Russia and Belarus signed a last-gasp agreement Sunday on Russian gas supplies in a deal that averts a threatened supply cut that would likely have hit deliveries to Western Europe.
Under the deal, Belarus will be paying much more for natural gas than it used to
"The Belarussian side, in a difficult atmosphere on the eve of the new year, signed an agreement on unfortunate terms," Belarus' Prime Minister Sergei Sidorsky told journalists in Moscow.
As part of the deal Belarus has agreed to sell 50 percent of its strategically important gas pipeline operator Beltransgaz to Russian gas monopoly Gazprom -- a move earlier resisted by the Belarussian government -- the Russian company said in a statement.
Under the deal, Belarus will pay 100 dollars for 1,000 cubic meters of gas in 2007, just below the 105 dollars earlier demanded by Russia, but far higher than the 45 dollars charged under the previous contract, Gazprom said.
Over the five years covered by the contract, the price of gas will climb annually to reach the "market price" charged to western European customers, the statement said.
Most of Gazprom's EU customers pay over 200 dollars per 1,000 cubic meters of Russian gas.
Belarus' Prime Minister Sidorsky, left, and Gazprom chief Miller at a Monday news conference in Moscow
"Gazprom is undertaking a move to market principles of cooperation with all of the countries who buy Russian gas without exception," the statement quoted Gazprom CEO Alexei Miller as saying.
Speaking to journalists alongside the Belarussian prime minister, Miller said the deal was signed at 11:58 pm (20:58 GMT) on New Year's Eve after months of tense negotiations, adding that Belarus had been offered "the best conditions."
He said that Russia would pay 2.5 billion dollars for a 50 percent stake in Beltransgaz over the next four years.
The transit price for Russian gas supplies across Belarus would be increased to $1.45 for 1,000 cubic meters traveling 100 kilometers, from 0.75 dollars at present, he said.
The last-minute deal came as Russia was on the verge of cutting gas supplies to Belarus, which could have disruptions to western Europe.
Without an accord on a new five-year contract Gazprom had warned that it would move towards cutting off supplies to Belarus from 0700 GMT Monday. A cut in supplies like that suffered briefly by Ukraine in a similar price dispute last January would have been a major blow to the country's economy.
There were also concerns in the European Union that the row would impact on Russian gas exports to western Europe, 20 percent of which transit through Belarus, meeting about five percent of EU natural gas needs.
End of subsidies
Gazprom, a state-owned giant that produces a third of the world's gas, has mounted a tough campaign to end Soviet-era subsidies to neighboring countries, as well as expand ownership of infrastructure and other energy businesses throughout Europe.
Before the deal was reached Belarussians were preparing to heat with wood
The company says it wants to put pricing on a market basis. Critics, including many in western Europe, fear the Kremlin seeks to use Gazprom as a tool to reimpose part of its dominance lost at the time of the 1991 collapse of the Soviet Union.
Belarus, which lies sandwiched between Russia and the European Union, is in a loose economic and political partnership with Russia and has always argued that gas import prices should be similar to those paid within Russia.
Western governments gave strong diplomatic backing to Ukraine's pro-Western president, Viktor Yushchenko, during the gas row at the start of 2006, but Belarus' authoritarian leader Lukashenko is a political pariah in Europe and the United States.
The EU has limited itself to calling on the two parties to reach a deal that does not threaten European supplies, while the authorities in France and Germany say they are not worried by the prospect of shortages.