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July 23 – July 29, 2012

Belarusian authorities manage to protect their interests vis-à-vis the Kremlin

The situation has not changed
Belarusian authorities manage to protect their interests vis-à-vis the Kremlin

The Belarusian authorities are successfully practising ‘political judo’ with Russia: they receive the necessary economic benefits and do not make required concessions in return. Minsk’s strategy is to get the most from the Eurasian integration project and to justify the lack of reciprocal concessions by the economic and political risks associated with this same integration.

On July 18, a meeting of the Council of Ministers of the Belarus-Russia Union State took place in Minsk. As a result, an intergovernmental general contract for the construction of a nuclear power plant in Belarus with 2400 megawatts generating capacity has been signed in Minsk.

This project, worth about USD 10 billion is critically important for the image of Belarus. Long-term energy generating facilities construction is not only a symbolic investment into the future Belarusian energy independence, but also a significant enhancement of the President Lukashenko’s political legitimacy for at least the next 5 years (launching of the first energy unit is scheduled for 2017).

In turn, Belarusian authorities have once again managed to postpone reciprocal measures concerning assets privatization. On the eve of Prime Minister Dmitry Medvedev’s visit to Minsk, President Lukashenko visited Belaruskali headquarters and said that the controlling stake in this company will not be sold. The President did not rule out sales of individual shares, given the overall enterprise’s costs assessment at USD 30-32 billion. De facto, such high assessment effectively means the refusal to sell Belaruskali shares.

Moreover, Belarus postponed the privatization of MAZ until the beginning of the autumn and got away with solving another controversial issue – the probable oil exports from Belarus under cover of solvents and lubricants in order to avoid duties’ payment to the Russian budget.

Concerning the latter, a mild request of Prime Minister Medvedev “to find out and punish those responsible” is most likely to be ignored by Belarus, while the very profitable scheme of evasion of export duties will be upgraded (for example, solvents exports will be replaced with another product with similar production technology). Experts assess that Belarus makes from USD 700 million to USD 1 billion per year from this scheme, while Russian budget fails to receive relevant amounts from duty payments.

Therefore Belarus’ negotiating strategy remains unchanged and so far successful: to get the maximum possible benefits from the economic cooperation with Russia and to postpone the fulfillment of counter measures as far as possible. Belarus did the same after the visit of the Russian President Vladimir Putin to Minsk on May 31st, when privatization of MAZ was discussed. Repeated reference to this issue by Prime Minister Medvedev during the Summit on July 18th, implies this issue has not been resolved.

Therefore, one should anticipate that the same rules will apply to the future visit of the new Russian government delegation to discuss privatization issues. For instance, Belarus will point out to the risks associated with Russia’s WTO accession and will try to add additional compensational conditions to the already reached agreements, which, de facto, will once again postpone their implementation.

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Once a week, in coordination with a group of prominent Belarusian analysts, we provide analytical commentaries on the most topical and relevant issues, including the behind-the-scenes processes occurring in Belarus. These commentaries are available in Belarusian, Russian, and English.
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