Russian Monologue on Modernisation

On 22 November, Alexander Lukashenka met with Putin`s protégé and head of the Gazprom directive board Alexey Miller.

During the meeting, Miller presented a program on how Gazprom will develop the Belarusian gas infrastructure and make new investments into the economy.

Gazprom has become a pioneer of the grand Russian business which has great influence in Belarus as well. The business circles subordinated to Kremlin offer modernisation and additional investments to the official Minsk in return for selling the Belarusian strategically important enterprises to Russia. 

While the European Union suggests some vague “dialogue on modernisation” to the regime, Russia prefers to address Belarusian authorities in the form of monologue. The Russians base their monologue on three factors: privatisation of Belarusian enterprises to Russia’s benefit, granting economic stability of Belarus for the expense of the Russian business and long-time reign of Lukashenka.

Kremlin hopes that Lukashenka will sell some important enterprises under the pressure of economic problems and bad relations with the West. However, the regime is aware that selling of the Belarusian enterprises contains not just economic benefits, but also political threats in it. 

The Importance of Gazprom for the Regime

About a year ago Gazprom purchased the remaining 50 per cent of Belarusian gas infrastructure and transportation company Beltransgaz shares and became its only owner. Since that time, the importance of Gazprom for the Belarusian economy has grown and it will keep on growing.  

Gazprom grants stable low prices for gas. In 2013, Belarus will pay only $185 per cubic metre. No other foreign partner of Russian gas monopoly pays so little. Moreover, Belarus increases shipments of gas. In 2012, the country will use 22 billion cubic metres of gas, which is 10 per cent more than in 2011. Also Russian corporation promises to increase the gas transit to Europe via Belarus by 30 per cent, which will bring extra money to the Belarusian budget and strengthen the reputation of Belarus as a transit state.

Gazprom will modernise the gas transportation system inside Belarus. The Russian corporation aims to modernise 35 gas transportation stations in Belarus by 2015. Also, Gazprom is going to modernise the underground gas storage in Mazyr and will connect it with the compressor station in Nyasvizh by a gas tube. 

The Russian corporation also tries to be socially active. Gazprom will finance construction of an office complex, a multi-apartment residential building for families with many children, a junction, reconstruction of the bus station in Minsk, and one of the barracks of Brest Fortress. 

An enterprise from the relatively poor Russia would find it more reasonable to invest money into its own state. However, Russian gas monopoly performs not just an economic function in Belarus. The corporation carries a simple message from the Russian government to the Belarusian society: selling Belarusian enterprises brings welfare.

Gazprom means not just gas industry. The Russian corporation owns Belgazprombank in Belarus. It seems likely that Gazprom will increase its influence in other spheres of the Belarusian economy as well.

The Russian Offer

The example of Gazprom clearly shows that Russia will conduct modernisation of the Belarusian enterprises and will invest money into the Belarusian economy on the terms that Lukashenka will be gradually selling strategically important enterprises to Russia. This means, money in return for independence.

Lukashenka remains a complicated ally for Kremlin, therefore the Russian authorities also work directly with the Belarusian society. In Spring 2012, Gazprom raised the wages of the Beltransgaz workers by 3 times, which worked as a demonstration of the economic and political power. It’s easy to guess that the workers of the sold enterprise greeted such decision of the new owner. 

The situation with wages looks surreal. An anonymous “Beltransgas” employee informed Belarusian Internet portal, that, when a vacancy appears at the enterprise the director cannot tell the potential contender by phone about the wages he is going to pay him at this position. Moreover, the director demands that the employees should not tell each other how much they earn. 

Kremlin realises that Belarusian economic problems offer the best vehicle for increasing the influence. Moscow demands privatisation from Minsk not because there are liberally-minded people in Kremlin. The reason is more simple: Russia wants to buy all strategically important enterprises in Belarus. ​

Russia’s modernisation of Belarus combined with involvement into the Customs Union, the United Economic Space and the future Eurasian Union shows that Kremlin hopes to securely chain, if not incorporate Belarus.

The Regime Decides

The official Minsk does not show much willingness to accept the Russian's offer.

First, Belarusian authorities understand the political bias of Russia’s economic influence in Belarus. Officially, on 22 November Lukashenka said: “We greet Gazprom’s arrival to Belarus with huge investments, we support this, we are going to benefit from this”. Non-officially, the Belarusian ruler knows Russian intentions. 

On the other side, Lukashenka understands that Russia does not show a good example of modernisation. Russia remains a country which strongly depends on its power resources, not on high-technology industry.

Expansion of Russia’s influence on Belarus is happening on the background of stagnation in the Belarus-Europe relationship. The regime cannot imagine how to improve relations with the West and not to lose its own face. The West suffers from the same problem.

It looks like the regime considers its reputation much more important than the economic independence of the country. According to Polish expert Wojciech Borodzicz-Smoliński "the Belarusian side should understand that putting its own independence in the game and blackmailing the EU is dangerous." 

However, the Russian variant of modernisation looks much more secure in financial terms than the “European Dialogue on Modernisation”, adopted by the European Union. Kremlin offers concrete money, which will let the regime survive for quite a long time, although it will happen at the price of gradual succession of the Belarusian independence.

The European politicians cannot send a message which will be heard with interest by the Belarusian regime. Talks about the democratic values and human rights do not find any response in the Belarusian officials. If the EU and the U.S. want to influence the regime, they should offer money – the only thing the official Minsk will definitely react to. 

Ryhor Astapenia

Who Benefits From European Sanctions Against Belarus?


This month seven more European states joined the EU sanctions against Belarus. As a result of this year's new extension of restrictive measures target not only officials and politicians but also businessmen. It means that this politicised problem involves clear economic underpinning.

