Belarus, Russia Sign Oil Supply Deal

Vice premiers Uladzimir Syamashka of Belarus and Igor Sechin of Russia on Wednesday signed a package of documents that would govern Russian oil deliveries to Belarus and oil transit across the Belarusian territory.

To all appearances, Belarus agreed to Russia’s conditions. As Mr. Syamashka told reporters on completion of the three-day Moscow talks, duty-free deliveries are to amount to 6.3 million tons a year. "We succeeded in proving that Belarus’ annual need for oil, with domestic oil production not taken into account, is 6.3 million tons, not five million tons," he said, according to the government’s news agency BelTA.

In addition, according to him, the negotiating parties agreed that the oil used to make petroleum products for export to Russia would not be subject to export duty either. Moreover, the total volume of duty-free deliveries would be increased in proportion to the growth of Belarus’ GDP, which is projected to rise by up to 11 percent in 2010, Mr. Syamashka said.

The terms that Belarus has managed to negotiate are close to those in effect in 2009, he noted. "Thanks to the agreements that we have reached, Belarus’ budget losses will not be so heavy as expected quite recently," he claimed.

However, according to earlier reports, it was Russia’s proposal that 6.3 million tons be supplied free of duty and the rest of the amount to be supplied should be subject to export duty.

Russia is ready to supply 6.3 million tons of crude oil to Belarus free of duty in 2010 for its domestic consumption, Russian news agencies reported in mid-January with reference to an unnamed "leading Russian expert in the oil sphere."

Given the fact that export duty is currently $267 per ton, this would generate an annual benefit of $1.8 billion for Belarus, the expert reportedly said, noting that the amount offered to be supplied duty free plus Belarus’ domestic oil production of some 1.7 billion tons would fully meet the country’s domestic needs estimated at eight billion tons a year.

"The Belarusian side will sign an interstate agreement [on oil deliveries to Belarus] on Russia’s conditions, which are already highly favorable," the expert was quoted as saying. "By dragging out the negotiation process, Belarus may only lose these preferential terms."

Under an interstate agreement that was signed on January 12, 2007 and expired on December 31, 2009, crude oil exported to Belarus was subject to reduced export duty, which was 35.6 percent of the rate applied to oil exports to other countries.

Late last year Moscow warned that if a new agreement on the terms of oil deliveries failed to be signed, all oil supplied to Belarus would be subject to the full duty rate starting January 1.

Minsk reportedly demanded that all Russian oil to be supplied to Belarus be exported duty-free, explaining that this would meet the spirit of agreements recently reached by Belarus, Kazakhstan and Russia to form a customs union. "A departure from these agreements and the removal of the entire energy sector of Belarus from the scope of the signed accords on the establishment of the customs union would in many respects undermine all agreements reached for the further integration of our states," said the press office of the Belarusian Council of Ministers in a statement issued on January 1.

In his January 13 letter to the Russian president, Alyaksandr Lukashenka accused Russia of backtracking on an agreement that, according to him, was reached in December. "Under an agreement reached by the presidents of the two countries during a meeting of the Supreme State Council of the Union State of Belarus and Russia on December 10, 2009, oil was to be delivered to Belarus in the first two or three months of 2010 free of [export] duty and the sides were to agree in the meantime on the conditions of future deliveries. However, the Russian Federation subsequently departed from the agreement and put forward conditions that were unacceptable for Belarus," the Belarusian leader’s press office quoted him as saying in the letter.

In early January, there were reports that Minsk was threatening to raise more than tenfold transit fees for Russian oil deliveries to Poland and Germany, from $3.9 to $45 per ton, in retaliation for Russia’s requirement for oil exports to Belarus to be subject to the full duty rate.