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BLEEDING BELARUS: ECONOMIC OUTLOOK AFTER THE ENERGY CONFLICT WITH 
RUSSIA 
1. Changes of the situation in 2007 
We start the analysis with the explanation how the situation was changed for Belarus in 2007 in 
comparison with 2006, i.e. after singing the new contact with Gazprom and agreements about sharing of 
the export duty on oil products exported by Belarus. 
 
Table 1: Changes of the situation after signing the gas contract for 2007 
2006 2007 
• Belarus imported 21 bcm of gas from Russia 
• Gas transit though the country amounted to 41 
bcm, from which 14 bcm was transited trough 
Belransgaz, and the rest 27 bcm through went 
through Russian Yamal-Europe pipeline 
• Belarus bought gas for USD 46.68 per tcm 
• The transit price through the Beltransgaz 
pipeline amounted to USD 0.75 per tcm of gas 
per 100 km and USD 0.36 per tcm through the 
Russian Yamal-Europe pipeline 
• The price for gas increased to USD 100 per tcm, 
• The price of transit through Beltransgaz 
amounted USD 1.45 tcm of gas per 100 km. 
• The price of transit through Yamal-Europe 
amounted USD 0.43 tcm of gas per 100 km 
• Belarus will sell Russia 50% of Beltransgaz for 
USD 2,500 m (by equal shares over 4 years) 
 
Table 2: Changes of the situation after the signing the oil agreement 
2006 2007 
• Belarus imported 21.2 m ton of crude oil from 
Russia 
• Belarus exported USD 14.7 m ton oil products 
• The import price for crude oil was USD 231 
per ton (USD 31.6 per barrel), the average 
export price for oil products was USD 460 
(USD 63 per barrel) 
• Belarus set up the export duty on export of oil 
product at USD 57 (USD 75.8 from the end of 
November). However, VAT paid by Belarusian 
importers for Russian oil should be returned to 
them when they export oil products produced 
from imported oil. But instead they paid the 
lower export duty at the rate of about USD 10 
per ton, as the rest was collected in the form of 
VAT for imported oil 
• Russia did not set up the export duty on crude 
oil exported to Belarus 
• Since the price for Russian oil for Belarus was 
about USD 180 less than for other countries, 
the refinery processing in Belarus yielded 180 * 
21.2 = USD 3,821 m of ‘superprofit’ 
• In the beginning of 2007, Russia decreased its 
export duties on crude oil from USD 180 to 
USD 172. For Belarus this duty is set up with 
‘corrective coefficient’ of 0.293 in 2007, i.e. 
about USD 50 per ton 
• According to the agreement, Belarus will set up 
the export duty for oil products equal to 
Russian one. The average weighted export duty 
in Russia for oil products was USD 108 
• Since the price for Russian oil for Belarus is 
USD 122 (172-50) less than for other countries, 
the refinery processing in Belarus yielded 122 * 
21.2 = USD 2,582 m of ‘superprofit’ 
 2
2. The economic impact of new gas and oil agreements 
It is assumed that the economic impacts of gas price increase and new agreement on oil with Russia do not 
be influenced by other facts such as raise Russian protectionism against Belarusian goods, relative exchange 
rates, and all other possible shocks that in reality can affect of the economy under study during 2007. 
2.1. Consequences for the state budget 
The total losses of the budget will be USD 77.7 m or 0.4% of revenues of the general government (see 
Tables 3–4).1 The Minister of Finance officially declared the necessity to reduce the budget expenditure by 
5%. 
Table 3: Oil (USD m) 
 2006 2007 +/- 
VAT 1234 475 -759 
Excise tax 847 340 -507 
Export duty 177 1592 1415 
Development Fund at the State Budget 466 -- -466 
Profit tax from two refinery 300 50 -250 
Total 3024 2457 -567 
 
Table 4: Gas (USD m) 
 + - 
Beltransgaz 625 -- 
VAT 202 -- 
Compensation for households -- 48 
Budget subsidies for energy sector -- 290 
Total 827 338 
 489  
 
