Will Russia Buy Up Belarus’ Defence and Oil Industries in 2014?
At a press conference on 11 June, Russian ambassador to Belarus, Aleksandr Surikov, announced that Russia had agreed with Belarus to acquire three Belarusian military and high-tech large-scale industrial complexes.
Belarus has always been very reluctant to sell of its state property for various reasons, which is not limited to just collecting rent for the elite, but also maintaining political control over their employees.
However, three groups of assets seem to be up for sale: companies that work with the Russian military industry, industries dependent on Russian energy resources and many barely profitable companies from Belarus' regions, which create a burden on the budget but have helped to sustain regional economies and social stability.
While the first two appear to be bargaining trips in Belarus' dealings with Russia, the latter is unable to attract foreign investors as their goods are intended primarily for a domestic market and barely economically viable as is.
Military and High-Tech Industries
The Belarusian regime has always approached privatisation with a great deal of caution. Lukashenka and other high-ranking officials constantly repeat ad nauseam the phrase “we are not going to sell to anyone that which was created by the hard work of many generations of Belarusians”.
This patriotic rhetoric, however, cannot be taken at face value – the regime naturally wants to retain control over the public sector in order to prevent any kind of social discontent or anti-government activity from flaring up. Nevertheless, it is now apparent that it will finally have to part with several groups of assets, which create serious problems for the Belarusian economy.
In 2007 and 2011 Belarus had to sell to Russia one of its major assets – the Beltransgaz company, which controlled the transit of gas from Russia to Europe in Belarus. The deal ensured that Belarus would receive discounted gas prices for many years to come.
This year the first group of enterprises on the auction block, and No1 candidates for sale, are a handful of military and high-tech industrial complexes whose primary customers are found in Russia. As Russian ambassador in Belarus Aleksandr Surikov said on 11 June “We have reached a basic agreement on Integral, Peleng and MZKT. The last international evaluation of MZKT assets will be completed by 31 July”.
Integral is closely connected with the Russian market and requires substantial investment after years of decline and stagnation. “The Russians want Integral incorporated in their military-industrial complex, which will ensure a maximum of output for the enterprise”, Head of State Property Committee Heorhi Kuzniacoŭ said.
Another high-tech project of particular interest to the Russia is Peleng. Belarus negotiated the sale of 25% of its shares of the company to Roskosmos, a Russian space industry corporation. The Peleng company produces optoelectronic space equipment and conducts research in the same field.
The Minsk Wheel Tractors Factory (MZKT) may also potentially join the Russian state holding Russian Technologies. It will produce chassis and tractors for the Russia's army and its oil industry. Currently, MZKT is one of the main manufacturers of tractors for Russian army.
Oil and Gas Dependent Enterprises
The second group of industries up for sale are those which are heavily dependent on Russian oil and gas. It is starting to look like the Hrodna Azot and Mazyr refineries are likely to be sold off as well.
In May Belarus announced that it would auction off 25% of its Hrodna Azot shares, the largest enterprise in the Hrodna region, which produces chemicals and fertilisers.
The enterprise is Belarus' largest consumer of natural gas, therefore selling it to Russia is, to a degree, a logical step.
However, the conditions for its sale are rather unattractive for the business community. For example, part of the deal states that workers’ conditions cannot deteriorate over the first 5 years of the deal. Moreover, investors must provide Belarus' agricultural sector with the necessary amount of fertilisers and build a new production complex that is estimated to cost $1.2bn.
Last but not least, investors must guarantee a steady gas supply for 10 years to ensure the full production capacity of Azot is maintained throughout. Nevertheless, Russia has shown continued interest in the company, with Gazprom, Evrokhim and Rosneft being the main candidates for its purchase.
Meanwhile, according to the Russian ambassador in Belarus, Russia so far has no interest in buying up a large portion of Mazyr refinery's shares due to the unfavourable terms that would be associated with any deal. As part of the conditions for selling its shares, Belarus is demanding that any new owner retains the current number of workers and increases the refinery's production capacity.
