Updated at 11:09,11-12-2017

Economic cooperation schemes between Russia and Belarus will be changed

BelarusInFocus

On September 11th, Rosneft President Igor Sechin visited Belarus.

Rosneft is increasing its presence in Belarus, and is an example of how future cooperation within the Customs Union will develop. Belarus anticipates that Russia will reduce the size of energy benefits and the number of persons supervising economic projects with Belarus. In these circumstances, it is unlikely that Belarus will manage to delay the privatization of its assets any further.

When the TNK-BP acquisition deal was closed, Rosneft Oil Company inherited the companys assets in Belarus. Under Belarus law, only a legal person registered in Belarus can carry out tolling refining in the country. It was not Rosneft that was registered in Belarus, but TNK BP. TNK- BP West was renamed to RN West and since June 18th, 2013 Rosneft has had the opportunity to work in Belarus. Another asset was the stake in the Mozyr Refinery. Slavneft owns a 42.58% stake in the Mozyr Refinery. 99% of Slavneft shares are divided on par between Gazprom Neft and Rosneft, and the latter has the TNK-BP package. Since Rosneft entered the Belarusian market, it came second after Belaruskali among the largest tax-payers in Minsk Oblast (in January August 2013).

Sechins visit should be treated as Russia strengthening the centralization of economic contacts with Belarus. The monopolization of oil supply is hardly feasible, since other large and influential Russian oil companies also have the interest to supply oil to Belarus. However Rosneft wants to concentrate oil refinery in its hands. It also envisages increasing its presence in Ukraine, which is why it wants to increase its shares in the Mozyr Refinery. The increase in the Rosnefts shares in oil refinery in Belarus may be an option for Russia to reduce its budgetary losses from cooperation within the Customs Union. Russia assessed such losses at USD 6.7- 6.8 billion over three years. Russia will also reduce its assistance in terms of gas price reductions. The price for gas in 2014 is anticipated at USD 175- 180 per 1,000 m3, which is USD 12 higher than the average price in H1 2013. Potentially, Sechin will supervise the stalled integration projects.

Reduced aid from Russia will push Belarus towards privatizing its assets. Belarus preliminary calculations show that Belarus will have to sell state property in 2014 worth at least USD 4 billion. Uralkalis CEO Baumgertners arrest chastened potential investors in Belarus, therefore Russian businesses will have, de facto, a monopoly on acquiring assets in Belarus and Sechin will lead the negotiations. Delayed privatization, in the absence of guaranteed external funding, will result in a rapid reduction of gold reserves - to critical levels - and a repeat of the 2011 crisis.

Thus, Russo-Belarusian negotiations over economic issues will become harsher. The reduced number of negotiators will narrow room for manoeuvre, and in 2014, Belarus will be forced to sell one of its major assets to avoid a rerun of the 2011 crisis.