The history of relations between Belarus and the European Union demonstrates how important were economic interests in building political contacts. Relations with Western nations remained cold for over 15 years. Starting in 1996, when Belarus hold constitutional referendum extending the powers of her executive, all major political campaigns in the country have caused harsh criticism from the West.

Belarus Cannot Cut Gas for EU Anymore

Criticism followed attempts to influence Belarusian authorities – usually through targeted sanctions against state officials. Only the United Stated implemented economic measures of influence, but for this country Belarus is neither a neighbour nor a major partner. On the contrary, European nations until very recently did not seriously consider the option of economic sanctions. This March, however, European restrictive measures hit representatives of the Belarusian business.

Why it has happened just now? I would mention two changes which have had the most impact on the situation. First –  the sale of Belarusian gas transport firm of Beltranshaz to Gazprom, second – the start of privatisation in Belarus.

The fact that in late 2011 Gazprom has completely purchased the Belarusian gas transport system, undoubtedly, influenced the position of European states on Belarusian issue. Earlier EU countries avoided the deterioration of relations with Minsk fearing the problems with gas transportation through Belarus. Now gas supplies for Europe depend only on Russia, and Europe has first of all to take its interests into consideration.

Sell to Survive

The second development is privatisation. The current economic situation in the country makes selling state-owned assets unavoidable. Today one can say that Belarus has recovered from the 2011 crisis. Through sale of 50% of the Beltranshaz shares, the government has refilled its gold and foreign currency reserves, and the discount for Russian energy resources supplies gained from Moscow positively affects the foreign trade balance.

It does not mean, however, that the systemic problems which have caused the crisis, have been successfully solved. The volume of gold and exchange currency reserves (USD 8.056 billion by 1 June) will suffice for approximately two and a half month of import. For a transition economy like Belarus, this is not enough. Moreover, over the next years the payments due to serve the external debt will reach their highest level. Minsk, most likely, will try to receive a new loan for re-structuring of its debt. And, quite probably, it will receive on condition of privatisation of some of its assets.

Privatisation as such is also a way to get money. Therefore, Belarus has to deal with it anyway in the foreseeable future – and sooner rather than later.

No Money from the West or China

In this context, the question is who will participate in Belarusian privatisation. Participation of the US and EU companies as potential buyers of assets is impossible after 19 December 2010. European companies have interest in purchasing some property in Belarus. Yet, implementation of the EU sanctions against Belarusian companies makes their coming – and modern technologies – less probable. 

As for prospects for arrival of investors from other parts of the world, they look gloomy. Chinese entrepreneurs invest real money only in natural resources. Therefore, they would be interested only in something like Belaruskali, yet it is better to refrain from privatising it in the foreseeable future. On other projects, Belarus can expect from China only tied loans which involve investing money mostly in Chinese goods, equipment and labour delivered to Belarus. The opportunities to attract investors from Arab states are also limited as they usually invest the capital in the real estate and hotel business and only extremely rarely – in other projects.

Regime Purses” or National Business?

Thus, the sole real player to participate in Belarusian privatisation is Russian business. Only Belarusian companies could compete with it. Admittedly, they do not possess such powerful financial resources as Russians. But national business has that doubtless advantage of knowing local specificity, and that can become the additional factor of success.

When the EU compiled a list of “regime purses”, that is the enterprises to be sanctioned or under threat of being sanctioned – it became a hard blow on prospects of Belarusian business participation in privatisation. Among «regime purses» landed owners of such successful companies as "Santa-Impeks", «Amkodor» and «Savushkin Produkt».

These and some other "blacklisted" companies work in competitive markets,  created strong new brands in post-Soviet world and jobs in Belarus. They are not simply successfully in their business, but they also actively participate in privatisation. Putting them on the black list deprives them of the option to access cheap European loans and thus increases barriers on their way to participate in privatisation.

Introduction and possible expansion of the European sanctions on Belarusian business turns Russian companies in practically exclusive participants of privatisation in the country. I am not against Russian business, I am for competition. Privatisation in which only large Russian companies participate, actually means absence of competition.

That may result in some serious problems. First, the possibility of uncontested sale automatically reduces the cost of Belarusian assets. Secondly, without competition it is impossible to choose on competitive basis the most efficient investor which will bring not only money, but also new production and management know-hows.

Therefore, from the economic viewpoint the European economic sanctions contradict national interests of Belarus and its European future.

Pavel Daneika

Pavel Daneika is a Belarusian politician, businessman and analyst. He is administrative director of Belarusian Economic Research and Outreach Centre. He served as president of the Institute for Privatisation and Management and as a member of Belarusian Parliament in 1990s. 

This original article originally appeared in Russian by Nashe Mnenie and was translated by Siarhei BohdanIt is a part of a new collaborative arrangement with the Agency of Political Expertise. 

Belarus Resists Privatisation of Large Enterprises

Lukashenka expressed on several occasions the hope that Russia would increase the volume of its subsidies to Belarus, taking into account that the West "wants to bend" him.

Defence Minister Jury Zhadobin said that Russia should help through preferential supplies of gas and crude oil, so that the Belarusian military personnel get the same salary as Russian personnel: the significance of Belarus as  Russia's western outpost increases in connection with the US' plans to deploy anti-missile defence sites in Central European member countries.

In 2012 the Putin administration will not revive the acute differences in its relations with Lukashenka's regime. However, Moscow is constantly sending signals that the respite that Lukashenka got from Russia's pressure is just a temporary one. 

Any lengthy pause in Russia' foreign policy activity in regards to Ukraine will mean that Putin will get back to the Belarusian issue that he was not able to solve during his first two presidential mandates.

In Moscow they are considering what benefit they can derive from the cold war between Lukashenka's regime and the West

A number of Russian officials (in particular, Vice Prime Minister Dmitry Rogozin) said that Russia would not abandon Belarus while it is in a difficult situation and will back it. However, in reality, in Moscow they always have considered and are considering what benefit they can derive from the cold war between Lukashenka's regime and the West.

