BELARUS DIGEST

Stay off the potash is the title of Edward Lucas’s recent article in the Economist, where he reflects on effectiveness of trade boycotts. Although the piece is on trade boycotts, the same logic applies to economic sanctions in general. As to Belarus, the point is well-taken – the more Europe isolates Belarus, the stronger will be its dependence on undemocratic regimes such as Russia or China:

Penalising weak-kneed European countries is hard enough. It is even more difficult when trying to put pressure on the source of the problem. If you want to boycott Belarussian goods, say, because of that government’s persecution of its Polish minority, you are unlikely to change your lifestyle much, unless you use industrial quantities of potash or need a lot of cheap tractors.

For countries like Belarus, a trade boycott is outright counterproductive. The more Belarus trades with the rich industrialised world, the weaker will become the ties binding it to Russia. It may be reasonable to try to take custom away from companies that owe their existence to commercial ties with sleazy politicians. But such bodies tend not to sell anything that a normal consumer in the outside world is likely to buy directly. You may not like the fact that some pennies from your fuel bills eventually trickle into the coffers of Kremlin cronies, but there is not much you can do about it.

Indeed, there were good reasons for the European Union to introduce economic sanctions, but their effectiveness remains questionable. Belarus has not become more democratic, despite some promising rhetoric of its government and strained relations with Russia.

This suggests that different approaches are needed. Spreading uncensored information in Belarus and supporting Western-educated Belarusians to return home are likely to be the most effective.

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For those who are still not sure about Belarus privatization plans, there is another sign that the Government is serious about it.

Moscow Times reports that President Lukashenka invited the Rothschild Group to advise the government on evaluation of enterprises. Apparently, Belarus would not have invited the Rothschild Group to privatize small state-owned companies. Rothschild has been at the center of the world’s financial markets for over 200 years. It provides Investment Banking, Corporate Banking and Private Banking & Trust services to governments, corporations and individuals.

The Rothschild talks suggest that we may see something big on the privatization plate in the near future. Belarus authorities already have experience working with Rothschild. In 2009, Rothschild was involved in sale of one of the leading Belarus banks – BPS Bank, which was acquired by Russian Sberbank for $280,7 million. Moscow Times reports:

“We not only want to receive your [price] estimates of privatized companies, we would like to learn a lot from you,” Belarusian President Alyaksandr Lukashenka said at a meeting with top executive of the financial services group. “It would suit us very well to work with your specialists. If you agreed we could soon delegate several projects and work on them seriously.”

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According to the deal, Russia will deliver 6.3 million tons of oil to Belarus duty free this year. This is exactly the amount Moscow had promised at the beginning of negotiations. Russia agreed that Belarus will raise oil transit costs by about 11 percent.

It turned out, that despite announcements of Belneftekhim to the contrary, the Russian side indeed suspended supplying oil to Belarusian refineries at some point.

Apparently, the issue of oil duties has been linked to other projects, such as building the nuclear station in Belarus. However, full details of the deal has not yet been disclosed. According to the Financial Times:

Mr Sechin said Russia would allow Belarus to continue paying a favourable tax rate on oil supplied for its domestic needs in 2010. It was not clear how much tax Belarus will pay on oil it re-exports after processing in its own refineries.

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A commentary by one of this website’s authors on the Russian-Belarusian oil duties dispute, for Novaja Eŭropa on-line magazine

Let’s admit, Belarusian authorities have no effective arguments in the current oil dispute with Russia. Therefore we must accept the fact that they will loose this fight sooner or later. In close future oil will become expensive, the Belarusian economy will face increasing difficulties, and a whole new stage of relations with Russia will come. Nothing surprising – we were going towards this all the past fifteen years.

Nothing to answer with

Note, Russia proposes to continue to charge no export duties for oil supplied for internal Belarusian needs. The new duties will only affect the (bigger) portion of the oil supply which enables the Belarusian state oil refineries to gain excess profits. Thus, it will first strike the rent part of the Belarusian economy which rather benefits from artificial privileges granted by Russia instead of creating a product competitive on the market.

