Thursday, April 24, 2014


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With Belarus's Economy In Balance, Lukashenka Stands Up To Russia

Unequal partners: Russian President Vladimir Putin and his Belarusian counterpart, Alyaksandr Lukashenka
Unequal partners: Russian President Vladimir Putin and his Belarusian counterpart, Alyaksandr Lukashenka
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By Robert Coalson
Amid conflicts with the United States over Syria and with several former Soviet republics over their increasingly close relations with the European Union, perhaps the last thing Russian President Vladimir Putin expected was to be blindsided by his usually loyal ally, Belarusian President Alyaksandr Lukashenka.

But that is exactly what happened on August 25 when authorities in Minsk arrested Vladislav Baumgertner, general director of Uralkali, the leading Russian producer of potash, a potassium-based fertilizer ingredient.

The potash business is crucial to Belarus's tottering economy. The state-owned Belaruskali producer is one of the top three taxpayers in the country and -- until recently -- the country's most reliable generator of hard currency.

Kirill Koktysh, professor at the Moscow State Institute of International Relations (MGIMO), tells RFE/RL's Belarus Service that Baumgertner's detention was a stunning, unexpected move. "It's an open declaration of war. I think that now a long round of horse trading will begin. People in Russia are, to say the least, sincerely startled, if not in a state of shock," he says.

And then there's the question of what comes next. "Lukashenka has begun to demonstrate a rather forceful style," Koktysh says. "In the past when Lukashenka acted this way, Russia gave in. It will be interesting to see what happens this time."

High Stakes

Baumgertner was detained on vague accusations of "exceeding his authority" following a meeting with Belarusian Prime Minister Mikhail Myasnikovich, during which negotiations on joint pricing of Russian and Belarusian potash exports collapsed.

Uralkali General-Director Vladislav Baumgertner, who was detained in Belarus on August 26.Uralkali General-Director Vladislav Baumgertner, who was detained in Belarus on August 26.
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Uralkali General-Director Vladislav Baumgertner, who was detained in Belarus on August 26.
Uralkali General-Director Vladislav Baumgertner, who was detained in Belarus on August 26.
If convicted, Baumgertner could face up to 10 years in prison.

The incident potentially could have been even more shocking to the Kremlin because both Uralkali's main shareholder, Suleiman Kerimov, and board chairman Aleksandr Voloshin were also invited to the talks with Myasnikovich, but declined to attend. Kerimov is a leading Russian oligarch and a member of the Federation Council with ties to Putin. Voloshin was Putin's chief of staff from 1999 until 2003 and remains a political insider.

Russia responded quickly. Within days, Moscow suspended the import of Belarusian live hogs and pork products, announced a 20 percent cut in oil exports to Belarus, and hinted that Belarusian dairy products might be targeted next.

But Belarus upped the ante on September 2 by issuing an order to detain Kerimov, who is in Russia, on similarly vague charges.

Souring Partnership

The dispute stems from a 2005 agreement between Russia's Uralkali and Belaruskali to market their exports jointly through a firm called the Belarus Potash Company (BKK). At the time, the agreement enabled them to control about 40 percent of the global potash market. It was also seen as the beginning of a bid by Belaruskali to take over the smaller Uralkali.

PHOTO GALLERY: Russia's Uralkali Potash Mine 
  • Employees work inside a Uralkali potash mine near the city of Berezniki in the Perm region, close to the Ural Mountains.
  • An aerial view of a Uralkali potash mine near Berezniki. The Uralkali company has a market value of some $14 billion.
  • Employees at work in a Uralkali potash mine. The mineral is used mainly in fertilizer production, and is one of the three most widely-used fertilizers worldwide.
  • An employee checks an underground store of potassium salts at a Uralkali potash mine. The company's mines draw on the Verkhnakamskoe deposit in the Ural Mountains, one of the largest deposits in the world.
  • A miner operates machinery in a potassium mine.
  • Unprocessed potassium salts in a Uralkali potash mine
  • An employee holds processed potassium salts at a Uralkali potash mine.
  • An employee at an above ground pile of processed potassium salts at a Uralkali potash mine.
  • Processed potassium salts from a Uralkali potash mine are loaded at a port in the town of Solikamsk near the Ural Mountains.
  • Waste from a potash mine is loaded at a port in Solikamsk in Russia's Perm region.
  • Waste from a potash mine creates a mini mountain near the Russian town of Solikamsk.


But times changed. Belaruskali, like much of the rest of Belarus, stagnated, while Uralkali was purchased by Kerimov, who went on to buy other Russian potash producers. By 2011, Kerimov had set his sights on buying Belaruskali, as well as other lucrative state assets in Belarus. According to media reports, Lukashenka was ready to sell control of the firm for $30 billion, while Kerimov was offering $10 billion (plus, according to Lukashenka, a $5 billion bribe for Lukashenka himself).

As part of his effort to pressure Lukashenka into parting with Belaruskali, Kerimov gradually began selling potash outside of the BKK agreement. Last year, 80 percent of Uralkali's exports bypassed BKK entirely. Belarus accuses BKK's Uralkali-appointed managers -- including Baumgertner, BKK's chairman -- of spiking export deals and causing at least $100 million in losses to Belaruskali.

In retaliation, Lukashenka rescinded BKK's monopoly on Belarusian potash exports, prompting Uralkali to abrogate the BKK agreement altogether in July. That decision produced a steep drop in global potash prices -- a serious blow to Belaruskali and the economy. On August 30, Belaruskali announced it was suspending production at two of its four mines.

I think that when there arose a conflict over potash sales, Lukashenka tried to solve it in the Kremlin, with Putin. But he was ignored. For him, this was a bad signal.
And so Lukashenka is playing tough, trying to get Putin's attention by taking Baumgertner "hostage," says Anatol Lyabedzka, chairman of Belarus's opposition United Civic Party.

"I think that when there arose a conflict over potash sales, Lukashenka tried to solve it on the political level, in the Kremlin, with Putin," says Lyabedzka. "But he was ignored. For him, this was a bad signal. It meant that maybe it could happen again tomorrow, that the partnership was already gone, that Putin was in control. Lukashenka couldn't tolerate that, so he took this bold step to force the Kremlin to sit down and negotiate with him."

Good Timing?

Andrei Suzdaltsev, of the Global Economics and Global Politics Department of the Higher School of Economics in Moscow, agrees that arresting Baumgertner was an "emotional" move on Lukashenka's part.

"[The Belarusians] really thought that the meeting with the prime minister would -- on the strength of arguments like 'you are suffocating a fraternal nation' and the usual talk about how 'every fourth Belarusian died in World War II,' and 'Russia's obligations' and so on -- be successful in bringing Uralkali back into BKK," says Suzdaltsev. "But it didn't happen. So while the delegation was going to the airport, Lukashenka decided spontaneously -- enough!"

It is doubtless a tense moment in the uneven relationship between Belarus and Russia. But Lukashenka may have chosen his moment well.

Moscow is reluctant to see its customs union with Belarus and Kazakhstan -- and potentially now Armenia -- cast in a bad light as Ukraine, Moldova, and other post-Soviet countries prepare for closer relations with the European Union and the bloc's Eastern Partnership summit in Vilnius this November.

Moreover, Minsk in recent months has worked hard to establish direct economic relations with China -- the world's main consumer of potash. Lukashenka visited Beijing in July and may have yet another surprise for Putin.

Based on reporting by RFE/RL's Belarus Service and by RFE/RL Russian Service correspondent Mikhail Sokolov

Robert Coalson

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