What Can Belarus Sell?

Russia, through the Eurasian Economic Community, has agreed to grant Belarus a USD 3bn loan, of which Belarus will only see USD 800m this month. The Belarusian government will only get the remaining amount, in two portions over the following two years, if it goes ahead with the privatisation of state companies.

Analysts say that this loan is far from sufficient to really save Belarus from its current economic crisis. What Belarus requires is at least USD 8bn. It can get it from either the IMF or Russia, but only under the condition of privatising certain state companies.

According to Belarusian economist Yaraslau Ramanchuk, Belarus can get about USD 50bn to USD 80bn from selling key 12 state companies.  Belarus Digest has prepared a short overview of the main state assets in question.

Beltransgaz is the Soviet era gas transit enterprise, formerly part of the USSR-wide gas pipelines network. It is currently jointly controlled by the Belarusian government and Russia’s state gas giant Gazprom.

Gas transit has been a highly politicised issue causing frequent conflicts between the Belarusian government and the Kremlin in the past. Eventually, in 2007 Belarus agreed to sell a 50% stake in the company for USD 2.5bn. The sale came in four stages and was finalised in February 2010.

In June 2011, Russia’s prime minister Vladimir Putin and Gazprom CEO Alexei Miller both said that negotiations over the acquisition of the remaining 50% stake in Beltransgaz were in its final stages.

On one hand, control over the country’s gas transit system is more valuable to Gazprom than a simple 50% stake in it. On the other hand, the current financial crisis could make the Belarusian government more willing to compromise on the price. Apart from that, over the past years Russia made a serious progress in diversifying its European gas export routes by constructing the Nord Stream and South Stream pipelines. Nord Stream’s first line is expected to start operating in late 2015. It decreases the importance of gas transit though Belarus.

Depending on these factors, the price may or may not be significantly larger than the USD 2.5bn Gazprom paid for its current 50% stake in Beltransgaz.

Belaruskali is the world's second largest producer of potash. It is one of the main cash-generating assets of the Belarusian government. Before the crisis, the company generated sales of around USD 3.4bn.

The obvious candidate for acquisition of Belaruskali is Russia's Uralkali, a private potash company. Uralkali and Belaruskali export their products to third countries through a joint venture, the Belarusian Potash Company. Belarus Potash Company accounts for 30% of potash supplies worldwide. This week Belaruskali has sold its stake in the International Potash Company, its different JV with Uralkali.

The government of Belarus is understood to be in passive talks with Chinese investors over a sale of Belaruskali. However, as the government of Belarus gets more dependent on financial support from Kremlin, Uralkali’s chances of getting Belaruskali are rising. Uralkali’s largest shareholder Suleyman Kerimov is known to have good ties with the Russian government.

The government of Belarus may reportedly raise up to USD 7bn from the sale of a blocking stake the company.

Mazyr Refinery and Naftan are the main oil refining companies of Belarus. Lukoil and Rosneft reportedly expressed interest in their acquisition. Lukoil has previously been in talks over it, however it has abandoned the plans after unsuccessful talks with the Belarusian government. A specific problem with Naftan was that the government of Belarus only wanted to sell it together with the unprofitable Polymir.

Oil refining has traditionally been one of the main cash sources of the Belarusian government. However, the recent conflict with Russia around export duties for oil and oil refining products has damaged the profitability of the refineries.

The latest news was Belarus holding negotiations with Venezuelan state oil companies on them buying stakes in Naftan and Mazyr Oil Refinery as part of the Belarusian-Venezuelan cooperation. Naftan has been valued at USD 3bn in the reports.

TNK-BP, the Russian oil company controlled by BP and a consortium of private Russian investors, already owns 42.5% in Mozyr Oil Refinery and seems a likely candidate for a further stake in it. If, as rumoured, Russia’s state oil arm Rosneft becomes shareholder in TNK-BP, the chances to get control over Mozyr using Kremlin’s pressure will seriously increase.

The possible valuation of Mozyr is USD 2bn.

MTS is the largest mobile phone operator in Belarus in terms of subscriber numbers. It operates under the brand of the Russian telecom operator MTS which is controlled by the investment group AFK Sistema. However, the Belarusian government still owns a 51% stake in MTS Belarus. Belarus has been reported to put its stake in the company for an international tender. MTS has stated it is not interested in bidding, however it organically remains the party most interested in acquiring the asset.

The government of Belarus may get around USD 1bn for its stake in MTS.

Belarus has seemingly agreed to merge MAZ, the Minsk Automobile Plant, with Russia's Kamaz. The deal is to be closed before end of 2011.

The figure of USD 2.5bn was mentioned as the valuation of MAZ, however it is unclear whether this stands for the whole company or for the controlling stake only. In any case, the Russian investors seem to be unwilling to pay a price so high and will seek to renegotiate it.

It is obvious that Russian investors will have the upper hand in privatising Belarus’ state assets. No other investors, especially from the West, are likely to be willing to take the political risks associated with Belarus. Unlike them, most Russian investors will be able to count on support from the Russian government.

Russian banks already hold a dominate position in Belarus as the majority of main Belarusian banks are Russian-owned. Apparently, the Belarusian economy will come out of this crisis even more Russian-controlled.

AC

Alexander Čajčyc is a PhD candidate at the Financial University under the Government of the Russian Federation in Moscow.

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