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Russian mobile telecom providers are unable to bring their newly purchased equipment to Russia because of the licensing issues that emerged with the recent creation of the customs union between Russia, Belarus, and Kazakhstan. According to the agreement, import of complex telecommunications equipment from a third country requires authorization by a state institution – a concept the agreement has failed to define. According to the Russian Vedomosti, this problem can delay introduction of 3G mobile technologies in Russia.

So far the customs union has mainly had either zero, or a negative effect. Belarusian automobile import duties are rising to the Russian levels to support Russia’s inefficient automobile industry. Сlear conditions for Russial oil imports to Belarus have not yet been defined despite the two countries’ claiming to be in a union. Now the Russian telecom operators are in trouble because of the poorly prepared customs union documents. It would have been funny, had it not been so sad.

Starting January 1, following Russia’s entry into a customs union with Belarus and Kazakhstan, Russia’s telecom operators can not bring new equipment into the country. In particular, the Russian customs stopped the order of 2-5% of equipment that Megafon was going to bring to Russia in 2010, 25-28% of the company’s total deliveried to the, the company’s press service told Vedomosti. According to Megafon, this applies to both network equipment for 3G, and for 2.5G base stations as well as equipment for the construction of linear fiber optic communications.

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According to Heritage Foundation, a US conservative think tank, Belarus has more freedom than Ukraine. Belarus is ranked as 150 out of 179 countries in the Index of Economic Freedom. According to the report, business, trade and fiscal freedoms as well as government spending has improved in Belarus. However, the situation with corruption in Belarus has deteriorated.

It is not surprising that Belarus ranked low in the Heritage Foundation’s list. It is very surprising that the “last dictatorship in Europe” has more freedom than Ukraine. Both countries are classified as “repressed”. Belarus, that for the first time in many years has been ranked as not most repressed country in Europe Although some may see it as a sign of real improvements in Belarus, the methodology of such ranking is very questionable.

Granted, recently Belarus has undertaken a few steps to liberalize the economy, but still it has by far less freedom than Ukraine. Unlike Belarus, Ukraine has been recognized as a market economy both by the European Union and the United States, and it is likely to be a member of the World Trade Organization soon. Although on the corruption issue Ukraine may indeed have more problems than Belarus, the share of private sector in the Ukrainian economy there is much greater than in Belarus, where the Belarusian state controls most of the economy.

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VC

The Russia-Belarus oil disputes continues as Belarus authorities struggle to retain a larger share of the duty-free oil imports. However, Russia seems to be determined to keep a larger share of the pie despite the reputation damage, which the dispute has already caused. The duty-free oil shop is likely to remain open only for Belarusian domestic customers, but no longer for those re-selling Russian oil to the West.

Yesterday, Vladimir Putin’s press secretary Dmitry Peskov urged not to throw flames on Russia-Belarus oil talks. But he explained on the pages of the Washington Post that Russia is determined to cut the luctative oil refining business of the Belarus regime:

The so-called “dispute” between Russia and Belarus is in reality an ongoing negotiation between supplier and customer. For years, Russia subsidized Belarus by providing deep discounts for oil. This discounted oil was used not only for Belarus’s domestic needs, but considerable amounts of it were refined in Belarus and exported to European markets at the real market price.

Although Belarus and Russia continue to declare that the dispute will not affect deliveries to Europe, there are serious reasons to worry. According to Reuters, Russia has already told oil firms to re-route some flows scheduled for Belarussian refineries to the Polish port of Gdansk as Moscow and Minsk struggle to agree a new supply deal.

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Belarus, a small post-Soviet state once hardly distinguishable from Russia and chronically misspelled in the Western press, has been making more and more headlines lately. And if the Russian-Belarusian military exercises with deployment of Russia’s most advanced S-400 air defense system weren’t enough, the 2010 Russian-Belarusian oil row is bound to make the West anxious.

