltransgaz.

Roman Yelagin is an oil-and-gas analyst with the Renaissance Capital firm in Moscow. He says the Russian gas giant has made similar moves in other neighboring countries, such as Armenia. "Such deals are closely linked with Gazprom's ambitious policy to take control over the gas pipeline assets in countries, in exchange for the lower, or stable gas prices," he said.

Beltransgaz carries a large proportion of Russian gas to key markets in Western Europe, and Gazprom has a stated goal of consolidating its hold on the gas market.

It also needs to increase capital, in order to build new pipelines and improve existing infrastructure.

Gazprom has already raised rates for gas to other ex-Soviet republics, including Georgia, Moldova and, most notably, Ukraine.

A demand that Kiev accept a four-fold price increase in January sparked a crisis, when it cut off supplies on New Year's Day, a move that also lowered the flow of gas to Western Europe.

A deal was quickly reached for a lower price increase, amid harsh international criticism that the Kremlin was using Gazprom as a political tool over nations that have turned away from Russia politically. Russia denied the price increases were politically motivated.

Belarus currently pays $47 per 1,000 cubic meters of gas, far below the European price of $230.

Gazprom Deputy Chairman Alexander Riyazanov says there is nothing political in the decision to raise prices. Riyazanov says Belarus is the only one of the former Soviet nations to pay a low price, and that talks will begin soon to decide on a new price to take effect next January.

Russia has, in fact, tried to raise rates Belarus pays before, and, on at least two occasions, Gazprom has even cut off supplies.

This happened most recently in January 2004, when President Lukashenko finally promised to sell Beltransgaz.

However, no deal has been reached, partly because Russia values the company at $600,000, while Belarus insists it is worth several billion dollars. Roman Yelagin, the oil and gas analyst, says this is a process of bargaining. "It is also part of the discussion between Gazprom and the Belarussian government. It is aiming to (push the) Belarussian government to finalize their final position in the discussion, in the negotiation process," he says.

Economists say that a steep gas price increase would threaten Belarus's command Soviet-style economy, which in turn could threaten Mr. Lukashenko's grip on power.

Few believe the Kremlin wants to see Mr. Lukashenko fall.

Personal relations between Mr. Lukashenko and Russian President Vladimir Putin have often been strained, even though the two leaders have long discussed a possible union of the two countries.

But a lot now depends on whether the two can agree on a satisfactory outcome to the gas issue.