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RUEHMO/AMEMBASSY MOSCOW 3448
RUEHRA/AMEMBASSY RIGA 1668
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RUEHBS/USEU BRUSSELS
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RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK

C O N F I D E N T I A L MINSK 000458 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 04/27/2016 
TAGS: ECON PGOV EMIN ETRD EAGR BI
SUBJECT: LUKASHENKO BOTCHES POTASH EXPORTS 
 
 
Classified By: Classified by Ambassador George Krol for Reasons 1.4(B,D 
) 
 
¶1. (U) Summary: Potash is Belarus' second largest export 
commodity, earning the country USD 609 million in 2005.  Most 
of this revenue went to the GOB, which owns the sole potash 
producer.  In order to squeeze more money from this valuable 
export, last year Lukashenko created a potash exporting 
company and ordered a vast increase in production and prices. 
 Unfortunately for the regime, China, Belarus' main potash 
customer, refused to pay higher prices and is now buying 
potash elsewhere.  Potash stockpiles grew until the GOB 
closed the mines in April.  The officials in Belarus' potash 
company now fear being sent to jail over their failure to 
meet Lukashenko's unrealistic targets.  End summary. 
 
 
Potash: Belarus' Primary Natural Resource 
----------------------------------------- 
 
¶2. (U) The GOB previously exported potash (used primarily for 
fertilizer) under the auspices of the International Potassium 
Company (IPC), a joint venture between Belarus' Belaruskaly 
(state-owned) and Russia's Silvinit and Uralkaly.  In April 
2005 Lukashenko announced that Belarus was pulling out of IPC 
and creating its own potash export company, the Belarusian 
Potassium Company (BPC), so as to remove all middlemen and 
maximize profits.  BPC was created as a wholly-owned 
subsidiary of the GOB petroleum concern Belneftekhim, but 
Russia's Uralkaly subsequently bought a 50% share.  In 
September 2005 BPC made its first sale, 25,000 tons of potash 
to the Philippines. 
 
¶3. (U) Potash is the only natural resource Belarus has in 
quantity.  Belarus exported 4.3 millio ton of potash in 
205, of which 2.1 million tons went to China.  Potah 
exports earned the country USD 609 million in 205 (at an 
average price of USD 141.7/ton).  Lukahenko ordered 
Belaruskaly and BPC to boost expors to 7.3 million tons for 
2006 and earn at leastUSD one billion, even though 
Belaruskaly stated ublicly its maximum annual capacity is 
5.5 millio tons.  This amount reportedly represents 14.85%of world potash production.  Potash is Belarus' seond 
largest export (after oil, which is imported from Russia and 
re-expoted), and Belaruskaly is the country's third larget 
exporter (after the two oil refineries). 
 
 
Blarus' Command Economy Runs Afoul of China's Marke 
--------------------------------------------- ------- 
 
¶4. (U) In late 2005 BPC commenced annual ngotiations with 
Belaruskaly's largest customer, hina.  According to several 
contacts and press surces, Lukashenko personally ordered 
BPC's managment to ensure that Belarus received an 
additiona USD 40 per ton of potash from China in its 2006 
contract.  When negotiations began, China on the contrary 
insisted that Belarus cut its prices by USD 20/ton.  BPC and 
China have undergone several rounds of negotiations, but BPC 
negotiators have no room to compromise and no deal has been 
signed.  Belarusian press reports China is now buying potash 
from two Russian companies. 
 
¶5. (U) Because of a lack of a deal with China, BPC's exports 
fell 33% in January and February, costing Belarus an 
estimated USD 50 to 60 million in lost profits.  A 
Belaruskaly spokesman reported in early April the company's 
exports for the year were down 40%, therefore Belaruskaly was 
shutting two of its four mine groups for unscheduled 
maintenance.  Attributing the drop in sales to the lack of a 
deal with China, the spokesman added that Belaruskaly had 
fully supplied the domestic market and did not want to put 
any excess production into storage.  Faced with increased 
supply, the Ministry of Agriculture announced in mid-April 
that the GOB would increase the domestic use of potash 
fertilizer by 60% this year to 1.298 million tons. 
 
 
Belaruskaly in Desperate Straits 
-------------------------------- 
 
¶6. (C) Independent journalist Roman Yakovlevsky reported in 
late April that all four of Belaruskaly's mine groups were 
closed for lack of demand.  While the company anounced the 
mines are shut for unscheduled maintenance, Yakovlevsky 
claimed the company's warehouses are filled with unsold 
potash.  On April 7, independent trade union leader Aleksandr 
Yarushuk, whose BCDTU has a branch at Belaruskaly, told 
Poloff the company has 500,000 tons of unsold potash in 
storage as a result of the failure to sell to China. 
Economic journalist Tatyana Manenok told Econoff on April 4 
that she interviewed several senior officials at BPC and 
Belaruskaly.  They claimed Lukashenko threatened them with 
jail if the company did not meet the unrealistic demands he 
set, and these officials are afraid the regime will blame 
them for Belarus losing a major source of export revenue. 
(Note: Belarus earned USD 300 million selling potash to China 
alone in 2005.) 
 
¶7. (C) Independent economist Jaroslav Romanchuk told Econoff 
April 17 that the director of Belaruskaly is not free to set 
prices, but rather must accept the decisions of the 
Presidential Administration, which bear no relation to market 
forces.  As a result of Lukashenko's unrealistic demand to 
increase prices, Russian companies underbid Belarus and 
secured contracts with China.  Romanchuk claimed it was 
current Head of the Security Council Viktor Sheyman's idea to 
create BPC, and that Sheyman is losing favor with Lukashenko 
as a result of this debacle. 
 
 
Comment 
------- 
 
¶8. (C) Many people, both in the opposition and out, have told 
us in recent months that the Lukashenko regime will not fall 
because of the actions of the opposition, but because of its 
own economic ineptitude and possibly pressure from Russia. 
This example, where Belarus lost a significant source of GOB 
revenue because Lukashenko ignored market realities, 
certainly buttresses such an opinion.  However, as long as 
Minsk continues to receive natural gas and oil from Russia at 
heavy discounts, the regime will retain a strong, if 
shrinking, economic cushion to cover its mistakes. 
Krol