Lukashenka still hasn’t signed the agreement on the European Economic Area in its initial format.
In this case, how did he get reduced oil prices and the loan? And did he really get them?
“Kazakhstan, Russia and Belarus still have an opportunity to improve the agreements.” The Belarusian leader addressed this message to his Kazakh and Russian colleagues on May 29. This phrase indicates some degree of frustration. When Lukashenka left to Astana he was ready for war. Before the meeting, during a governmental session in Minsk, Lukashenka emphasized that the Eurasian Economic Union (EAEN) agreement “may” be signed. The message was clear: Belarus will accept Russia’s demands only if Russia guarantees reduced oil prices. Otherwise Lukashenka will not hesitate to hop off the process.
Lukashenka refused to compromise on problem issues around the EAEN during the summit, just like charter97.org predicted. But Nazarbayev and Putin showed unexpected compliance and basically let Lukashenka cross out everything he disliked in the agreement and sign only the four capital letters on the cover.
As a result, tobacco, alcohol and fishery issues remained outside the Union’s sphere of influence. The market of pharmaceuticals was included to the agreement but only as a framework issue, and negotiations are supposed to continue throughout the year.
The service sector has hardly been included to the agreement at all, the talks will continue in September. It is planned to divide the market in four segments in accordance with the anticipated speed of harmonization. The first segment will include services that can be provided in the three countries with no limitations starting from 2015. The second segment will include services that will be launched gradually. The third segment’s services will not be liberalized yet, while the fourth segment will not be liberalized at all.
Finally, Lukashenka played back the former concessions made regarding internal support of agriculture that have already been included to the European Economic Area framework. In Belarus, it was planned that during the transition period the share of state subsidies for the Belarusian agriculture would shrink from 13% of the cost of goods in 2014 to 10% in 2016. But suddenly Minsk suggested to calculate this share differently, for example not from the milk produced at farms, but from the sales of dairy products that use milk in production, thus increasing the room for maneuver to obtain more subsidies. The countries prolonged the negotiation period on this question till the end of 2015.
Meanwhile, the Kremlin always linked the new reduced oil prices for Minsk to the resolution of the above-mentioned issues. How then did Minsk manage to get the additional oil subsidy, while it has not met nearly any of Moscow’s demands? Was simple blackmailing enough to force the Kremlin to refuse form signing this crucial PR-document? I hardly believe that. In this case, in 2015 Russia would be able to raise the current reduced prices for oil and gas valid throughout 2014.
Did we actually get the discount?
One can wonder if Sergei Rumas’ announcement of the reduced oil prices was true at all, because there is no logic explanation to it. Just like with the news about the new Russian state loan spread by Minsk and not confirmed by Russia, the information about the new conditions of distribution of customs fees has come only from the Belarusian part.
As charter97.org reported previously, before the summit in Astana the parties agreed only on one issue: that Minsk and Moscow would sign the document on distribution of customs fees on oil and petroleum products before the agreement on Eurasian Union will be signed. But even one week ago nobody knew if it’s about a prolongation of the current agreement or new conditions with unknown consequences for Belarus.
Meanwhile, before Lukashenka’s trip to Kazakhstan, he submitted a draft on prolongation of the current agreement to the “chamber of representatives.” The documents that Sergei Rumas signed in Astana on behalf of the Belarusian part have an intricate name: “Protocol of changes in the Agreement on regulatory measures for the trade and economic cooperation in the scope of oil and oil products export” as well as “Protocol of changes in the Agreement on the order of payment and registration of export customs fees applied at crude oil and specific categories of goods produced from oil exported from the Republic of Belarus”.
The protocol of amendment of the first document initially adopted in 2007 was signed in January 2010. It guarantees that no fees are charged on deliveries of oil for national consumption in Belarus. The second agreement from December 9, 2010, defines the current order of distribution of oil products fees. The amendment protocol was signed in March 2012. It concerns technicalities of the daily routine of registration of the collected fees from the account in the National Bank of Belarus to the account in the Russian Vneshekonombank.
