Gazprom's equity capital totaled about $250 billion in late September 2006. Despite the fact that Belarus and Russia are allies, Belarus does not hold an interest in the Russian gas giant and Gazprom does not have stakes in Belarusian companies. Belarus buys natural gas from Gazprom and charges the company for gas transit. So far the sides have failed to agree on strategic partnership. They are currently in tough talks on gas prices for 2007 that may drag on until the end of the year.
The Russian government seems to have tasked Gazprom with conducting negotiations with Belarus. High-ranking Russian officials from the foreign minister to the prime minister have repeatedly stressed the need for market-driven pricing and economic relations with Belarus. Their unanimous position is a sign that the decision has been made at the top level.
CEO Aleksei Miller clearly spelled out Gazprom's position this summer: "On market-driven pricing for Belarus and other countries. I think that it is obvious for everybody that Gazprom must export gas at market prices. This is an indispensable economic fact. It cannot be otherwise if we want to create a normal civilized gas market and build so-called energy security in Europe and all over the world. There are no other trade principles. It is another matter that negotiations with various countries may include discussion of various arrangements, various legal and economic techniques, compensation options, but this does not cancel the general principle. Non-market prices can be used temporarily on the internal market only."
Therefore, Alyaksandr Lukashenka is not in a position to reach agreement on gas deliveries at Russia's domestic prices without sharing assets. What is he going to pay with? Belarus' independence, full or partial, is the most valuable commodity. The Russians would eagerly buy it, but luckily Minsk has not offered it for sale. Discussions of a draft Constitutional Act are likely to go nowhere in the short term.
A controlling stake in Beltranshaz is another commodity. The likelihood that it will be put on sale does not exceed five percent regardless of how ABN Amro appraises the gas pipeline system operator. Minsk may offer a non-controlling stake, but Gazprom is unlikely to accept it if the package does not include stakes in other enterprises. Gazprom would like to acquire an interest in Belarus' regional gas distribution companies (Hrodnavoblhaz, Minskvoblhaz), but this option is out of the question because the government will never let the Russian giant on the retail market.
There are other possible options to persuade Gazprom to charge $80 for 1,000 cubic meters, not $200. Miller and Uladzimir Syamashka, deputy prime minister, agreed to draw up a list of Belarusian enterprises of interest to Gazprom. A working group will appraise their assets and the appraisal will include the imminent price hike. The top items are likely to be the Naftan and Mazyr refineries and Belarusnafta, a state-owned oil company. The Gazpromneft oil company would be happy to absorb the Mazyr refinery to consolidate its positions on the European and CIS oil markets.
Belarus might agree to refine larger amounts of crude oil from companies controlled by Gazprom. Rosneft and Lukoil will not be happy, but the Belarusian authorities will have to accept the deal in return for a smaller increase in its gas price (although the price is unlikely to be below $80).
The second group of enterprises that could be of interest to Gazprom includes Hrodna Azot, a nitrogen fertilizer factory; Palimir polymer factory; Mahilyowkhimvalakno, a chemical fiber factory; the Homel Chemical Factory; Naftazavodmantazh and a few other smaller enterprises of the petrochemical industry. Gazprom could consider acquiring regional power generation and distribution enterprises Minskenerha, Vitsyebskenerha, Homyelenerha and others. Power generation is one of the Russian company's strategic priorities. It would willingly privatize the industry in Belarus, the more so that most Belarusian power plants are fired by natural gas. It could also buy thermal power plants. It has already acquired such assets in Lithuania.
The Gazprom management is willing to swap cheap gas for assets rather than buy stakes at an open and transparent competition. Russian bureaucrats and executives engaged in politics are especially good at such shady dealings. They prioritize their personal gains at the expense of Gazprom's interests. Minsk also could share assets of selected enterprises.
All these deals are possible, but one should not forget that investors are wary of Belarusian legislation governing ownership rights, which allows the government to intervene in the production and distribution of goods. Therefore, it will not be easy to strike a deal.