Russia Journal, Russia
March 11 2004

Gazprom following Kremlin’s instructions

MOSCOW – Gazprom CEO Alexei Miller has received instructions from his
friends in the Kremlin and has acted accordingly. This appears to be
the only plausible explanation for the steps taken by the Russian gas
giant this week.

Sibur, Gazprom’s largest petrochemical concern, on Wednesday inked a
deal with Beltransgas, the Belarussian state pipeline company, to
supply gas to Belarus. In line with the agreement Sibur will ship 1
billion cubic metres of gas to Belarus by the end of this year,
including 200 million cubic metres to be delivered in March. However,
the volume of 200 million cubic metres is unlikely to cover Minsk’s
monthly demand.

Gazprom holds a 90 per cent stake in Sibur, the Siberian-Urals
petrochemical company. Sibur runs Gazprom’s petrochemical plants in
the Volga region, the Urals and Siberia.

Gazprom halted supplies of its own gas to Belarus on 1 January 2004
amid a dispute over prices. The gas concern insists Belarus should
pay for Russian gas at international prices. On 18 February this year
Gazprom stopped gas deliveries to Minsk altogether and also halted
transit shipments to Europe via Belarus. The company said it wanted
to raise the price Belarus pays by 56 per cent to $50 per 1,000 cubic
metres and to receive payment for gas already supplied. In the
meantime, Belarus is receiving Russian gas from Russian suppliers
Trans Nafta and Itera.

Another 230 million cubic metres will be delivered to Belarus in
March by Trans Nafta, Russian media reports said on Thursday.
According to Gazprom’s press-service, the gas concern will only
provide the transit pipeline.

A Sibur official optimistically said that the price at which gas will
be supplied to Belarus is comparable to that of Nafta. However,
Belarus still has not repaid its debt to Trans Nafta for the volumes
already supplied in 2004.

The decision to supply gas via Sibur seems strange. The company has
never been involved in gas deliveries before. Moreover, unlike Itera,
a company formally independent of Gazprom, Sibur is fully controlled
by the concern.

Gazprom has also voiced its intention to halve its gas supplies to
Georgia as of 15 March 2004 because of debts owed by Tbilisi to
Gazexport, Gazprom’s export subsidiary. According to Gazexport,
Tbilisi’s debt now stands at $7.4 million. Russia also supplies gas
via Georgian territory to Armenia, where there are also problems with
payments.

Gazprom has been supplying gas to Georgia since 1 October 2003 via
Gazexport. Before that Itera was the sole supplier of Russian gas to
Georgia. Last year Gazprom also began to deliver gas to Azerbaijan.

Alexandra Vertlyugina, an analyst with AVK, believes it is possible
to assume that following Gazprom CEO Alexei Miller’s meeting with the
country’s top leadership Gazprom was given certain political
instructions concerning Belarus and the Transcaucasian countries,
through which the Baku-Ceyhan oil pipeline runs – an alternative
route to Russian pipelines – and began to incorporate them in the
company’s economic policy.