Russia steps up economic presence in Belarus

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April 22, 2016 18:14

During his visit to Belarus, Prime Minister Dmitry Medvedev discussed nuclear power plant construction in Belarus, creation of “Rosbelavto” car holding based on MAZ and KAMAZ and “Belaruskali” privatization. Russia is increasing pressure on Belarus and due to the broad agenda, the latter will be forced to yield to some demands.

During the official visit of Russian Prime Minister Dmitry Medvedev on July 18th, he met with Belarusian President Alexander Lukashenko and participated in the Council of Ministers of the Union State meeting.

In the presence of Prime Ministers of both, Russia and Belarus, a general contract for the construction of the Belarusian nuclear power plant was signed. On behalf of Russia it was signed by NIAEP Director, managing organization of Atomstroyexport, Valery Limarenko, on behalf of Belarus – by \"Directorate for NPP construction” Director Mikhail Filimonov. The plant’s architectural design will be developed by May 2013 and assessed by experts from relevant Russian and Belarusian authorities.

Previously, Belarus and Russia signed a loan agreement to finance the NPP construction worth up to USD 10 billion. Belarusian nuclear power plant design will be based on a Russian project ‘NPP-2006’. Commissioning of the first power station with 1.2 MW generating capacity is planned for November 2018, the second unit with 1.2 MW capacity – by July 2020.

In 2012 Russia will continue providing concessional lending to Belarus via the EurAsEC Anti-Crisis Fund. Russian Deputy Finance Minister Sergei Storchak said Belarus might receive the fourth USD 440 million tranche before the year-end. Currently the ACF has disbursed USD 1.68 billion to Belarus, while the overall loan is USD 3 billion.

PM Medvedev said that the negotiations about the creation of the Belarusian-Russian automotive holding Rosbelavto based on MAZ and KAMAZ would be completed in the near future. It is anticipated that Belarus input will be 75% minus one share of MAZ and the Russian - 49.9% of KAMAZ. The market value of KAMAZ assets is estimated at USD 1.6 billion, MAZ at USD 1.1 billion.

As well, Russian Prime Minister said that Belarus should speed up with the Belaruskali privatization. Currently, the parties negotiate about cooperation in various markets and the possible participation of Russian Uralkali in Belaruskali’s privatization.

Dmitry Medvedev emphasized that privatization of Belaruskali was entirely up to Belarus, but that it was necessary to take such decision. “I think our Belarusian friends should have taken appropriate action long time ago. They cannot get away from it anyway”, he said.

 Previously, Alexander Lukashenko has repeatedly said that Belarus would not sell a controlling stake of Belaruskali. The President would only allow selling a minority stake of Belaruskali given the overall value of its assets USD 32 billion. At the same time, Russia is interested in acquiring a controlling stake and thinks the price offered by the President is overstated.

Moreover, the parties cannot reach a consensus on the creation of the Belarusian-Russian potash trader Soyuzkali under Swiss jurisdiction to replace Belarusian Potash Company (BPC). During the visit to Belaruskali on July 17 Alexander Lukashenko said that relations with Uralkali, the main shareholder of the BPC, could be reviewed. Belarus believes that the current market sales between the Belarusian and Russian companies are divided unfairly.

The problem is that when the BPC was set up, an agreement was signed, that potash shipments to foreign markets would be based on manufacturing capacity. As a result, when BPC was created, Belaruskali had about 60% of shares and Uralkali - 40%. However, after Uralkali’s merger with Silvinit, the structure of potash fertilizers sales has changed in favor of the Russian side, which annoys the Belarusian leadership.

Therefore, in order to increase its share in co-trading, Belarus insists that the BPC starts exporting not only potash fertilizers, but also other kinds of fertilizers (including phosphates, nitrogen, mixed fertilizers). Our assessment is that if other types of fertilizers are included, Russia and Belarus will continue cooperation as a single fertilizer trader in order to impact on the dynamics of world prices.

In July Belaruskali launched operations of Berezovsky mine sites’ first stage that will allow increasing production by 2 million tons per year. In 2012 the company intends to increase the potash production capacity up to 10.3 million tons against 8.8 million tons in 2011.

All in all, the BPC is now the largest supplier in the global potash market, which allows it to maintain acceptable price levels. The average export price of Belarusian potash fertilizers has increased in January-May 2012 compared with the same period in 2011 by 13.6% to USD 746.1 per 1 ton.

However, in January-May 2012 Belarus has cut potassium fertilizers exports in physical terms by 24.1% to 1.535 million tons. In value terms, potash fertilizers exports in January-May 2012 decreased by 13.8% up to USD 1.145 billion. Against reduction in exports, potash fertilizers production in Belarus decreased by 2.8% to 2.7 million tons in the first half of 2012.

The main consumers of Belarusian potash fertilizers in the January-May 2012 are (see Table 1): Brazil - 378.433 million (33.1% of total exports), India - 99.519 million (8.7%) China - 99.163 million (8.7%), Norway - 70.6 million (6.2%), Vietnam - 65.768 million (5.7%), Poland - 52.996 million USD (4.6%), Malaysia - 52.263 million (4.6%), Venezuela - 34.554 million (3%), Belgium - 32.582 million (2.8%), Ukraine - 29.076 million (2.5%), Indonesia - 26.861 million (2.3%), Thailand - 14.613 million (1.3%), Croatia - 14.533 million ($ 1 3%), Russia - 1.995 million (0.2%) and Colombia - 1.618 million (0.1%).

Table 1

Exports of Belarusian potash fertilizers in 2011-2012 by country


January – May 2011

January – May 2012

Volume, thousands tons. K2O

Price, USD thousands

Volume, thousands tons. K2O

Price, USD thousands

Potash fertilizers, total




















































































For reference. OJSC Belaruskali is among the four largest public companies in Belarus except banks (after Beltransgaz, Naftan and Mozyr oil refineries). In 2011 the company’s sales revenues were USD 2.268 billion, profit – USD 1.495 billion, profitability - 65.9%. The average number of employees in 2011 was 18.589 thousand.

Russia pushes for the privatization of the major Belarusian assets in favor of Russian investors. As an additional instrument of pressure it can use the suspension of loan disbursements under the EurAsEC Anti-Crisis Fund loan agreement, which provides for the sale of state property in Belarus worth not less than USD 2.5 billion annually.

Moreover, Russia can use smuggling of oil products from Belarus as solvents and diluents as an additional argument. In particular, following the meeting of the Council of Ministers of the Union State Dmitry Medvedev said that Russia and Belarus agreed to have a thorough investigation into the matter and in case of violation, to hold the perpetrators accountable, as well as to restore parties’ economic interests.

If violations are proved to have been taking place, Belarus will have to return to the Russian budget customs duties on petroleum products worth over USD 1.7 billion. Belarusian authorities, as well as Russian oil companies, i.e. the ultimate beneficiaries from these smuggling operations, are clearly not interested in such developments and will be forced to concessions to Russia on a number of issues. We can therefore anticipate that the issue of solvents and diluents smuggling could be hushed up and the corresponding investigation will end with nothing.

For reference. According to the National Statistics Committee, the export of Belarusian oil products in January-May 2012 increased by 52.3% to USD 7.080 billion, the export of diluents and solvents increased by 5.8 times to USD 2.181 billion and the export of lubricants by 53 (!) times up to USD 803.384 million. Crude oil exports increased in January-May 2012 by 2.7% to USD 558.960 million (German supply).

In general, Belarusian ‘oil’ exports (oil, mineral oil, diluents, solvents, lubricants, liquefied petroleum gas) in January-May 2012 increased compared to the same period last year, by 1.9 times up to USD 10.623 billion. Consequently, the share of ‘oil’ in the Belarusian exports structure increased from 36.3% in January-May 2011 to 50.5% in January-May 2012.

In turn, Russia is also ready to make certain concessions to Belarus. In particular, the new single customs tariffs of the Customs Union provide nearly 120 exemptions for Belarus and Kazakhstan. In other words, in Belarus and Kazakhstan customs duties for over 120 items will be different than the CU single customs tariff. Common Customs Tariff within the Customs Union shall take effect with Russia’s accession to the World Trade Organization. Accordingly, after the accession of Kazakhstan and Belarus to the WTO customs duties within the CU will be fully unified.

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