As expected, no results came out of backdoor talks about Belarus' participation in Russia's retaliatory measures against the deployment of US anti-missile defence sites. The topic of deployment of tactical missile system "Iskander" is no longer found in the statements of high-ranking Russian military officials.

To Attach Belarus Securely

The aim of Russian policy towards Belarus is to establish guarantees that regardless of who is president of Belarus, Russia's western neighbour will always take its lead from Russian foreign policy and play the role of the military and political ally. Russia strives to attach Belarus securely through a number of sequential steps of genuine integration, as it is seen by Russia.

Russian companies were interested in buying controlling shares of thirty major Belarusian enterprises

The first such step is the sale of major Belarusian enterprises to Russian companies. In May 2001 then-Prime Minister of Russia Mikhail Kasyanov said that the Russian companies were interested in buying controlling shares of thirty major Belarusian enterprises. Fifteen enterprises on the list, which was made public by Kasyanov, produced more than 50% of Belarus' GDP.

Russia has only recently bought ‘Beltransgas’. Lukashenka did not have any other choice but to sell the asset, following the launching of the ‘Nord Stream’ gas pipeline. However, Lukashenka’s team will keep resisting  Russian business interests, as far as all other positions are concerned.

No Further Privatisation of Flagship Enterprises

On March 30, 2012, Lukashenka suggested that the Belarusian side would not meet its commitment on privatisation it had to undertake, in order to get a loan from the EurAsEC Anti-Crisis Fund (i.e., Russia). “If you’d like to please the International Monetary Fund, the European Union, America, Russia or anyone else, saying that we are selling something, do it on your own. I will not support it. It will not happen, while I am in power.”

Concerning the intentions of Russian senior managers to buy controlling shares of Belarusian enterprises, Lukashenka noted: “So far, I have always suggested to the guys to leave the property alone. Just get united and show us, how you’re going to work and how you see the outcome. Then we will give you a New Year's goose, as you often say. We’ll see if you may also require a cow in your shed after that. It means 10% or 25 % respectively.”

On April 12, 2012, the Minister of Economics Mikalay Snapkou stated that Belarus would not sell large enterprises in order to meet its commitments to the Anti-Crisis Fund. It will go on selling only small and medium-sized enterprises.  “As for the ‘blue chips’ and negotiations on them, it’s a point of great nicety with economic and geopolitical pros and cons. It is not an indicator of privatisation. The indicator of privatisation is constant constructive work with medium-sized enterprises,” Snapkou said.

New Russian Loans Suspended

Talking to journalists, Snapkou talked a lot about mistakes of Russian privatisation scenario: “The aggressive, intensive, and too quick privatisation leads to a) recession; b) loss of industrial potential; c) decline in living standards. The Russian officials in turn offered their response to these statements by their Belarusian colleagues.

Russia is waiting for the privatisation of oil refineries and oil pipelines

Thus, talking about Belarus’ commitments to the EurAsES Anti-Crisis Fund on April 2, 2012, Viktor Balashov, Economic Advisor to the Embassy of Russia in Belarus noted: “Russia is waiting for the privatisation of oil refineries and oil pipelines.”

On April 23, 2012, the Minister of Finance of Russia Anton Siluanov stated that Belarus failed to meet its obligations, connected with getting a credit from the the EurAsES Anti-Crisis Fund. In particular, the country has not met its commitment to privatise state-owned assets to the sum of billion $2.5bn in 2012.

The EurAsES Anti-Crisis Fund representatives emphasised that the failure to meet the requirements for issuing the credit led to the non-provision of another transfer in the amount of $440m. This instalment was supposed to be transferred to Belarus by February 28, 2012.

The Reasons behind Putin’s Unprecedented Generosity Towards Lukashenka

In 2009-2010 the Russian government refused several times to transfer loans to Belarus when it failed to fulfill certain conditions. Then Putin insisted on the sales of Belarusian industrial enterprises to Russian companies. The Minister of Finance of Russia Aleksei Kudrin urged the Belarusian party to provide guarantees for loan repayment in the form of a program of selling the Belarusian enterprises to the Russian companies. Among other comments, he stated that Belarus was on the edge of bankruptcy.

The situation has totally changed in late 2011. Russia is going to provide billions of dollars in oil and gas subsidies. It has already allocated 10 billion USD of funds in the form of loans for nuclear power plant construction in Belarus. Moreover, it has paid 2.5 million USD for the second half of ‘Beltransgas’ shares.

Russia's Generousity 

In recent years Russian oil barons refused to supply oil for the so-called tilling-based operations of Belarusian refineries. Both the oligarchs and their Kremlin partners expected that Lukashenka would put the oil refineries up for sale, taking into account the unprofitability of oil processing. It is obvious that Russia will not force Lukashenka to make this concession in the year of 2012.

An agreement on issuing a loan by the Savings Bank of Russia and the Euroasian Development Bank for 1 billion USD to Belarus was signed in Moscow on 21 November 2011. The Savings Bank of Russia was to issue 900 million USD of the total amount. The Euroasian Development Bank is also under the complete controll of the Kremlin. The loan funds were transferred to Belarus on 15 December 2011, i.e. less than a month after the contract was signed. 

Lukashenka reads reports from state analytical centers at the end of each week. A list of analytical labs includes the Chief Department of Social and Political Information of the Presidential Administration, the Analytical Center of the Presidential Administration, the Security Council’s Operational and Analytical Center, the KGB Analytical Center, the Analyses and Information Department at the Ministry of Internal Affairs. At least some of these reports contained chapters dedicated to the situation in Belarus-Russia relations.

According to Lukashenka’s statements, it looks like his aids and advisors considered the political and economic risks caused by the sale of ‘Beltransgas’ to ‘Gasprom’.