However, Minsk can have been using unofficial additional discounts on oil prices since January 2014. In the first quarter, Belarus exported to the EU ten times more of bitumen mixture for the value of almost $100 million. Considering the past experience of a similar “innovation break-through”, the majority of independent experts agree that this is another “dissolvent scheme”: export of the Russian oil as a product that involves no export fees. As a matter of fact, Belarus does pay a symbolic fee: for each ton of the “bitumen mixture” Minsk pays 3,5% of the declared export price, which is $0,5 according to Belstat’s data. At the same time, the savings from each ton produced from Russian crude oil make up to $385. This way, in order to end up with a $1,5 bln-profit that Rumas mentioned, Minsk should re-export about 4 million tons of the 23 million that Russia’s vice-prime minister Arkadiy Dvorkovich promised on May 30.
By the way, export to Belarus remains the only concession for oil prices that Russia has confirmed. Dvorkovich verified this information himself. Meanwhile, last year Dvorkovich demanded to cut down the export to 18.5 million tons, which is the anticipated summarized capacity of the Belarusian oil refineries, as governmental sources of the Russian media reported. The sources assumed that Minsk would simply re-export the rest of the oil.
It is possible that with this new decision is a part of the Kremlin’s standard practice: instead of official discounts, Minsk got a temporary illegal income of the equal value. This is exactly what happened in the end of 2010 when Putin promised to cancel all oil fees after the Eurasian Economic Community agreement was signed. Eventually the only fee he canceled was the fee on crude oil, while the rest of the promised income was offered in form of renewed supplies of oil products to Belarus with no fees for smuggling. This scheme has been in operation ever since the Kremlin started to cut down the official oil “ratio” of Belarus in 2007, with a short break in 2010.
Similarly, this new oil subsidy seems to be granted only partially, half-officially, so that it can be canceled at any convenient moment.
Still no money
As for the announced loan, everything is much less complicated. As charter97.org reported previously, despite what Aliaksandar Lukashenka said on May 9, there was no agreement between Belarus and the Russian government regarding a new loan at that time. Nor does it exist today, as Sergie Rumas confirmed on May 30. He said that the VTB bank agreed to postpone the deadline for the loan worth 450 million till September 2014. Belarus received the loan in December 2013. Rumas remarked: “By that time, we expect to reach an agreement about an international loan of $2 bln.”
Why do the powers hope to get a new loan from Moscow in September? Maybe they plan to make concessions regarding the service market since the agreement should be signed in September. However, the Russian part still doesn’t comment on the state loan, which means that it is nothing more than a position of the Belarusian powers in the negotiations, and our country has not come closer to the 2 billion since December 2011, when the Kremlin offered this sum in addition to the promised privatization of the strategic Belarusian enterprises.
Benefits of PR
The only real benefit from the EAEN agreement was the improved rate of the Belarusian Eurobonds. The value of the bonds has been growing since April 29 when, during his visit to Minsk, Putin said that the problems regarding the EAEN had allegedly been solved. The price of a five-year bond at the Frankfurt stock exchange rose 3% during the past month and consequently they earn 5.5% annually compared to the initial profit of 8.75%. The possibility to issue new bonds with acceptable rent could be an additional guarantee of the loan from Vneshekonombank worth billions. The loan was announced by Rumas but still hasn’t been confirmed by the Russian part.
As a result, the consequences of signing a new integration agreement for Belarus can be summarized in the following way: the launch of a fully operation union failed, intense negotiations on how to make the union’s framework issues viable will continue in the coming 1.5 years.
Oil discounts that Minsk received from Russia are partially official at best, and hence the Kremlin can take them back at any moment if Lukashenka remains obstinate. Still, the country has no Russian money to fill the foreign-exchange reserves, and no agreement about a loan, which means that in the situation when the Belarusians start buying foreign currency in panic, which happened last summer, the Belarusian foreign-exchange reserves can fall to the critical $4 bln within a month – the point of the sharp devaluations on 2009 and 2011. And today the powers have no means to support the reserves.
Stas Ivashkievich for charter97.org