MINSK, Dec 6 (Reuters) - Russia's $2.5 billion acquisition of Belarus's gas pipeline system has given President Alexander Lukashenko a breathing space in an acute financial crisis - but it is not likely to be used to further market reform in the small ex-Soviet republic.
Belarus’s authoritarian leader, in power since 1994, has been bobbing and weaving for years over the sale to Moscow of a remaining 50 percent of Beltransgas which takes Russian gas to Europe.
With Lukashenko cut off from Western aid because of repressive policies at home and unable to unlock IMF financial credit to plug a yawning balance-of-payments gap, Moscow stepped up pressure and finally landed the prize on Nov. 25.
The landmark deal with Russia’s Gazprom is the core of a wider Russian rescue package for Belarus worth up to $15 billion, including a $10 billion credit to build a nuclear power station and other soft loans.
It ended an uncomfortable period for Lukashenko, whose popularity at home has suffered from high inflation and two devaluations of the national rouble currency largely caused by populist pre-election over-spending in 2010.
The crisis did, however, force his government to switch to policies of budget and monetary tightening, unifying a raft of different exchange rates that were only fuelling a currency black market, holding back on public spending and squeezing imports.
The measures drew applause from the International Monetary Fund – though did not translate into credit – and gave investors hope that Belarus would eventually switch from its Soviet-style, state-dominated economic model to a market economy.
But, with the Beltransgaz deal already in the bag and with both sides working only on the small print, Lukashenko then signalled business-as-usual.
Just a fortnight ahead of signing the deal, he played a populist card, lashing out at his government for going too far with belt-tightening and ordering ministries to protect people’s well-being.
"Put yourselves in poor people’s shoes," he told officials on Nov. 10. "Try living in those conditions. And then you will probably understand what the pure market (economy) is and how we should act," he said.
Lukashenko was signalling a clear message: he is not ready to give up "the Belarussian way", a model he has defended for years as a viable alternative to capitalism.
For the 17 years he has been in power, Lukashenko has kept most of the economy under state control, allowing only limited privatisation. Wages are relatively low but so are government-regulated prices for most consumer goods.
Belarus still resorts to Soviet-era five-year economic plans and most state-owned companies are burdened with loss-making assets whose main function is to provide additional jobs. Social services such as healthcare remain completely or virtually free.
The IMF, from which Minsk has been seeking a loan of up to $7 billion, reacted equally quickly to Lukashenko’s anti-market statement, saying it would not start talks on a programme until it saw commitment to reforms on the highest level.
"This (Russian aid) is just a temporary patch and Belarus will, in my view, need IMF support," said Renaissance Capital analyst Ivan Tchakarov.
GEO-POLITICAL MOTIVES
The IMF’s warning looks like falling on deaf ears though, since the Beltransgas deal has assured Minsk of enough cash to meet short-term needs.
"The authorities feel comfortable now because the situation has stabilised," said a Belarussian businessman who spoke on the condition of anonymity.
The Nov. 25 deal, which also includes a 40 percent gas price discount for Belarus, has significantly reduced the pressure on its balance of payments.
Though the acquisition of Beltransgas is a triumph for Russian diplomatic cajoling and enticement, many analysts say Moscow has paid a high price in cash terms. But Moscow gets an important benefit in secure access for its gas to Europe.
"This is a good geopolitical move for Russia to fully secure the safe passage of Russian gas via Belarus," said Renaissance Capital’s Tchakarov.
Moscow’s commitment to lend Minsk $10 billion to build a nuclear power plant in western Belarus will put money primarily in the pockets of Russian contractors, though a hefty sum could still trickle down to Belarussian businesses.
The relatively soft terms that Moscow has granted Minsk suggests it may have its eye on other key assets, such as potash miner Belaruskali.
But most analysts see a deeper geo-political game afoot and say Moscow is beckoning – beyond the generous Belarus deal – to other ex-Soviet republic, like Ukraine.
"(Moscow’s) main goal is to show Ukraine how good it is to be in the Customs Union," said economist Yaroslav Romanchuk, referring to a bloc formed by Russia, Kazakhstan and Belarus.
Ukraine – with Belarus the other key transit state for Russian energy exports to Europe – has long turned down Russia’s repeated invitations to join the bloc. It aims to forge closer ties with the European Union instead.
But the arithmetic will be only too clear for Uraine’s government.
The average price of $165 per 1,000 cubic metres which Belarus will now pay for Russian gas in 2012 is almost one third of what Ukraine pays under a 10-year agreement which it is frantically trying to renegotiate with Moscow.
RUSSIAN GAINS
At the same time, the deal does hold economic gains for Russia – though they are less visible and harder to quantify.
As a member of the Russian-led Customs Union, Belarus has agreed, for example, to cut agricultural subsidies to 10 percent of the sector’s output from the current 18 percent, making it easier for Russian companies to compete with local ones.
Just two years ago, a dispute between Minsk and Moscow over such subsidies escalated into a so-called "milk war" when Lukashenko threatened to quit a free trade zone with Russia after it banned imports of Belarussian dairy products.
Under an agreement with a Russian-led bailout fund for a delayed $440 million loan tranche which was linked to the main deal, Belarus must also sell off $2.5 billion worth of state assets a year, opening up more acquisition opportunities for Russia.
Minsk is now trying to sell its stake in a joint venture with Russian mobile phone operator MTS and two state-owned refineries might follow, analysts say, as well as the dominant fixed-line communications operator Beltelekom.
Finally, the government could sell a stake in its main cash cow, potash miner Belaruskali, which it values at $30 billion.
According to analysts, only Russian firms will feel safe enough in Belarus to make those kinds of investments.