On December 16, 2011, Lukashenka gave an interview to a popular Russian journalist and the Russian News Service editor-in-chief Sergei Dorenko. Lukashenka was talking without any prior preparations and did not bother to think over his words. Dorenko disseminated a range of boorish and non-censored quotations by Lukashenka in relation to the leaders of Western democracies. He was eager to produce a positive impression on the Russian audience. Dorenko gave the following title to the interview: ‘Lukashenka is cool!’

Lukashenka's Attitude Towards Russia

Despite the present-day rhetoric, Lukashenka’s attitude towards Russia remains the same. He considers Russia a backward country with poverty, high levels of corruption, and election fraud. He underscores that ‘the oligarchs’ are ruling the country in Russia.

According to Lukashenka’s statements, he continues to stake out the geopolitical importance of Belarus for Russia. In his opinion, none of interstate organizations, created by Russia for the sake of integration, i.e. foundation of its sphere of influence, can operate without Belarus. He believes that the presence of Belarus as an ally is a compulsory condition for Russia’s might.

It is noteworthy that Lukashenka considered Putin’s actions on the use of ‘Beltransgas’ as a tool of influence on him to be funny. Everything that exists in Belarus-Russia relations and mainly suits the Kremlin, including the Union State of Belarus and Russia, the Collective Security Treaty Organization, the United Economic Space, the sale of ‘Beltransgas’ to ‘Gasprom’, the choice of the Russian project for the construction of Belarusian nuclear power plant, has appeared due to Lukashenka’s own direct contribution. He is regarded as an illegitimate politician by his opponents in Belarus and in the West. Quite a few things that link Belarus to Russia, link Russia to Lukashenka.

It is risky for Russia to attack Lukashenka with the purpose of changing him for a more suitable figure, since Russia stands to lose everything that was created with his assistance. Lukashenka has good grounds to believe that Russia, to remain on the safe side, will not take the risk.

Lukashenka has often stated that in any case he remains the most pro-Russian politician in Belarus. He makes it clear with his actions that Russia will not find a more pro-Russian politician than him in Belarus.

Moreover, Russia does not have any lobbyists in the Belarusian government. The high-level officialdom does business with Western companies, those who dared come to Belarus, through their representatives in commercial structures. There has yet to take place a single trial against civil servants for profiting from the hidden cooperation with Western businessmen under Lukashenka’s rule.

However, top governmental officials’ attempts to assist Russian companies in the purchasing of small, medium, and large-sized Belarusian enterprises are nipped in the bud.

Show Trials of Russian Lobbyists

Show trials against disloyal public officials who have betrayed their nation, those who “carve the Russian oligarchs’ way” in to Belarus, take place regularly in the country.

The Chairman of the Krupki District Executive Committee Uladzimir Siniak was sentenced to 9 years of imprisonment and his property was confiscated in the summer of 2008. This regional top official was charged with taking a bribe in the amount of 6,300 USD from Russian businessmen, who wanted to purchase a construction materials plant, located in the Krupki district.  

The court toughened the punishment to 11 years of imprisonment, following a supplementary investigation in March 2009. (Siniak appealed to Lukashenka for mercy then.)

Two top officials from the Minsk City Executive Committee were sentenced to 10 and 11 years of imprisonment and the confiscation of their property for rendering assistance to Russian companies in the process of buying workrooms in 2009.

On 9 December 2011, Lukashenka delivered a keynote speech at the Congress of Belarusian National Youth Union (the so-called, “Lukomol”). “Concrete business tycoons, armed with the most up-to-date weaponry, including mass media, can be found behind each action, directed against our country”, Lukashenka noted.

This statement is reminiscent of the traditional style used by Lukashenka in his current anti-western rhetoric. Until 19 December 2010, he used to underscore that the Russian oligarchs had plundered their country and dashed towards Belarus, in order “to lay their hands on the tasty morsels of Belarusian property.”

Despite his rhethoric, Lukashenka manages to extract significant rents from Russia, which helps to keep the Belarusian economy afloat. However, he fails to understand that the Kremlin’s present-day generosity is explained by a burning desire to push Belarus aside, isolate it from the West, and exert further pressure on the country under more favorable conditions.

Andrei Liakhovich

Andrei Liakhovich is a contributing author. He directs the Center for Political Education in Minsk.


The Russian Expansion: Tricolor, Mercedes and a Three-Fold Increase in Salary

November and December events clearly show that Russia's policies towards Belarus are dictated primarily not by economic considerations but political. Russia is willing to spend billions of dollars in subsidies to keep the status quo in Belarus.  The European Union, on the other hand, is more and more busy with its own problems, the most important of which is the crisis of the Eurozone. 

In the coming year, Russia will increase the amount of economic support to Lukashenka's regime. Apart from the significant discount in the gas price, the Belarusian side will benefit from refining larger volume of Russian crude oil.

Beltransgaz as a Signal For Belarusians

The next day after Beltransgaz was sold to Gazprom in November, the Belarusian flags were taken off flagpoles near the buildings of Beltransgaz' agencies. The flags of Russia and Gazprom remained on the flagpoles.

A few days later Chairman of Gazprom Alexey Miller came to Minsk to annouce that the salaries of Beltransgaz' staff (the company was renamed to Gazprom Transgaz Belarus) would be tripled. A new posh office of the company with a ultra-modern gym would be built. Mercedes Benz cars would be bought for the senior staff of the company. The charity program "Gazprom to Children" will be expanded to include Belarus.

According to Gazprom, Beltransgaz' losses in 2011 amounted to about USD one billion. Even if we consider that these data may be inaccurate (Gazprom had an interest to understate Beltransgaz' profitability before buying it), and Gazprom's plans to increase the gas transit through Belarus to 44,5 billion cubic meters, a threefold increase in salaries of Beltransgaz' staff is not justified from the business point of view.

