Is Belaruskalij really a victim of the latest Russia-Belarus economic war?

On 19 August, Valery Kiriyenko, CEO of Belaruskalij, held a press conference, where he criticised Uralkalij and hinted at its attempt to make a raider seizure of Belaruskalij, writes Ryhor Astapenia.

Last month, Russian potash producer Uralkalij announced that it would suspend exports through the Belarusan Potash Company. Many have perceived this step as the beginning of a new Russian-Belarusan economic war. 

Economic wars remain an important part of relations between Russia and Belarus. By the means of economic wars, Kremlin points the proper place to its younger brother and restricts the independence of Belarus. However, the current conflict differs from the previous ones. For the first time a Russian private company, not a public entity, creates a big challenge for Belarus. The consequences affect not only mutual relations, but the whole world.

The new economic war shows the importance of Belaruskalij, which remains the largest taxpayer of the country. Currently the company is undergoing changes. Although Belaruskalij will lose part of its profits because of the new war, it will remain an enterprise owned by the Belarusan state. If Uralkalij had a chance to acquire the Belaruskalij before, the current conflict has buried Russia's hopes to do so.

Why Uralkalij decided to divorce

On 19 August, Belaruskalij`s CEO accused that the Russian management has transferred a number of the BPC's contracts to the Uralkalij`s own Trader, and then has gone away to work in the Uralkalij. Thus, the Belarusan Potash Company lost most of its distribution network abroad.

Last month, Uralkalij`s CEO Vladislav Baumgartner said that Belaruskalij started selling fertilizers outside the Belarusan Potash Company, which terminates the existing agreement to jointly trade abroad of all meaning. The Belarusan side quickly blamed Uralkalij for selling fertilizers through its subsidiary.

Although both sides exchanged serious accusations, the roots of the conflict lie in the difference between aims of Belaruskalij and Uralkalij. For a long time Uralkalij worked at only 50% of its capacity. The decline in production led to a retention of the high price of potash fertilizers on the world market. That was the purpose of Uralkalij.

Belarus today has a very different goal: to earn now, and as much as possible. Belaruskalij remains one of the few companies that bring revenues into the Belarusan economy. In fact, Belarus was in a very beneficial position to increase the prices for potash while Uralkalij was limiting its production.

Russians suspected the Belarusan enterprise of using "shady schemes" at the Brazilian market. Officially, this year Belaruskalij has been responsible for nearly half of potash fertilizers imports in Brazil.

Economic wars

Economic conflicts between Belarus and Russia remain a significant part of the official fraternal relations. Conflicts of delivery of energy to Belarus exploded in 2004, 2006, 2007 and 2010. In 2009, Russia banned the import of Belarusan dairy products. Journalists called that conflict "milk war".

Although economic conflicts between Belarus and Russia happen now and then today's war has a few differences.

If the previous conflicts were conflicts between the states, today, a private company Uralkalij has become one of the parties to the conflict. So far, Russian companies have never challenged Belarusan leadership at this level. Although it seems that Uralkalij coordinated its decision with the Kremlin.

As the old economic conflicts were a continuation of the policy only with the use of other means, Minsk and Moscow solved them at the political level. Despite possible coordination, Uralkalij`s leadership remains different from the Kremlin: the private company will not give up their own economic interests, if Lukashenka offers further Belarusan-Russian integration.

Previous conflicts have been more of a "local wars", the current conflict has attracted the attention of the world media. Currently Uralkalij covers about 20% of the world market. Belaruskalij covers a little more - about 23%.

Before the global market crisis, the price of fertilizers reached $1,000 per ton, today it is about $400. At times, the price can go down to as low as $300 or even less. This is especially true due to the slowing pace of the economy in developing countries. In the short term, prices will fall, and manufacturers will start a new struggle for the redistribution of the market.

The goose that laid the golden eggs

Aliaksei Valabuyeu, a local politician from Salihorsk, where Belaruskalij is based, explained Belarus Digest that "people in town have become really concerned. Belaruskalij had several crises during the last 10 years. Back then, the enterprises forced people to go on a long vacation, and that means not only Belaruskalij, but also other companies cooperating with the potash producer." Salihorsk locals worry because the Belarusan Potash industry is undergoing serious changes. 

In December 2012, Alexander Lukashenka signed a decree that Belaruskalij can sell their products not only through Belarusan Potash Company, but also through other traders. After the break with Uralkalij Belarusan state-owned company announced a new partnership with the Qatari firm Muntajat and the Brazilian company Sertrading.

Over the last month the Belarusan Potash Company also changed its board of directors. Former director Valery Ivanou went to work to the Presidential Administration, and his deputy, Alena Kudravets became chairperson of the trader. Previously she served as Belaruskalij's Deputy Director for Commerce and Logistics. 

Because of the competition at the market, Belaruskalij had to produce more fertilizers and sell them cheaper. In the end, Belarus will also suffer from these skirmish. If in 2012 the Belarusan producer brought in a profit of $780m, this year the figure may drop two-three times. Belaruskalij`s CEO admitted that "he would never go into an alliance with the Uralkalij after what they did. Although if Uralkalij change owners and approach - everything is possible."

Belaruskalij will bring in much lower profits than expected before the break with Uralkalij. The increase in production will lead to a further decline in prices and income of the Belarusan budget. The goose that laid the golden eggs, it would appear, will soon be laying ordinary ones.

BelarusDigest