Putin calls for measures to protect Russian firms

Jan 9, 2007, 19:52 GMT

Moscow/Minsk - Russian President Vladimir Putin Tuesday called for measures to protect domestic firms, including a possible decrease in oil production, as Moscow remained locked in a row with Belarus that has seen Russia's vast oil supplies to Europe halted.

Talks between the onetime Soviet partners on tariffs on oil exports seemed not to get off the ground during the day, with Russian officials initially saying talks were delayed as they determined their starting position.

By Tuesday evening, however, Russian Industry and Energy Minister Viktor Khristenko said negotiations had restarted.

'They have been renewed. They are under way,' Khristenko said in remarks run by Itar-Tass. The minister refused to elaborate on the status of the talks.

Russian oil supplies to Germany, Poland, Ukraine and other European nations were halted early Monday after a Belarusian company stopped the flow of the Druzhba pipeline, which transports 1.6 million barrels of Russian oil per day through Belarus.

Khristenko, the energy minister, said Russian oil exports could circumvent Belarus if need be. Pipeline networks in the Baltics and other areas could be expanded to accommodate greater volumes, he said.

The Druzhba pipeline ships 80.7 million tons of Russian oil to Europe each year. In total Moscow supplies Europe with approximately 200 million tons of oil per year.

The current crisis arose when Belarus' Belneftekhim halted supplies to the West early Monday after demanding transit fees from Russian pipeline monopoly Transneft, Sergei Grigoryev, a vice president at the Russian company, told Interfax.

Transneft officials have also said Minsk siphoned 79,000 tons of oil destined for Europe on January 7-9. The company has taken a Belarusian pipeline operator, Gomeltransneft, to court. Minsk claims the oil was legitimately purchased.

In a meeting with his ministers in the Kremlin, Putin spoke of 'compensatory measures' that would limit the harm done to Russian oil producers, whose oil is not making its way to energy-hungry European markets. One solution would be to decrease production, he said.

The country must devise 'a complex of measures directed at the protection of the national economy,' the Russian president continued in televised remarks. Putin also ordered his Cabinet to do 'all that's necessary to protect the interests of Western consumers.'

Grigoryev, of Transneft, said Russia would not send any more oil through Belarus via Druzhba - Russian for 'friendship' - until the crisis was resolved.

The Belarusian side has kept relatively quiet throughout, a show of calm for Aleksander Lukhashenko, the leader US officials have dubbed 'the last dictator in Europe.'

'What is needed is a quick resolution to the dispute, so as to reduce economic damage to both sides ... Belarus is ready to talk,' according to a Belarusian Foreign Ministry statement.

Poland, Germany, Hungary, Slovakia, the Czech Republic and Ukraine have all either been cut off entirely from the flow or seen reduced delivery volumes as a result of the dispute.

Polish oil reserves are good for 80 days at current consumption rates. Slovakia has reserves for 70 days, Hungary for 90, and Germany for 130 days, according to regional news reports.

The International Energy Agency said it was ready to dip into its strategic reserves to assist those countries but that none of them was facing a shortage yet.

The oil dispute began when Minsk accused Russia of violating a free-trade treaty by tacking a 180-dollar-per-ton export tariff onto oil exported to Belarus as of January 1.

The Kremlin, for its part, said Minsk illegally slapped a 45-dollar-per-ton surcharge on Russian oil shipments sent to European consumers, effective the same day.

Many in Russia think Belarus instigated the oil supply crisis to retaliate for price hikes in Russian natural gas as Moscow moves to make its former Soviet brother republics pay market prices for gas they once had for cheap.

Referring to a gas pricing row that saw Gazprom cut supplies of the fuel to Ukraine at this time last year, Artem Konchin, energy analyst at Moscow investment bank Aton Capital, said both disputes were stalemates for all involved.

Russia's reputation as a reliable energy provider suffers, he said, because its neighbours are too poor to pay market prices for fuel - leaving Moscow's energy assets 'hostage to developing economies.'