According to Miller, Putin himself ordered to triple the salaries of Beltransgaz' staff. It was a political and not an economic decision. The Russian leadership wants to use Beltransgaz as a platform for sending a signal to the Belarusian society that the staff of the enterprises bought by Russian companies will receive much higher salaries and get a better benefits package.

Miller did not announce any personnel replacement in the Beltransgaz management. In early December, General Director of Beltransgaz Uladzimir Majorau made a number of statements about the company's activities in 2012.

The Russian leadership wants to send a signal to the Belarusian directorate: if their enterprises are bought by Russian companies, the top management will retain their posts and will gain in salary, they will drive new Mercedes. Besides, Russian partners always turned a blind eye to how their Belarusian colleagues pull their ranks, because this is how they use to do it in Russia.

Editor of the Belarusian independent publication Arche Valery Bulhakau aptly said that the Kremlin wanted to use Beltransgaz to "promote the imperial appeal".

Geopolitical Implications of the Beltransgaz Sale

The purchase of Beltransgaz by Gazprom will have consequences not only for the relations between Belarus and Russia. Russia gets a guarantee that a union of transit states – Belarus and Ukraine – will never be created. There was a time when the possibility of emergence of such a union worried the Kremlin a lot. Now, Russia is able to stifle Belarus and Ukraine one by one.

The web site Regnum.Ru, which publishes articles written by political analysts close to the Kremlin, describes the following sequence of actions of Russia in regard to Belarus and Ukraine. Three years later, when the discount for the gas price under the agreement of November 25 expires, the Russian side will significantly increase the gas price for Belarus. Lukashenka will have to sell major Belarusian enterprises.

Typically, they work for the Russian market, and get their components and raw materials from Russia. They will be bought only by Russian companies. The special gas price will be given only to those Belarusian enterprises, which will be sold to Russian companies. The Russian ruble will be introduced as the national currency in Belarus. The Russian military presence will be expanded. Lukashenka will retire and give up his chair to an appointee of the Kremlin.

The Nord Stream pipeline will be used at full capacity. The pumping of gas through the territory of Belarus through the newly Russian pipeline will be increased to a maximum. Ukraine will have to sell its pipeline system to Gazprom. It will create additional opportunities for the Russian economic expansion in Ukraine.

Regardless of what fate is meant to Ukraine by Moscow, the Belarusian issue is seen by many Russian analysts as closed: sooner or later, Russia will get everything it wants from Lukashenka. To achieve this end Russia is willing to spend billions in subsidies, which will make Belarusian economy increasingly dependant upon its eastern neighbour. 

Russia Gets Belarus Hooked on Oil and Gas

On December 15 in Moscow, an agreement was signed between the Ministry of Energy of Belarus and the Ministry of Economic Development of Russia on crude oil deliveries to Belarus in 2012. Russia agreed to supply 21,5 million tons of crude oil in Belarus by pipelines, or 3,5 million tons more than in 2011.

Also, an agreement was signed between the management of the concern Belnaftakhim and a number of Russian oil companies, in particular, Lukoil, Rosneft, and Surgutneftegaz, on crude oil supplies to the Belarusian refineries.

Already back in late November, Russia's ambassador Aleksandr Surikov said that the Russian side was not considering the possibility of reducing the size of the bonus for the Russian oil companies, which supplied crude oil to Belarus. In accordance with the agreement of December 15, the size of the bonus for the Russian oil companies was reduced down to USD 20 to 40 a ton.

The Russian party has met the wishes of Belarusian officials, concerning another important issue. Over the recent years, the Belarusian government repeatedly asked Russia to get back to the so-called tilling-based operations of Belarusian refineries, all in vain. According to the schemes, Russian companies supplied crude oil to Belarusian oil-refining plants and received petrochemical products in return. Applying the schemes, both the Russian oil producing companies and the Belarusian refineries used to gain significant profit for a long period of time.    

The treaty of December 15, 2011 provided for the possibility of applying the tilling-based operations again. The sum to be gained by Lukashenka regime in 2012 due to signing the oil supply contracts remains unknown. Commenting upon the negotiation results, the ‘Belnaftakhim’ concern management stated that the contracts provided for the most profitable conditions of oil supply from Russia for the recent five years. 

Economists have grounds to state that broadening of cooperation between Belarus and Russia in the oil refinery field has certain economic reasons. Thus, the number of cars is rapidly growing in Russia. Consequently, the eastern neighbour lacks petrol and diesel fuel.

However, political motives are apparently present here to this or that extent too. The author mentioned in the previous report that the Kremlin’s significant overpayment for ‘Beltransgas’ was politically reasoned.

An independent Belarusian economic expert Leanid Zaika noted that according to his calculations Lukashenka regime would get around USD 3 billion of Russian subsidies, due to the discounted gas price in 2012. The contracts of December 15th can also be regarded as a lavish Russian new year present to Lukashenka regime.

Following the statements, delivered by Lukashenka and the Prime-Minister of Belarus Mikhail Miasnikovich, as well as according to the official documents, the governmental authorities count on using the funds to cover the foreign debt in 2012. The public expenses, including a part of welfare programs will be cut down at that. Also, the salaries of budget staff and pensions will be increased insignificantly next year.   

Lukashenka looks more optimistic than the government. As soon as there appeared information about the outcome of negotiations on oil supply in Moscow on December 16, 2011, Lukashenka stated that it would be realistic to reach the positive balance of foreign trade in the amount of USD 1.5 billion in 2012.

Moreover, Belarus received a loan from the Savings Bank of Russia (Sberbank Rossii) and the Euroasian Development Bank in the amount of USD 1 billion on December 15, 2011. The First Deputy Minister of Finance Uladzimir Amaryn noted that a significant part of the loan could be transferred to the Belarus’ gold and foreign exchange reserves.

