Dec 13, 2006

The Tax Man

Yesterday the Russian Government announced the end to the flow of subsidized oil and gas to Belarus. Not only is this a death blow to the lingering Union of Russia and Belarus (the customs union died a quiet death in 2001), but it will likely signal the begining of the end for Lukashenko.

As of January 1, Belarus will pay now $180 per ton duty on crude imports which had previously been tax free. The price of natural gas will likewise rise from $46 to $200 dollars per 1,000 cubic meters.

At these levels, Komersant reports that the annual price tag for energy alone will exceed Belarus’ national budget by 10 percent. So much for rent-seeking.

Even if Belarus dramatically reduces the Russian oil which it currently imports for resale on the European market, the financial shortfall from both directions (import subsidies and export revenue) will dramatically cripple the government’s ability to support basic services, namely heat. In fact, it is difficult to imagine a scenerio in which Lukashenko will be able to maintain his position as the "last dictator in Europe," while his citizens freeze and the government is without the money for police, hospitals, roads, water, busses, or an army. PBD.

No comments: