Belarus freezes petrochemical industry privatisation
The Belarusian authorities have launched an anti-corruption campaign in the petrochemical industry in order to delay privatisation that would work in favour of Russian business. With no other means to stave off pressure from the Kremlin to privatise, the Belarusian authorities have resorted to old tricks to delay the process – launching a criminal investigation against the industry’s top managers and putting forward unacceptable conditions for the sales of assets. The Belarusian authorities may recycle this approach when dealing with other companies from the Russo-Belarusian list of joint integration projects.
The law enforcement officers launched a criminal investigation and arrested the Deputy Director General and several other ‘Naftan’ top-managers, as well as other top managers in the industry.
This is not the first criminal case against the petrochemical industry’s senior managers in recent times. In early July, the media reported the arrest of Ivan Zhilin, “Belneftekhim” Head for abuse of power. While the law enforcement agencies did not confirm this information, at a meeting on improving anti-corruption legislation President Lukashenko talked about the former “Belneftekhim” Head: “If a person compensates for the damage, he is not so terribly corrupt. It is a bad thing that he caused a great damage to the state. Do not grab him and drag behind bars once he has compensated”.
Interestingly, “Naftan” is included in the list of joint Russo-Belarusian integration projects envisaging assets privatisation. However, in Q1 2014 ‘Naftan’, leading profit maker in Belarus, continued to slip down the ranks of Belarus’ most profitable joint stock companies, and landed in fifth place in terms of net profits.
An unprofitable enterprise will mean that Belarus’ negotiating position will be more vulnerable if Russia decides to increase pressure on Belarus to speed up privatising the refineries Russian counterparts had sought to privatise ‘Naftan’ for over 15 years, to no avail. However, in early 2013, the Belarusian government was prompted to include the company on the list of Russo-Belarusian integration projects.
Recently, the Kremlin has put forward clearer conditions for Belarus to receive Russia’s financial aid – to implement the agreed privatisation plans, which include large state assets. For example, Belarus still has not received the sixth and final tranche from the EurAsEC Anti-Crisis Fund, which was conditioned by the privatisation of state assets.
‘Naftan’ is one of two oil refineries in Belarus where the state has a 99.83% share in authorized capital. This contrasts with the Mozyr refinery, almost half of which is owned by Russian companies. On average, ‘Naftan’ processes about 50% of oil supplied to Belarus by Russia– 10 million tons. ‘Naftan’ mainly works with two Russian companies – ‘Rosneft’ and ‘Surgutneftegas’. Russian experts consider ‘Rosneft’ and ‘Lukoil’ to be the main competitors for this Belarusian refinery.
The dismissal of the former Russian citizen Ivan Zilin from managing the ‘Belkneftekhim’ concern (in 2009-2011 he headed JSC ‘Grodno Azot’) may also be associated with an attempt to disrupt the privatisation deadlines for Belarus’ petrochemical assets.
It is worth noting that the sales of the blocking stake (25% + 1 share) in ‘Grodno Azot’, planned for July, did not take place. But in May 2014 First Deputy Prime Minister, Vladimir Semashko, said that four Russian companies were interested in buying stakes in JSC ‘Grodno Azot’: ‘Rosneft’, ‘Gazprom’, ‘EuroChem’ and “an enterprise from the Urals”. Belarus put forward fairly stiff conditions for the sale of the enterprise, which were unacceptable for Russian companies.
The Belarusian government will continue attempts to stave off pressure from the Kremlin to privatise by creating technical difficulties for the transfer of Belarus’ assets to Russian business.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.