The Prime-Minister Mikhail Miasnikovich stated that according to the reached agreements, the Savings Bank of Russia would issue extra USD 4 billion of loans for implementation of various projects in Belarus shortly.

Andrei Liakhovich

Andrei Liakhovich is a contributing author. He directs the Center for Political Education in Minsk.


Return of Russian Subsidies: What Are the Implications for Belarus’ Economy?

Belarus has managed to secure significant monetary benefits in exchange for its active support of the new wave of Russian integration initiatives. Generous Russian subsidies followed almost immediately after the solemn signing of the Declaration on Eurasian Economic Integration on 18 November 2011. On that same day Belaruskali (read Belarus government) got USD 1 billion as a result of a syndicated loan agreement with Sberbank and Eurasian Development Bank.

And last week more economic carrots followed. They included subsidized natural gas prices, new loans and hard cash for the sale of Beltransgaz.  Although the Belarusian authorities once again managed to secure significant aid from Russia, in the long-run the return of Russian subsidies is likely to do more harm than good for the unreformed Belarus economy. 

Russia Increases Its Subsidies to Belarus

As a result of inter-state talks, Russia provided an unexpectedly generous discount on gas prices. Instead of the USD 244 per 1000 cubic meters that Belarus is currently paying (which is, by the way, also lower than the agreed contract price), in 2012 it will have to pay USD 165.6 (a 32.5% discount). Compared to the contract price for the fourth quarter of 2011 (USD 303), the ‘integration discount’ is even more impressive: 56.7%. It means that the next year Belarus will save around USD 2.5-3 billion on gas.

Another benefit is the restructuring of the debt that resulted from the difference between the contracted gas price for 2011 and the de facto payments made by Belarus. According to the Belarusian Statistic Agency, as of 1 October the debt amounts to USD 106.7 million and will continue to grow until the end of the year. The restructuring comes at the right time time for the crisis-hit Belarusian finances.

It was also announced that Belarus would get a USD 10 billion credit for 15 years to construct a nuclear power plant. If this decision is not reversed or further delayed (which is still a possibility) it will considerably worsen Belarus' sovereign debt problem. But it will also help postpone unpopular socio-economic decisions that the authorities are so afraid of.

Moreover, Belarus struck a deal with Gazprom on Beltransgaz. The Russian monopoly purchased the remaining 50% stake of Beltransgaz for USD 2.5 billion and became the only owner of the company. Taking into account that the market value of Beltransgaz is generally assessed at about USD 3-3.5 billion (which is far from 5) and that the newly opened Nord Stream pipeline and the prospects for the construction of the South Stream pipeline further diminish its market significance, this is a very good deal for Belarus. In the present-day economic situation it is also essential for the Belarusian government that the money is paid in one transaction. Russia paid in four consecutive transactions over four years for the first 50% of Beltransgaz.

There were even more gains for the Belarusian authorities from the new wave of post-Soviet integration. On 28 November it was announced that the Eurasian Economic Community would allocate the second tranche (USD 440 million) of its loan to Belarus. The tranche has been expected for a couple of months. But it did not come until now because the Belarusian side failed to fully fulfill the conditions attached to the loan. Now, in the midst of the ‘integration honey moon’, it seems that the previous conditions do not matter that much.

Implications for the Belarusian Economy

It looks that the ‘good old days’ of affluent Russian subsidies and problem-free credits are back. There are plenty of discussions going on about the Russian rationale behind such generosity and about how long it is going to last. But little is said about the implications of this for the shaky Belarusian economy. And the implications are particularly important for disagreements within the elite on the economic policy which are not yet over.

The new Russian subsidies give more weight to the ‘status quo group’ in the ruling circles who argue against macroeconomic stabilization and any reforms. This group are predominantly representatives of the Presidential Administration. With the newly reached deals on gas and credits it is, of course, very tempting to avoid any socio-political risks associated with reforms and fully resume the proven administrative methods in the economy. The logic of the authorities goes: if the easy money can keep the existing economic model afloa, why reform it and face an unpredictable period of transition?

Unfortunately, this logic can already be seen in the latest decisions and declarations. Take, for example, the return to price regulation which is named as a tool against inflation. Fundamentally, price regulation/non-regulation has nothing to do with the level of inflation. However, it is undoubtedly easier for top Belarusian officials to think so than to curb emission-based state investment that is the real cause of inflation, but which keeps the existing socio-economic model going. As a result, the market distortions and all sorts of deficits will once again be a part of Belarusians’ daily life.

We can also expect that the new Russian subsidies and credits will affect the final discussions regarding the outlook for socio-economic development in 2012 scheduled for mid-December. It will be easier for the ‘status quo group’ to convince Lukashenka that 5-5.5% of GDP growth is possible and desirable in 2012, even though such growth will make 100%+ inflation inevitable. And this will only further aggravate the systemic problems of the Belarusian economy.

To sum up, the new Russian subsidies are likely to once again undermine any hope for market-oriented policies in Belarus. It means that the agony of the Belarusian archaic economic model will last longer and its ultimate demise will be even more tragic.

Yauheni Preiherman

Yauheni Preiherman is Policy Director at the Discussion and Analytical Society “Liberal Club” in Minsk.

The Russian Shoppers Are Coming

Thousands of shoppers from Russia cross the Belarusian border every day to buy large quantities of cheap Belarusian goods. Shopping in Belarus became very attractive after the Belarusian rouble lost over a half of its value in 2011. 

Belarusian shops cannot satisfy the demand of Russian consumers and often run out of stock, leaving the locals without essential goods. Some shops have begn to introduce rationing and refuse to sell more than a certain quantity to satisfy as many people as possible. That results in quarrels and even clashes between local Belarusians and Russian shoppers.

