Russia and Belarus in energy feud as gas supply reduced

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Russia reduced natural gas supplies to Belarus on Monday after Minsk failed to settle a debt, brandishing again the country's energy clout and raising the spectre of supply disruptions to Europe.

Analysts warned of "a new gas war" after supplies were cut and said the Kremlin move was aimed at punishing its wayward neighbour, whose maverick President Alexander Lukashenko has irritated Moscow by dropping his loyalty in favour of closer ties with the European Union.

In a theatrical style typical of Russian gas cuts to its ex-Soviet neighbours, Russian President Dmitry Medvedev went on television and ordered Gazprom to close the tap on Russian gas supplies from 0600 GMT after Belarus failed to settle the debt of nearly 200 million dollars (160 million euros).

Medvedev told Gazprom company chief Alexei Miller to reduce gas supplies to Belarus after Miller said Belarus had failed to come up with money and instead was offering machinery to cover the debt.

In a humiliating broadside at Lukashenko, Medvedev said he should come up with hard cash -- and not goods -- to pay the bill.

"Gazprom cannot accept anything towards the payment of the debt, neither pies nor butter, not cheese nor pancakes nor other means of payment," Medvedev said.

Gas supplies were reduced by 15 percent of the daily volume and Miller said the gas cuts would be increased to 85 percent in the coming days if a solution to the conflict is not found.

Belarus took immediate steps in an attempt to defuse the crisis, saying it would settle the debt within two weeks.

"Belarus plans to settle its gas debt with Russia within the next two weeks," First Deputy Prime Minister Vladimir Semashko said in a statement.

But he added that Russia should also pay Belarus 217 million dollars in fees for transiting gas to Europe.

The two countries' energy firms failed to agree on the debt settlement by the close of the business day Monday and a Gazprom spokeswoman said the talks would continue Tuesday.

Russian Prime Minister Vladimir Putin weighed in on the energy feud later in the day, calling Gazprom's moves "absolutely justified".

"Gazprom's actions are absolutely justified and stipulated in the current contract," Putin said during a government meeting.

Putin added gas supplies to Europe may be sent via Ukraine, which itself has repeatedly come under pressure from Gazprom in the past.

"There is a possibility of rerouting these supplies.... I hope it will not come to that," he said.

Deputy Prime Minister Igor Sechin, speaking in comments released by the government, did not rule out that Belarus may start siphoning off European-bound supplies.

He added Belarus would have to cover a new payment -- bringing the total amount to 270 million dollars -- by Friday.

The flow of Russian gas to Europe via Belarus was not immediately interrupted after the reduction, Belarus's energy ministry said.

Belarus transports about 20 percent of Russia's western-bound gas exports.

Gazprom spokesman Sergei Kupriyanov confirmed to AFP that Gazprom owed money to Belarus for transit but said it was technically impossible to pay the debt since Minsk did not provide the necessary documents.

Gazprom has insisted the cut would not affect its European clients and analysts say the impact of any potential European gas disruptions would not be serious in the summer due to lower gas demand.

Lukashenko warned it was not in Russia's interests to upset a friendly state on its western borders, saying energy and security were closely linked.

"Issues of security of Belarus and Russia should not suffer due to unsolved problems in the economy and other spheres," he said in televised remarks.

The European Union closely watches gas disputes between Russia and its ex-Soviet neighbours after a row between Moscow and Kiev led to supplies of Russian gas to Europe via Ukraine being cut off for two weeks early last year. Valery Nesterov, a gas analyst at Troika Dialog, said the dispute risked damaging the gas giant's already battered reputation.

"The use of gas as an instrument of political pressure is continuing," he said.

Renaissance Capital analyst Alexander Burgansky said that "a new gas war looms with Belarus".

Analysts said the row dealt a heavy blow to longstanding efforts by Russia and Belarus to build closer economic and political links.

"This was the last gasp of an unsuccessful integration project in the post-Soviet space," independent Belarussian analyst Yaroslav Romanchuk said of the new feud.

© 2010 AFP

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