Belaruskali: Belarus has no chances to play by own rules

On October 21^st, Belarus said it would like to restore the relationship with Uralkali, but on her own terms.

Operating alone, Belarus has suffered substantial losses. Severe current account deficit and problems with budget performance have forced Belarusian leaders to take steps towards reconciliation. Time is on Uralkali’s side, which it will use to lower Belarus’ appetites.

Belarus’ Potash exports in August 2013 were unsatisfactory. Export volumes were the lowest in 2013 – a little more than USD 110 million. Uralkali has experienced problems with potash sales too, but Russian exports of potash have not fallen that much. Belarus’ Chemical industry in H1 2013 was a net loss, since Belaruskali was the main industry’s enterprise. Two out of four potash mines have been closed, consequently workers’ salaries have shrunk and social discontent at the enterprise has increased. Despite optimism in connection with new contracts, production plans for 2013 have been readjusted downward. The projected export volumes in 2014 have been lowered to 5 million tons, which means there is little hope to reach before-the-break-up export volumes.

Belarus has current account balance deficit, which reflects the level of cooperation between Belarus and other countries. The narrow range of profitable Belarusian export products has significantly shrunk following the suspension of the solvent schemes. Funds allocated for the economic modernization lead up to higher interest rates on foreign currency loans and higher imports, which cannot be leveled by taxing Belarusians working abroad and by duties’ distribution within the Customs Union. The state budget has a deficit of foreign trade revenues and revenues from potash trade, since duties on potash fertilizers have been abolished in order to stabilize Belaruskali’s financial situation. Belarus’ desire to restore the cartel implies that the authorities are aware of the consequences for the Belarusian economy if the conflict continues. Nevertheless, even though Belarus’ positions are weak, it attempts to set the rules of the game.

The Belarusian government wants to gain benefits. These include: selling Uralkali’s stakes to a company which is the closest to the Belarusian government; cartel’s location in Belarus; compensation of damages and preserving redistribution of export volumes as before the break-up. Operating on these terms, Belarus’ export proceeds in H1 2013 were higher than Uralkali’s, despite lower export volumes. It is unlikely that Uralkali’s management agrees to such terms. Lower production costs and signed contracts allow Uralkali to wait and dictate any terms to Belarus. Sooner or later, Belarus will give up.

Belarus takes only its own interests into account and attempts to impose its requirements on potential partners. Only the Kremlin’s brute force may force Uralkali to agree to Belarus’ conditions, otherwise, reconciliation is unattainable.