Belarusian service of Radio Liberty reported last week that a quarrel between local and Russian buyers in the Mahiliou region turned into a real fight. Similar scenes were seen in the Vitsebsk region. Radio Liberty quoted a local resident who conveyed the general mood in his area: "The Russians are buying out everything. Perhaps it is good for the economy but it is certainly bad for us. It is frustrating that we cannot afford to buy what we want for our salaries".

Belarusian exporters sell even more products directly to Russia. Unlike Belarusian buyers, the Russians pay in hard currency, not in Belarusian roubles which are rapidly losing their value. The Russian shoppers bring in the badly needed hard currency but often leave Belarusians with empty shops and frustration.

In the 19th century, the Great Famine in Ireland caused millions of deaths.  While people were starving large quantities of food were shipped to Britain. Then the poor had no money to buy food and the government did not ban exports. Although there is no famine in Belarus, many people struggle to afford basic things and the government can neither limit Belarusian exports not make their people richer. 

Export restrictions would contradict the Customs Union arrangement with Russia and Kazakhstan, which came into effect in 2011. Without any significant oil reserves, Belarus does not fit very well in the union with oil exporting Kazakhstan and Russia. 

But over the last two decades Belarus acted as if it had its own oil because Russia was happy to supply it at very cheap prices. The Belarusian authorities then redistributed revenues from processing and reselling cheap oil to the Western markets. They had no incentive to modernize the Soviet-style economy. When Russia reduced its subsidies, the Lukashenka economic model collapsed and the real income of Belarusians fell sharply.  

What lured Lukashenka to join the Customs Union was the opportunity to get cheap oil and gas. Not as in the good old days but still better than the market prices. According to Vladimir Putin, the gas price formula for Belarus now stipulates the same profit margin as supplies to the European Union. But it will also include an "integration-related" coefficient, which will apparently depend on Lukashenka's conduct. Ukraine decided not to join the customs Union and according to Putin will continue to pay much higher gas prices. 

Lukashenka strikes deals with Russia not because of his ideological preferences. It is simpler than that – Russia is the only country in the region which is able and willing to waste billions to support its imaginary geopolitical goals. Like a group of bad boys who want to be noticed, many in the Russian elite want to be in charge in Belarus and they pay for it. Like their Belarusian counterparts, the Russian political elite is not accountable to the Russian taxpayer. That makes it easy to engage in buying loyalty of neighboring dictators rather than building roads or modernizing Russia's own economy. This is one of the ways the Russian elite is trying to heal the psychological trauma caused by the dissolution of the Soviet Union. 

But even with relatively cheap Russian oil and gas supplies, the Belarusian government can neither find a quick fix for its economic problems, nor is it capable of serious structural reforms. Nearly all senior officials in Minsk are in their late 50s and worked most of their lives in the Soviet Union. When Russian subsidies helped to keep they economy afloat they felt comfortable. Today they face a different economic reality and do not know how to deal with it. They are pathologically scared of market reforms and dislike the very idea of privatization. But they will have to do it because it looks that there will be no other way out. 

For a long time the Russian elite has been keen to engage in a different kind of shopping. Rather than buying Belarusian dairy products and electronics, they hope to get control of major state-owned assets. Belarus already committed to sell the rest of its transit pipeline to Gazprom to ensure cheap gas prices. More state enterprises are likely to follow. Similar to consumer goods the prices for these assets are likely to be very low. 


‘Don Quixote’ Role of the Belarusian Opposition – Digest of Belarusian Analytics


This month Belarusian analysts focused on geopolitical games involving Belarus, the deep roots of the economic crisis and the inability of the officials in Minsk to deal with it. Another topic which began to receive more attention is the Belarusian parliamentary elections in 2012. 

Geopolitical Mill. Political scholar Andrey Suzdaltsev attributes Lukashenka's regime longevity to sitting in the "grey" zone of the struggle between the EU and Russia for political and economic influence in the post-Soviet space. The analyst is sure that, until recently, the West objectively appreciated Lukashenka because he acted against Russian policy in the post-Soviet space, and even on the world arena. Suzdaltsev regards Poland and Lithuania's leaks of information about opposition activists'  bank accounts as a planned action rather than an unfortunate incident.

The author believes that now the EU has the task of crushing Lukashenka by Moscow hands. He argues that the West in fact has been fighting not the regime of Lukashenka, but solely its pro-Russian vector. This situation, according toSuzdaltsev, condemns the Belarusian opposition to play the role of Don Quixote tilting at windmills. 

Belarusian Example. In another article Alexander Suzdaltsev analyzes Russia’s attempts to establish control over Belarusian gas transit pipeline.  Until this spring Russian Gazprom refused to link the sale of Belarus' gas pipeline with gas prices over the next three years. But now Russia agreed to this because it is interested to use Belarus as an example to lure in Ukraine which has resisted Russia's attempts to gain more control over Ukraine's energy giantNaftogaz. Russia also hopes that Ukraine will become a full-fledged member of the Customs Union of Russia, Belarus and Kazakhstan.  Suzdaltsev concludes that in Russia's battle over Ukraine the official Minsk is ready to take any geopolitical role as long as it is paid for. 

Belarusians Lliving Beyond Their Means. Yury Pshennik, taking into account the price increase in August, seeks to answer the question of what can Belarusians afford today. He writes that Belarusians and Belarus for many years lived beyond their means. Now as the economic crises hits the country, many began to understand that the Belarusian economic model is unsustainable.  The number of people who go abroad to earn a living has sharply increased as salaries have plummeted. However, the government is not serious about reducing its expenditures and continues to build new ice hockey palaces and presidential residencies. 

Doing Nothing as a Method of Governance for Belarus. Another former presidential candidate YaraslauRamanchuk argues that the official Minsk does not have any coherent strategy, resources or professionals to deal with the economic crisis. He argues that the authoritarian political system is not designed for official decision-making and combating crises. It can only efficiently manage security organs, which will stay loyal as long as they are well paid.