The Government Will Get Rid of its Bad Assets?
Belarus is ready to get serious about privatisation, but at the moment it only wants to sell off low-profit companies that are vital for sustaining local regional economies.
As a study of the 2011-2013 pilot privatisation project conducted by Belarus Public Policy Fund shows, the government is trying to sell off mainly companies with low profit margins that are full of personnel that are years, if not decades, away from retirement. In doing so, it is not seeking to rake in profits, but rather is trying to maintain local employement levels in the regions where these factories are often the core of their respective local economies.
the state tries to shift the responsibility for maintaining social welfare Read more
Simply put, the state tries to shift the responsibility for maintaining social welfare from the state budget to the private sector. Few would then question potential investors' reluctance to jump on these 'opportunities'.
According to Civitta consulting expert Daniel Krutzinna, the international business community does not believe that Belarus will implement any extensive privatisation anytime in the near future. It will rather focus on a number of deals with Russian companies and on the sale of unprofitable companies to local investors.
As the three groups of companies up for sale will demonstrate, Belarus' privatisation is set up so that it is inherently favourable to Russian interests. Very likely, Belarusian industries will be used for leverage in the Russia-Belarus bargaining within the Eurasian Economic Union, where Belarus seeks to get the most favourable gas and oil trade prices it possible can.
While Russia is about to acquire several important military-related industries, it is hard at work negotiating on other industries, trying to make the terms of their sale much less 'social'.
With smaller, but socially important enterprises, especially in the regions, which do not interest foreigners, Belarus will face a bigger dilemma – finding a local business that will agree to become partners in supporting the state’s social contract.
European Union Faces A Crisis, Eurasian Union Attracts New States – Belarus State TV Digest
Alexander Lukashenka's participation in the inauguration of Ukraine's elect-president was among the top news items over the last two weeks on state-run Channel 1. Reporters were particularly enthusiastic in pointing out that the Belarusian leader stood out from other politicians present in the event because he received more attention from Western and Ukrainian media than others.
“The Serbian nation is our people, the Belarusian people” – Lukashenka asserted during his recent official visit to Belgrade. In Serbia, he advocated for strengthening economic cooperation between the two countries and commented upon Western politicians inimical attitude towards the meeting of him and president Tomislav Nikolič.
On a few occasions, state TV commented in a positive way about the newly formed Eurasian Union, particularly the huge potential it has and how it has already attracted new states. Journalists also covered the European Union, reporting on the ongoing disagreement among EU member states over who will be the next president of the European Parliament.
Alexander Lukashenka: Territorial Integrity of Ukraine. The Belarusian leader took part in the inauguration of Petro Poroshenko for the Ukrainian presidency. State TV noted that the ceremony had special significance in the context of recent developments within the country.
They noted that although a number of foreign guests took part in the ceremony, the Belarusian leader received a lot of attention from the Western and Ukrainian media. After the ceremony several deputies approached Lukashenka to shake his hand and express their gratitude, journalist enthusiastically noted.
Lukashenka commented upon the future of Ukraine. To the question “What will Ukraine be like?”, he replied: “Ukraine should be one, a united, integrated state”. In his opinion, the country should seek to find an agreement both with Russia and the European Union.
“I hate all intermediaries and peacemakers. I think Ukrainians are a wise people who can deal with the problems on their own”, Lukashenka added. However, he expressed his readiness to help in some capacity. “The main hope of Ukrainians up until this point are related to revival of the country and a belief that it got finally have a chance to develop peacefully”, the Belarusian leader concluded.
"The Situation in Ukraine Remains Tense…" – One State TV Belarusian journalist reported cynically. Although the state authorities have already announced its "peace plan", the conflict is far from being over. Shooting once more erupted in Slavyansk, Kramatorsk and Lugansk.
Belarusian state TV journalists also emphasise the need for Russia to take an active role to settle the conflict in Ukraine. Regularly invoking the Russian media, they failed to mention anything from Ukrainian sources. Over the past months Moscow has made two draft resolutions on Ukraine in the UN, "in accordance with the principles of sovereignty and territorial integrity", as the journalist commented.
