VZCZCXRO4582
RR RUEHAST
DE RUEHSK #0652/01 1710955
ZNR UUUUU ZZH
R 200955Z JUN 06
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC 4576
INFO RUCNOSC/ORGANIZATION FOR SECURITY COOPERATION IN EUROPE
RUEHBJ/AMEMBASSY BEIJING 0056
RUEHGV/USMISSION GENEVA 0317
RUEHVEN/USMISSION USOSCE 1183
RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK

UNCLAS SECTION 01 OF 02 MINSK 000652 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EMIN ETRD EAGR USTR PHUM BO
SUBJECT: Lukashenko's Potash Hole Grows Deeper 
 
Ref: Minsk 458 (notal) 
 
MINSK 00000652  001.2 OF 002 
 
 
¶1. (U) On June 13, Belarus closed all four of its potash mines. 
With exports falling due to Lukashenko's insistence on above-market 
prices, Belarus no longer had any place to store the potash it was 
digging up.  The problem began in 2005 when Lukashenko ignored 
market reality and ordered the fertilizer export monopoly 
Belarusian Potassium Company (BPC, 50 percent owned by the GOB) to 
raise the prices for its product by USD 40 per ton (reftel). 
China, Belarus' largest potash customer, insisted that prices fall 
by USD 20.  Yuan Hongchi, Commercial Officer in the Chinese Embassy 
in Minsk, confirmed to Econoff on June 19 that Belarus and China 
still have not signed a contract on fertilizer sales for 2006. 
Belarus also has not concluded contracts for this year with two 
other major buyers, India and Pakistan. 
 
¶2. (SBU) Belaruskaly, the state-owned enterprise that mines all 
Belarusian potash, announced on June 12 that it was closing its 
four mines, all in Soligorsk, until at least June 25 because its 
storage facilities were overflowing.  Two of the four mines might 
reopen on that day.  Since that announcement Belaruskaly and BPC 
officials have refused to comment to the press.  The Minsk office 
of the International Labor Organization told Poloff that Vasily 
Korobov, chairman of the Belarusian Independent Trade Union, 
visited Belaruskaly on June 13 and confirmed the mines were closed 
and that Belaruskaly might be forced to reduce wages.  The ILO said 
this would be very damaging to the Soligorsk economy, as nearly 
every family in the city depends on income from Belaruskaly.  On 
June 20, the Presidium of the Council of Ministers will meet with 
BPC officials to find a solution to this crisis. 
 
 
GOB: What Problem? 
------------------ 
 
¶3. (SBU) While admitting that potash sales have fallen by 25 
percent this year, First Deputy Prime Minister Vladimir Semashko 
optimistically reported to Lukashenko on June 1 that China would 
soon accept BPC's increased price, and that Belaruskaly would 
produce a record eight million tons of potash this year (even 
though the company reports their maximum capacity is 5.5 million 
tons).  Semashko argued that it was fair for Belarus to raise 
fertilizer prices to USD 205/ton for China, as energy costs are 
going up (and energy accounts for 22 percent of the cost of 
production), and because some other countries were paying as much 
as USD 235/ton.  He also claimed that Belaruskaly would open two 
more mines to meet "rising demand."  Hongchi privately refuted this 
optimistic assessment to Econoff.  He claimed that the GOB was 
asking higher-than-market prices for its potash, and had shown no 
flexibility to seek compromise in the last eight months of 
negotiations.  Hongchi stressed that Chinese buyers would not pay 
unrealistic prices, and this year are buying their potash from 
Russia.  He could not predict if Belarus and China would sign a 
potash contract, but said that negotiations are continuing. 
 
 
Potash Sales Fall by at Least Half 
---------------------------------- 
 
¶4. (U) In 2005 BPC exported 7.1 million tons of Belarusian 
fertilizer, 2.1 million tons of which went to China.  Out of that 
amount, Belaruskaly exported 4.289 million tons of potash.  China 
bought 1.285 million tons, and India bought 727,000 tons.  These 
two countries were Belarus' largest customers, and do not have 
contracts yet for 2006 (no numbers were available for how much 
Pakistan purchased).  Belarus' other main potash customers were 
Brazil (527,000 tons, down 22 percent in 2005), Poland (298,000 
tons, down 25 percent in 2005), and the CIS states (129,100 tons). 
No information is available on sales to these countries this year. 
Before the current troubles, Belaruskaly was Belarus' third largest 
exporter, after the Mozyr and Naftan oil refineries (exporting 
Russian oil), and potash the country's second largest export. 
Potash is Belarus' main natural resource. 
 
 
Pro-Salt Protest 
---------------- 
 
¶5. (U) On June 14, several members of the pro-democracy youth group 
Malady Front brought ten kilograms of salt to the entrance of 
 
MINSK 00000652  002.2 OF 002 
 
 
Belaruskaly and raised a banner saying, "Buy Salt, Save 
Belaruskaly."  After 15 minutes police arrested three of the youth. 
Two minors were released and police charged Aleksey Valabov with 
petty hooliganism.  Malady Front reportedly staged a demonstration 
of support for Valabov in front of the police station on June 15. 
Police arrested and charged one minor, Ivan Shyla, with organizing 
an unsanctioned demonstration.  Shyla claimed police beat a 16-year 
old demonstrator, Evgeny Medvedev, who required medical treatment. 
This report is not confirmed. 
 
 
Comment 
------- 
 
¶6. (SBU) Belaruskaly's problems are a direct result of Lukashenko 
meddling with the economy.  He ordered the company to increase 
exports, told them what price they could charge for their product, 
and is preventing them from accepting any lower price. 
Unfortunately for Lukashenko and Belarus, Belaruskaly's main 
customers are not ready to pay this inflated price.  As the summer 
agricultural season progresses, Belarus' chances to sign a contract 
and sell potash will drop further.  If no contract is signed, the 
GOB will lose a major source of revenue, plus will probably be 
forced to provide hefty subsidies to Belaruskaly to keep its 
workers employed and paid. 
 
 
KROL