In pursuance of the Contact on the volumes and terms of gas supply to Belarus and transit via the territory of the Republic of Belarus for 2007 through 2011, Gazprom sent an official notification to Vladimir Mayorov, Director General of Beltransgaz on a decrease of gas supply to the Belarusian consumers due to the default on payment commitments for the gas delivered in the first half of 2007 and due to the absence of any payment guarantees.

A daily gas supply volume to Belarus as per Contract will be reduced by 45 per cent proportionally to the actual payment amount starting from 10.00 am, August 3. Under the Contract Beltransgaz shall provide uninterrupted Russian gas transit via the territory of the Republic to third countries.

Gazprom export also sent a notification to foreign consumers of natural gas on a reduction of natural gas supply to Belarus. Gazprom will take all possible measures to transport Russian gas via the Republic of Belarus in full compliance with the existing obligations to European consumers.

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On December 31, 2006 Gazprom and Beltransgaz signed a Gas Supply & Transit Contract for 2007 through 2011. The document fixed the price of Russian gas for 2007 (US$ 100 per 1,000 cu m) and the pricing formula starting from January 1, 2008 (which is in line with the Russian gas supply pricing formula for Europe).

Additionally, pursuant to the Contract, the Belarusian side paid 55 per cent of gas supply in the first half of 2007 on the condition of repaying the remaining sum until July 23 and switching to 100 per cent gas supply payments from July 1.

The Contract also fixed a tariff rate for gas supply by the Beltransgaz owned networks (US$ 1.45) and the service charge for the Yamal-Europe gas pipeline operation (calculated under a formula). Gazprom regularly pays for Russian gas transit via the territory of the Republic. Monthly payments are around US$ 30 mln.

On December 31, 2006 Gazprom and the Government of the Republic of Belarus signed a Protocol stipulating that Gazprom would pay US$ 2.5 bln for a 50 per cent stake in Beltransgaz within four years.

Therefore, Belarus obtained unprecedentedly beneficial terms and conditions for Russian gas purchases and a time period enabling to adapt to a new price.

The payment deferral during January-June 2007 was US$ 456.16 mln. In violation of the existing Contact the payments were not arranged and its fulfillment guarantees were not presented. In addition, Gazprom timely committed US$ 625 mln to purchase a 12.5 per cent stake in Beltransgaz.