Moscow and Minsk failed to close a new deal after Russian-Belarusian agreement on crude oil export tariffs expired on the New Year’s Eve. As the two states argued over pricing, Russia had briefly halted supplies to the Naftan and Mozyr refineries to show Minsk who the boss is.

Flows were restarted on Jan. 3. To pacify its customers in the EU, Russia promised that the export flow would continue with no further interruptions. Western Europe is slow to celebrate, however; it remembers that last January similar steps preceded a complete shutdown of gas flow through Ukraine. The dispute has already pushed oil prices up to $81 a barrel, their highest in nearly 15 months.

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While Belarus authorities are raising funds to build a new nuclear power plant, the consequences of the Chernobyl disaster are still puzzling the scientists. The British Guardian devoted an article to the increased cancer and infant mortality rates in Russia, Ukraine and Belarus, which suffered the most from the disaster.

The UN’s World Health Organisation and the International Atomic Energy Agency (responsible for promoting peaceful use of nuclear energy) report that only 56 people have died as a direct result of the Chernobyl-released radiation and about 4,000 will die from it eventually. Another UN Agency, the International Agency for Research on Cancer predicts 16,000 deaths from Chernobyl. Those “on the ground” have different figures – the Belarus National Academy of Sciences estimates 93,000 deaths so far and 270,000 cancers eventually and the Ukraine Academy of Science gives even higher figures. As the Guardian explains:

The mismatches in figures arise because there have been no comprehensive, co-ordinated studies of the health consequences of the accident. This is in contrast to Nagasaki and Hiroshima, where official research showed that the main rise in most types of cancer and non-cancer diseases only became apparent years after the atomic bombs fell.

A coordinated effort to study the consequences of the largest anthropogenic disaster in human’s history is indeed necessary. This would serve not only Belarus, but many other countries.

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The main aim of a visa regime is to regulate migration flow and to prevent eventual illegal immigrants from entering the country. What kind of illegal immigrants could come to Belarus from the EU or the USA?

How is Belarus going to become one of the world’s top 30 economies by easiness of doing business, which the government has declared as its goal, if it has one of the most expensive visas in the world? The solution should definitely be to ease the visa regime or even its de-facto cancellation, as it has been done in Ukraine and Georgia.

The explanation for this Soviet-styled decision, however, seems simple: the West is still seen by the Belarusian government as a potential threat and a potential source of danger for the regime. In the past, visa issues have been used as a tool to force several Polish Catholic priests from Belarus. Along with Polish priests, who have presumably been promoting Polish nationalism instead of doing their primary spiritual work, foreign journalists, human rights activists and observers can easily be forced away from the isolated country in the middle of Europe.

However, if investment attraction is priority for Belarus, the visa regime for the EU and the US should definitely be liberalized. Besides, the EU itself could initiate this by lowering the Schengen visa price for Belarusians from the current EUR 60.

Starting 2010 the price for a Belarusian visa has risen to 180 euros for the citizens of the EU. First of all this concerns those who receive visas at the airport upon arrival to Belarus, the consular department of Belarusian Foreign Ministry told. The cost increase for Belarusian visas is due to new amendments to the Tax Code of the Republic of Belarus.

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The Belarusian-Russian oil conflict once again demonstrates the fact that relations between both countries are far from what could have been called friendly. All the declarations of “eternal Slavic brotherhood” vanish once real money gets involved. The fight about eventual Russian oil duties has burst out just several days after the pompous establishing of the Customs union of Belarus, Russia and Kazakhstan. This may only be a signal that this post-Soviet integration initiative is the same farce as its uncountable predecessors.

Russia wants to reshape its relations with Belarus and make them more market-based. The Belarusian officials are trying to retain Russian financial preferences that create a huge annual flow of cash into the pockets of the Belarusian government. In any case, in the mid-term Belarus will inevitably have to accept that expensive oil and gas is the price it has to pay for a real and sound independence from Russia.

MINSK, Jan 5 (Reuters) – Belarus sent a delegation to Moscow on Tuesday for talks to resolve an oil dispute that has disrupted crude shipments to Belarussian refineries and raised the spectre of winter supply problems for the European Union.

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