Belarus-US: Towards Normalisation of Mutual Relations? Journalist took a note of the consultations carried out by Belarusian Minister of Foreign Affairs, Uladzimir Makiej, and Deputy Assistant Secretary of US Department of State, Eric Rubin. They discussed the cooperation in international organisations. At present Minsk and Washington already work together in the sphere of the issues such as global and regional security, reported noted.
Is a Political Crisis Tearing Apart the European Union? Journalists speculated on who is to become the next president of the European Commission. EU member states do not agree on one candidate and that clearly proves that there is a crisis in the Union. Countries such as Germany, Italy, and Spain advocate for Jean-Claude Juncker, a supporter of further integration. However, Great Britain, the Netherlands and Hungary are less keen to support this candidature.
In the aftermath of recent elections to the European Parliament, a new coalition of euro-sceptics can obstruct any further European integration. “Who will be able to overcome the crisis in the integration and stop a rise of the anti-European moods is yet unclear”, reporter pointed out.
Official Visit of Lukashenka to Belgrade: Your People are our People. State TV took note that the economies of both countries are complimentary and have a firm foundation for further development. Belarus remains for Serbia a window to the Eurasian Union, according to the report. Serbia is not against working with the Eurasian Union, although holds the official status of candidate for European Union accession.
Journalists took note of how exceptionally good the relations between both countries remain. “We have always respected the Serbian nation, because the Serbian nation is one with us, the Belarusian nation”, Lukashenka asserted during the meeting of the two heads of state. In his opinion, Western countries have completely diminished or ignored the importance of the meeting between Belarusian and Serbian leaders. “They were ready to do anything possible to disrupt this visit or make it go unnoticed”, he proclaimed at the meeting.
The president of Serbia, Tomislav Nikolič, praised the Belarusian model of economy: “In Serbia, in the aftermath of massive privatisation, many enterprises remained stagnate, and you preserved your economy”, the Serbian president stated.
Belarus-Serbia Relations. Just before Lukashenka’s official visit to Belgrade, the Belarusian leader gave an interview to Serbian state media journalists. “Belarus, through Serbia, can enter the whole market of the Balkans and southern countries of the EU, and Serbia through Belarus can enter the market of the Eurasian Economic Community”, the coverage noted.
Regional Cooperation and Great Potential of the Eurasian Union. The Belarusian leader met with the chairwoman of the Federation Council of the Russian Federation, Valentina Matviyenko, at a regional cooperation forum.
One of the participants, Yevgeny Savchenko, the governor of Belgograd Oblast in Russia, enthusiastically commented upon the Eurasian project’s future: “with our potential, that of Belarus, Russia and Kazakhstan, but also Ukraine, which will join it sooner or later, we can feed half a billion people”. Savchenko also advocated for the expansion of exports into new markets.
Matviyenko also praised the Belarusian leader for his organisation of the Ice Hockey World Championship. She emphasised that in the opinion of experts and the Ice Hockey Federation, the event turned to be the best in the history of the ice hockey tournament.
The Eurasian Union: A New Centre of Power. During the same interview the Belarusian leader also commented upon Belarus-EU relations. “Why should I get offended by the West? I do understand what they want from me and what they want from Belarus. I will never agree to let them be the boss here”, he asserted strongly.
In his opinion, Belarus is maintaining its stability and that it is “much more important than going to the EU and smiling at one another”, he added. The Eurasian Union has become a ‘new centre of power’ and a ‘step to a multi-polarity in world order’. In Lukashenka's opinion, the organisation is attracting more and more countries all the time.
Belarus Digest prepared this overview on the basis of materials available on the web site of Belarusian State Television 1 (BT1). Freedom of the press in Belarus remains restricted and state media convey primarily the point of view of the Belarusian authorities. This review attempts to give the English-speaking audience a better understanding of how Belarusian state media shape public opinion in the country.