Belarus signals amount of benefits expected for further Eurasian integration

Belarus has signalled the amount of benefits that she would expect from further integration – circa USD 3.5-4 bln. This is the amount she would earn if Russia agreed to abolish export duties on petroleum products. So far, Belarus and Russia have failed to reach an agreement on this issue, but Minsk will continue pressuring Moscow in order to ensure additional ‘integration revenues’ in one form or another.

The issue of Belarusian budget revenues from export duties on oil products was not resolved during the Supreme Eurasian Economic Council meeting on April 29^th.

Belarus gains certain benefits from participating in the Customs Union. Some 7.5-8 mln tons of crude oil at USD 400/ton is supplied to Belarus for domestic consumption annually without export duties. Natural gas at USD 169/1000 m3 is supplied for the domestic economy’s needs. Belarus has almost unlimited access to the Russian market to supply dairy products, sugar and other foods. There are no quotas or other non-tariff restrictions on engineering products.

However, the current volume of ‘integration benefits’ is not sufficient to maintain Belarus’ economic growth and social welfare levels. Industrial modernisation projects are failing the deadlines and the invested resources are not returning to the economy. Foreign markets are gradually being lost. Despite the lowest rates on natural gas in the region, electricity tariffs for industrial enterprises are on a par with those in some EU states, and sometimes higher. A growth in wages has increased production costs for enterprises, reducing the competitiveness of Belarusian goods on foreign markets amid currency devaluations in Russia, Ukraine and Kazakhstan. The Belarusian economy requires additional financial resources, and Russia is the most likely source.

In accordance with the agreement on distributing export duties on oil products made from Russian oil, Belarus transfers USD 3.3-3.9 billion per year to Russia. Belarus has proposed Russia to abolish oil export duties in exchange for deeper integration. However, Belarus would be equally happy with indirect support, such as various oil re-export schemes or re-export of oil under the guise of goods, which do not require duty payments. Alternatively, Belarus could offer significantly overpriced assets for sale.

Belarus is focusing on the oil duty exemptions issue so as to indicate the volume of additional support she requires. If Russia decides to ignore Belarus’ demands, the latter may substantially slow down the integration processes and raise the level of contacts with the EU in order to raise additional loans for maintaining the socio-economic model.