Parliamentary Elections on Our Own Terms. Ales Mikhalevich recommends what needs to be done in order to 2012 parliamentary elections  to become a key step towards democratic change. Former presidential candidate AlesMikhalevich, who now lives in exile argues against boycott of the 2012 parliamentary elections. Although he has no illusions regarding the official outcome of the elections, he thinks it is important to mobilize people to put pressure on authorities to release political prisoners. 

Nomenclature wants to strengthen its position. The Chairman of the Council of the Republic of BelarusAnatoly Rubinov advocates the creation of a political party on the basis of the pro-governmental association "BelayaRus". Political scientist and politician Dmitry Kuhlej believes that in this way part of the Belarusian nomenclature goes to the end of the stage of authoritarian modernization and it would signal a reduction in the role of the president in the Belarusian politics.

The Only Way to Bring Changes Closer. Petr Kuznetsov suggests that only by changing the paradigm of values will Belarusians achieve positive change in society. He believes that the economic crisis alone will not lead to changes and it is important to help Belarusians understand and appreciate the value of human dignity, freedom, and human rights. 


Belarus Digest prepared this overview on the basis of materials provided by Pact. This digest attempts to give a richer picture of the recent political and civil society events in Belarus. It often goes beyond the hot stories already available in English-language media.



Will Russia Provide More Loans to Lukashenka?

The Eurasian Economic Community (EurAsEC), a post-Soviet economic bloc led by Russia, agreed in May to extend a loan of USD 3 billion. According to the agreement, Belarus will receive the following funds: USD 1.24 billion in 2011, USD 800 million in 2012, and USD 1 billion in 2013. The first installment was received  by Minsk last week.

The provision of the loan does very little to end the economic crisis in Belarus. Alyaksandr Lukashenka himself stated in his interview on June 17, 2011 that dollars and and Euro would not appear in foreign currency exchange offices any time soon. Moreover, in 2011 Belarus will receive only an insignificant sum from the EurAsEC.

The loan extension does not mean that something changed in Belarus – Russia relations.  Russia appears determined to privatize Belarusian enterprises. “Privatization is the main factor of capital inflow. Therefore, there are conditions, connected with privatization of property to the sum of USD 7.5 billion, i.e. USD 2.5 billion a year in the contract. This condition will be retained for sure,” said the Minister of Finance of Russia Aleksey Kudrin after the EurAsEC Anti-Srises fund meeting, where the credit extention to Belarus was approved, on June 4, 2011.

The official representatives of Russia, including Kudrin, underscore that “Beltransgas”, “Belaruskali”, and Minsk Automobile Plant should be privatized (in other words, to be sold to Russia), first of all.

The Kremlin officials believe that Belarus will be able to avoid a default only in case of selling a part of state property. Sergei Shatalov, the EurAsEC Anti-Crisis Fund Director noted on June 14, 2011 that Belarus would not receive other credit tranches, if it failed to meet its contractual obligations or announced a default. 

The Belarusian authorities hold the same position on the issue of selling the industrial enterprises to Russian companies as on other issues of ‘real integration,’ as seen by Russia. Thus, the Belarusian side did not refuse to discuss the issue of concluding the Constitutional Act of the Union State in 2002 – 2004. However, it insisted categorically on signing its version of the Constitutional Act, knowing pretty well that it would never be supported by Russia.

Similarly, the authorities do not officially rule out uniting monetary systems with Russia. However, they insist categorically on their version of the alliance. Accordingly, the National Bank of Belarus must enjoy the rights of the second emission center together with the Central Bank of Russia.

Having signed the contract on getting the credit, Lukashenka and the First Vice-Premier Uladzimir Siamashka articulated again the position of Belarusian side: the state shares of “Beltransgas” can be sold only in case if “Gasprom” agrees to supply gas to Belarus at Russian domestic prices.

Apparently, among other, the position of authorities on the sale of “Beltransgas” was influenced by forecasts of expert organizations on the gas consumption growth. In particular, according to the International Energy Agency updates, the quota of gas in the global energy balance – 2035 is expected to reach 25% to be compared to 21% nowadays. The authorities believe that “Gasprom” will require the Belarusian transit facilities to meet obligations on contracts with buyers in the EU member-states after the “Nord Stream” gas pipe line is put in operation.

On June 17, 2011, Lukashenka stated he did not object to the sale of state shares of enterprises. However, the Russian party is not happy with the articulated prices at all. In particular, Lukashenka valued “Belaruskali” at more than USD 30 billion. Apart from that, the Belarusian negotiators listed other terms of sale, never to be accepted by the Russian partners. Thus, the investors were urged to retain the high employment rate, increase the tax revenues and invest in the development of their enterprises after all.

Lukashenka also doubted that Russian oligarchs would develop the purchased enterprises and fulfil their commitments to the Belarusian state. He underscored that the state enterprises worked efficiently: “Our population owns USD 20 billion. Who will buy the enterprises then? You know, who has an eye on them, don’t you? Especially, on such an effective one, as “Belaruskali”. They propose me to privatize the best assets. Nobody will have an eye on poor companies.”

Lukashenka had stated repeatedly before that the sales of industrial enterprises would have created danger to the independence of Belarus. Following his recent statements, the position remained unchanged.

Lukashenka noted that there was a number of unresolvable contradictions in relations with Russia. Thus, a  Belarusian TV propagandist Prakopau put the following question to Lukashenka on June 17, 2011: “Why does Russia pursue the unfair policy in relation to Belarus and fails to support the ally during the crisis, like the EU backs Greece?” “Don’t provoke me! I have enough of it. Everyone understands that without saying. We will survive,” Lukashenka replied.

Andrei Liakhovich

Andrei Liakhovich is a contributing author. He directs the Center for Political Education in Minsk.