 
2.2. Consequences for the balance payments 
Increase in negative trade balance (goods and services) caused by the price increase for oil and gas is equal 
to USD 2,276 m, including net outflow of USD 1,059 m because of the higher gas price (taking into account 
higher price for transit), and net outflow of USD 1,217 m because of lower world price for oil products and 
higher price for imported oil. 
In 2007, Russia should make the first payment for Beltransgaz (USD 625 m), which means the inflow of 
resources on financial account. Thus, the total net outflow of resources on the current and financial 
accounts of the balance of payments caused by gas and oil shock would be equal to USD 1,651 m. 
2.3. Consequences for currency market and exchange rate 
Such deterioration of balance of payments would cause adequate changes on the currency market. 
According to the assumption of unchanged currency revenues from oil products exports, annual positive 
balance on the residents’ segment of the market would be equal to USD 700–800 m, annual deficit on the 
non-residents’ segment of the market would amount USD 650–700 m, and on the households’ segment of 
the market deficit would reach about USD 600–700 m. In case of deterioration of the currency revenues, 
the gross deficit might be higher, which furthermore might be strengthened by increasing demand on the 
households’ segment of the market. 
Nevertheless, external stability (i.e. exchange rate peg) is a crucial factor for the stability in monetary 
sphere and domestic demand; therefore we suppose that the NBB would continue maintaining of the 
current peg. As the volume of official reserves and possible external borrowing by the government and 
commercial banks are likely to exceed the volume of the supposed deficit on the currency market, we 
expect stability of the exchange rate and absence of devaluation as most likely scenario. 
                                                 
1 According the preliminary estimations made by the Ministry of Finance, the budget losses will be around USD 200 m. 
 3
2.4. Influence on economic growth 
From the demand side, we expect slower growth (or even decline) of investment. There are the following 
assumptions, which led us to this conclusion: 
• First, the government (at least for this year) would prefer to maintain certain increase of household 
incomes. Thus, enterprises would have to carry the burden of higher costs of energy in addition to 
labor costs. Hence, they have no choice but to reduce their investment expenditures. 
• Second, the government would need more resources to subsidize enterprises which would face 
financial difficulties, and to maintain major social expenditures. Thus, it has to restrict its investment 
programs. 
• Third, banks would likely not be able maintain the same rate of crediting the economy as in 2006, as 
they could face certain problems with attraction of resources from households. Additionally, the NBB 
will not increase refinancing of banks, as this would lead to destabilization in the money market. Thus, 
such an important source of investment as bank loans would be limited. 
• Finally, in 2007, increase in utilities prices looks very likely. This means that their share in household 
expenditures will increase, reducing the share of their investment expenditures. 
According to our estimates, decrease in investment activity may cost about 3–5 percentage points of GDP 
increase. Thus, in 2007 we expect GDP growth rate at 5–7%. 
 
2.5. The new prices for consumers 
We expect that the new price for electricity would lead to decrease in the profitability of enterprises and 
deteriorate their competitiveness in trade with the outside world. According to the government’s plans, 
enterprises should pay the price for electricity almost equal to European average, while the energy 
efficiency of Belarusian economy is 2.5 times less than, for example, in Germany. 
 
Table 5: Industry 
2006 2007 
Electricity 
6.7 US cents 8.65 US cents 
(European average 9.1 US cents) 
Gas 
70 USD 120.3 USD 
 
Table 6: Households 
2006 2007 
Electricity 
4.17 US cents per kWh 5.00 US cents per kWh 
Heating 
14.07 US cents per gigacalories 15.76 US cents per gigacalories 
Gas 
USD 95 per 1 tcm USD 114 per 1 tcm 
 
 
Households will not suffer a lot from the new prices on energy and heating, at least in the short-run. We 
suppose that the Belarusian government would keep the policy of putting the burden of the energy shock 
on the shoulders of enterprises. 
 
Minsk, January, 2007 
 


Bleeding Belarus: economic utlook after the energy conflict with Russia

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