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Clash Over Oligarch Kerimov Devolves Into Gas Dispute with Belarus

By Scott Belinksi | Tue, 12 November 2013 23:19 | 0

Just as Russia is trying to convince Ukraine to join its Eurasian Custom's Union in the run-up to the Vilnius Eastern Partnership summit this month, leaders in Kiev are getting a taste of life inside Putin's most recent neo-imperial project. The Russian pipeline monopoly Transneft recently announced it would be cutting oil supplies to Belarus in September by 400,000 tonnes and Russian sanitary authorities are reviving worries about the Belarusian milk. The recent round of all too familiar gas and dairy wars are the culmination of a tit-for-tat diplomatic row between Minsk and Moscow following the dramatic break-up of the BPC potash cartel in July.

Since gambling away much of his $18 billion fortune on Wall Street during the financial crisis, Russian tycoon Suleiman Kerimov has been searching to rebuild his empire. Kerimov's habitual modus operandi has consisted of betting on stocks with borrowed money from State banks. After the financial crisis, though, he has shifted his focus to building stakes significant enough to influence the strategic direction of companies. In 2009, he bought a 37% share in Polyus Gold, the country's largest producer, and has more recently shifted his focus to the $20 billion Potash industry.  

In mid-2010, Kerimov, along with associates Alexander Nesis and Filaret Galtchev, met with the majority shareholder of Uralkali, Dmitry Rybolovlev, to buy stakes in the Russian potash giant after learning that Vladimir Potanin was close to striking a deal. According to sources cited by Bloomberg, Kerimov and his associates paid $5.3 billion for 53% stake in Uralkali. A gambler at heart and backed by the Russian government, Kerimov believed Uralkali's business would be even more profitable if he disposed of its Belarusian partner in the BPC potash cartel, Belaruskali.  

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After going on a State-financed spending spree, Uralkali dissolved an arrangement with, Belaruskali following claims that the Belarusian side was selling potash outside the bounds of their partnership agreement. After the disintegration of the cartel, Uralkali increased production by a third, driving prices down in an attempt to grab market share.

In the aftermath of BPC’s dramatic break-up, potash prices plummeted to around $340 a tonne. Buyers have adopted a ‘wait and see’ attitude, preferring to put off purchases until uncertainty subsides, and new investments are on standby until potash prices bottom out. Belarus stands to lose upwards of €1 billion a year, exasperating the already financially stretched country beyond its limits.

Belarusian President Alexander Lukashenko called foul and, in a rather audacious move, lured Uralkal's CEO, Vladislav Baumgertner, to the country for a meeting with the Prime Minister, after which he was promptly arrested on charges of abuse of power. While it is true that Ukralkali has been ripping off its Belarusian counterparts for years, Lukashenko and his sons have been selling potash outside the BPC for just as long in full knowledge of both sides.

To ease tensions with Minsk and obtain the release of Baumgertner, Russia has promised to prosecute the Uralkali CEO along with Kerimov. Lukashenko hinted that he wants to resurrect BPC, calling on Kerimov to sell his 22% stake in the company. The Kremlin too is ready to dispense with Kerimov and the media have already begun leaking the names of replacement candidates. However, even if the old cartel is revived, it's unlikely that BPC 2.0 would see prices rise to their previous levels and Belarus will emerge as the biggest loser in this ordeal.

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It's not clear to what extent Kerimov had the Kremlin's blessing, and he very well may have overplayed his hand, but Russia has every reason to want to tighten its grip on the Belarusian economy. Potash fertilizer exports are one of the last considerable sources of foreign currency for Belarus that is still somewhat free of Russian control.

While Belarus has traditionally had much closer relations with Russia than its other neighbors, the country has nonetheless attempted to walk the thin line between Europe and Russia, especially since a dispute over the future of the Belarusian gas pipeline network operator Beltransgaz. While profiting from its close relationship with Russia, it has also tried to combat the reach of Russian oligarchs into its economy, particularly through reinstating the 'golden share' rule that gives the government a veto over decisions made by company managers.

By. Scott Belinski

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