‘Potash case’: causes and likely effects

On August 29^th Uralkali Director General Vladislav Baumgertner was charged with abuse of power and official authority. The Russian CEO was detained and is being held in the KGB detention center in Minsk.

During the week, Belarus outlined its expectations following the detention of Uralkali’s CEO and Russia switched on its coercion to compromise tactics. Since Belarus’ expectations are not high, a compromise is likely to be achieved when Belarus’ propaganda machine finishes full cycle, that is, in the relatively close future.

Almost all Belarus’ law enforcement agencies have worked on the ‘potash case’: Prosecutor General (initiated proceedings), the Investigative Committee (investigated), the KGB (detained Baumgertner), Ministry of Internal Affairs (appealed to Interpol) and the State Control Committee (inspected the Belarusian Potash Company (BPC)). Belarusian media published pieces of information that the Belarusian law enforcement system will use in the ‘potash case’. Belarus assessed the overall damage caused by the breakup between Uralkali and the BPC at USD 100 million.

On August 29^th, Belarus’ Investigative Committee announced its readiness to initiate criminal proceedings against Uralkali’s principal shareholder and Senator Suleiman Kerimov, and also threatened to arrest Uralkali property (the tycoon has not yet received any official documents in this regard).

Apart from the mentioned USD 100 million, Belarus is not making other claims. However state media has accused Uralkali of undermining Belarus’ economy and of losing profits in the potash trade. It has quoted online fora users who were willing to “live in dugouts”, “starve, but not give up”, etc.

Last week, it was disclosed that two of the four Belaruskali mines have stopped work. In January -July 2013 Belaruskali reduced its cash volume exports by 23.5 % in the year, while maintaining the same physical sales volumes as in 2012. Most likely, the arrest of Baumgertner will be used to justify Belarus’ economic failures which have already occurred, and future ones which may be caused by Russia in response to the arrest.

For instance, Rosselkhoznadzor has banned Belarusian pig imports and limited Belarusian dairy supplies to Russia. Transneft has threatened to cut oil supply in Q4. EurAsEC ACF hinted that the new loan provision might be postponed. However, it is unlikely that the losses due to the ‘potash case’ will significantly burden the predictable Belarusian economic failures in Q4. Regardless of the ‘potash case’, international trade has deteriorated, Belarus has gradually been losing the Russian market, international public debt has been building up and costs of external loans have been rising.

Belarus is unlikely to have other gains than ‘reputational’ as a result of its actions. Allegedly, when Belarus decided to arrest Baumgertner it was reckoning on Russia’s involvement in the Syrian conflict, the tariff war with Ukraine and the opposition between Medvedev supporters and ‘Putinists’ would win Belarusians (or their Qatari partners) some time to sign contracts, while Uralkali’s management was dealing with Interpol and the arrest of its CEO. But Russia is unlikely to lose time on that. Moreover, experts say that, due to expectations of further price reduction, the world potash market is unlikely to get off the ground before spring. In any case, the signing of major contracts has been postponed, and the arrest of Baumgertner has made key customers wait.

Meanwhile, Belarus has won over Russian public opinion by “arresting an oligarch”. Russian internet fora visitors were ready to send other Russian oligarchs to Minsk to “face prosecution”.