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End Of Cheap Oil Means Hard Times For Belarusian Refinery


President Alyaksandr Lukashenka has gone so far as to say the Naftan oil refinery's productivity is a matter of Belarusian “independence.”

NAVAPOLATSAK, Belarus -- Aleh Viktaravich says the days of earning a decent wage at the Naftan oil refinery in Navapolatsk, some 240 kilometers north of the Belarusian capital, are long gone.

“Wages are down by a third, if calculated in dollars,” Viktaravich says.

He says his son left the plant seven years ago to work in neighboring Russia.

“At the time he left, the company hadn’t reached its profit goal, so management decreased bonuses, and salaries weren’t keeping up with the prices in the stores,” Viktaravich says.

It might not have been a dream job, but working at Naftan was arguably about as close as it gets in Belarus, which is still largely shackled with an inefficient state-controlled economy inherited from the Soviet Union.

And with petroleum products generating one-quarter of all of Belarus’s export income, Navapolatsak is crucial.

President Alyaksandr Lukashenka has gone so far as to say the Naftan plant’s productivity is a matter of Belarusian “independence.”

What the five-term strongman and Soviet-era collective-farm director tends to avoid mentioning is that "independence" is heavily reliant on Russia, which supplies Belarus with all its gas and 90 percent of its oil.

Moscow has dangled below-market hydrocarbon prices to keep its Minsk ally pliant. Belarus has refined such commodities and sold the petrochemical byproducts at a hefty profit further on, in Western Europe.

Both sides appeared more or less satisfied until 2014, when global energy prices tanked.

"While in general Belarus has been able to negotiate special prices from Russia, it cannot control the ups and downs in the prices for oil products in key work markets -- for example, the ARA (Amsterdam-Rotterdam-Antwerp) market where most of Belarus's refined oil products go," says Margarita Balmaceda, author of Living The High Life In Minsk, which in 2014 predicted doom for Minsk's energy strategy.

Amid depressed global prices, Moscow and Minsk's haggling over energy prices has intensified.

Navapolatsak is the only city in Belarus where wages have not recovered to 2016 levels.
Navapolatsak is the only city in Belarus where wages have not recovered to 2016 levels.

The latest energy feud was patched up in April, when Russian President Vladimir Putin and Lukashenka announced that Belarus had agreed to pay Russian gas giant Gazprom more than $720 million in arrears for gas supplies.

Putin also said a road map had been agreed for energy cooperation up to 2020.

Analysts say Lukashenka had been eager to make amends with his Russian counterpart since the two met in St. Petersburg shortly after Belarus was rocked by a wave of street protests nearly unheard of in the tightly controlled Eastern European state.

“We see what’s happening around us, and we just want to preserve the stability of Russia and Belarus,” Lukashenka announced on a visit to Russia's second city.

The protests in March and April were sparked in large part by plans to implement a tax on those not in full-time employment.

Popularly known as the “law against social parasites,” it would require those who work fewer than 183 days per year to pay the government the equivalent of $250 in compensation for lost taxes.

The timing couldn't have been worse for Lukashenka (who eventually backtracked on the tax), whose country has been stuck in recession for more than two years.

The average Belarusian is feeling it in the pocketbook. The average monthly salary fell from an all-time high of the equivalent of $630 in mid-2014 to $380 as of the start of 2017.

And Navapolatsak, which witnessed protests as well, is no different.

Due in part to the falling fortunes of the refinery, Navapolatsak is the only city in Belarus where wages have not recovered to 2016 levels, according to RFE/RL's Belarus Service.

While average wages at the Naftan refinery are around 600 rubles ($300), Viktaravich says the real number is much lower, as "hundreds" of managers and their bloated salaries "jack up" this figure.

Navapolatsak began to stagnate as the communist regime collapsed in the early 1990s. The population has grown by only around 4,000 since 1993.
Navapolatsak began to stagnate as the communist regime collapsed in the early 1990s. The population has grown by only around 4,000 since 1993.

Another local resident, Stsyapan (who didn't want his last name to be used) says landing a job at Naftan used to be hard because it was one of the best-paying companies in the country. Now, he claims, job vacancies remain unfilled for months.

The town rose from modest beginnings in 1958, as the then-Soviet republic slowly transformed from a mainly agrarian to an industrial society.

The first Belarusian gasoline was refined here. By 1970, it was one of the Soviet Union's industrial titans, fulfilling a strategic role as well as supplying fuel for Soviet forces at nearby military bases.

The town began to stagnate as the communist regime collapsed in the early 1990s. The population has grown by only around 4,000 since 1993.

After modernization is completed, the situation at Naftan -- and in Navapolatsak, in general -- could change for the better. Especially now that the price of oil has gone up."
-- Tatiana Manenok

Things began to snowball as problems at Naftan -- the area's main employer -- began to mount in recent years.

One elderly man who has lived in Navapolatsak since 1969 says signs of decay are everywhere.

"There's misery all around. Very little that's good," he says, adding that shops and businesses in and around the town are either shuttered or struggling to survive.

"I can tell that life has gotten worse. If it wasn't for our [garden] reserves, I don't know how my wife, who's disabled, and I would survive on our pensions," he says, declining to give his name out of fear of reprisals from authorities.

For his part, Lukashenka has lashed out at managers at the refinery for its faltering results.

"This flagship of the economy is turning into a loss-making enterprise. Naftan is barely making ends meet and constantly begging for help from the state," Lukashenka said in June.

In March 2016, workers at the plant penned an open letter asking why the refinery had gone "bankrupt" despite operating according to plan, accusing management of bringing in outsiders with little or no experience in the oil-refining business.

Lukashenka's government is said to be seeking alternatives to Russian energy amid what Minsk fears will be another price bump as the Kremlin mulls a higher cost in the form of a mineral-extraction tax.

Belarus is also betting that upgrades at Naftan and another key refinery, at Mozyr, will make its refining business more viable.

The cost of modernizing the two refineries was estimated in 2015 at some $4 billion, a princely sum for cash-strapped Belarus.

Belarus commentator Tatiana Manenok says modernizing the dated Soviet refineries can save them if Belarus is forced to import higher priced oil.

"After modernization is completed, the situation at Naftan -- and in Navapolatsak, in general -- could change for the better. Especially now that the price of oil has gone up,” says Manenok.

Others aren't so optimistic.

Economist Leonid Zaika says the refineries at Navapolatsak and Mozyr are nothing but a drain on Belarus.

“The refineries have been turned into a national symbol, but they’re only that for the country's leadership, which knows how to do nothing except take Russian oil and process it and then say that everything is fine here," Zaika says, before offering his blunt advice on a way out.

"The country has inhaled too many petrochemical fumes," Zaika says. "It needs to be treated. It needs to turn its back on a life based on oil processing."

Written by RFE/RL correspondent Tony Wesolowsky, based on reporting by RFE/RL's Belarus Service and assistance from Deputy Service Director Bohdan Andrusyshyn
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