Stripped of Cash, Belarus Grants Large Concession to British Company

Potash mines in Belarus (photo: mordolff.livejournal.com)

Yesterday the Belarusian government concluded an investment agreement with the British company GMC Global Energy plc owned by Russian oligarch Mikhail Gutseriev. Gutseriev, who fled Russia in 2007 and currently lives in the United Kingdom, has undertaken to build a major potash-extraction enterprise in Belarus.

The new enterprise will inevitably compete with Belaruskali, the most profitable state company in Belarus. It will extract the same potassium and undermines all its further prospects. This desperate move by the Belarusian authorities is like shooting themselves in the foot. It shows that their options are really exhausted.

Earlier this month, Lukashenka issued a presidential order on concessions for natural resources. Belarusian potassium chloride has been the single major mineral exported of Belarus since Soviet times. Mikhail Gutseriev promises to invest USD 1.5 billion in three major sites to the south of the Belarusian capital. The new enterprise will reach its full capacity in ten years.

Allowing Gutseriev into such business is a very sensitive issue. Belarus has extracted potassium on its own for about 50 years, and has advanced technologies to do it, so it does not need foreign input. The potassium-extracting branch is controlled by state monopoly Belaruskali, which brings a bulk of income to the Belarusian budget; this year alone it will earn about USD 3 billion. Contrary to the government's boasting, it is potash products that are Belarus' major export commodity, and not cars or tractors. Another source of big money for the Belarusian government – oil refineries – are now suffering net losses because of the new price arrangements with Russia.

However effective its work may be, Belaruskali cannot expand its production despite increasing global demand. The government effectively confiscates all the profits leaving nothing for any major investment. In addition, no matter how much the Belaruskali earns, Lukashenka needs money now, and cannot wait.

In order to get the money, the Belarusian leadership grants – as always without any tenders or transparency – a concession to a good friend of the Minsk ruler who has already worked with the Belarusian regime in the past. In 2002-2002 he was the president of Russian-Belarus oil firm Slavneft.  Apparently in today's Belarus, the only way to undertake major investment in the country is to befriend someone from the very top of the regime, and even better, Lukashenka himself.

Russian journalist Pavel Sheremet admits, “Of course, he [Gutseriev] does have money, but it is that type of entrepreneur and that type of investment which may be called risky. And this project is built upon a political component. None of the well-established Russian oligarchs will come to Belarus”*.

Having a powerful political sponsor is a precondition for doing business in Belarus. For example, after Lukashenka's visit to Qatar last August, the Belarusian government media loudly applauded the deals made which would allegedly bring billions to Belarus. The secret of such deals was simple – of course, the Qatari rulers can afford property in more legally-protected places in the West. Yet in Belarus they can build whatever they want even in places where the building is legally prohibited for some social, cultural or environmental reasons. What is impossible in Western countries is possible in Belarus.

For instance, some of the most discussed projects may be linked to building palaces in the world-renowned protected area of Belavezhskaya Pushcha. But there are no restrictive laws for Gutseriev and other friends of the Belarusian strongman. Upon signing the deal he gratefully declared that “the investment climate in Belarus is not worse than in other countries”*.

This new development demonstrates that the situation in Belarus is becoming desperate. Lukashenka would not touch potassium business had he not found himself in a real emergency. Could he put on sale other assets of his country? It is hard to answer this question, yet the value of many assets currently owned by the Belarusian state cannot be as high as expected.  

The Belarusian government recently declared it was planning to get USD 6-7 billion of foreign investment for extracting national mineral resources. Yet this sum seems to be hardly achievable. Potassium was indeed sought by many companies and Belarus is actually a major player on the global market of this mineral resource. But other natural resources such as granite, gypsum or low-quality iron ore – that can be made available for some kind of foreign investment or purchase, are by far less profitable.

Most likely the king is effectively naked. Most business adventures of Lukashenka in the past – like the arms trade – were no more than improvisations to get quick money without any prospects for stable earnings.

SB

Siarhei Bohdan is an associate analyst at the Ostrogorski Centre.

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