Russia and Belarus to create a unified gas market in 2023: who will gain and lose from the reform

Sergey Kondratiev, Deputy Head of the Economic Department of the Institute for Energy and Finance, commented to the internet portal Eurasia Expert on the prospects for the creation of a unified gas market by Russia and Belarus.

- Sergey Vadimovich, on September 9, the presidents of Russia and Belarus agreed that for the republic the price of Russian natural gas in 2022 will remain at the level of the current year - $ 128.5 per 1,000 cubic meters. At the same time, gas prices are breaking all records on the world markets. What level of gas savings in Belarus can we talk about in this regard?

Sergey Kondratiev:

- For Belarus, this will mean very serious support for the economy, because gas prices were quite low even in the price conditions of last year. This allows maintaining sufficiently low electricity prices, or at least not seriously revising the tariff, because the Belarusian thermal generation almost completely uses gas as a fuel (the same applies to heat production). And this will, of course, have an effect on some large energy-intensive export industries, primarily Grodno Azot. Thus, low prices will allow to indirectly support enterprises that have come under Western sanctions. For example, in neighboring Lithuania, agrochemical industries will buy gas at a price 5-6 times higher, and this is a very serious competitive advantage.

On the other hand, we saw in previous years that there is a risk of conservation of inefficiency, because the Belarusian economy and the Belarusian economic model in recent years have focused on obtaining the maximum possible amount of subsidies and preferences from Russia.

Enterprises are trying to get some additional subsidies and preferential conditions, but they do not pay much attention to improving operational efficiency, some kind of marketing actions, and thus lose the competition in other markets outside of Russia. They are also gradually losing the battle for both the Russian and Belarusian markets, because this is not a market instrument.

In addition, this shortens the planning horizon, because agreements have been reached, in fact, only for next year, and it seems to me that the parties have an understanding that these prices are non-market in nature, when compared with the prices that neighbors and even other EAEU countries are paying for gas now. This leads to the fact that planning from the 3-5-year level goes to the one-year level, which makes it difficult to introduce some innovative solutions, launch new production facilities, etc.

Therefore, the decision is ambiguous. It certainly supports the Belarusian economy at the moment, allows improving the balance of payments indicators and reducing the burden on the budget, but in the long term it is very important that the Belarusian authorities try to move to a policy of structural reforms and start increasing the efficiency of the economy precisely by launching new production and reforms in those sectors where we now see serious problems.