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Reuters/Alexsey Druginyn/Ria Novosti/Pool
Lukashenko and Putin in happier days.
PRISONER'S DILEMMA

Belarus took a Russian mining executive hostage to get some leverage against Putin

By Tim Fernholz

If you’re going to screw over a business partner, you probably shouldn’t target the man known as “Europe’s last dictator.”

Vladislav Baumgertner, CEO of the potash mining giant Uralkali, learned that lesson the hard way this week when he was arrested in Belarus, the former Soviet state ruled by President Alexander Lukashenko since 1994. After being invited to Minsk to meet with the country’s prime minister, Baumgertner was seized at the airport, charged with crimes that could result in a 10-year prison term, and held responsible for $100 million in damages. The country is seeking four other Uralkali executives on similar charges and announced plans to seize the company’s assets.

A month ago, Uralkali broke up the informal cartel that had helped protect high prices for potash, the potassium-rich mineral that is a key ingredient in chemical fertilizers. Uralkali, a Russian firm, had previously partnered with Belaruskali, Belarus’ state-owned potash producer, to market their wares through the Belarussian Potash Company (BPC), where Baumgernter served on the advisory board; it appears that Belarus has charged him with abusing his powers in that capacity.

Uralkali’s decision to go solo—inspired by Belarus’ own plans to cut side-deals outside the joint marketing company—crashed the stock prices of potash companies around the globe, with investors expecting that big buyers like China and India will now drive prices lower.

Bad timing for Belarus

Still, many potash companies are sanguine. Among the North American potash giants, Canpotex, played down the Russian firm’s decision, and BHP Billiton announced plans to invest $2.6 billion in a new potash mine in expectation of rising global demand in the decades ahead.

The problem is that Belarus and Lukashenko aren’t playing a long game. They need money from their commodities exports now, mainly because of poor economic management, like the shenanigans behind his last ‘re-election’ campaign, in which Lukashenko’s government raised state wages and caused massive inflation that still lingers today. Potash makes up 10% of the country’s exports and 12% of the government’s revenue, so a drop in prices really hurts—potash brings in approximately $1 billion in foreign income that keeps a balance of payments crisis at bay.

The no-holds-barred post-Soviet business milieu

Russia’s foreign ministry has demanded that Baumgartner be released, but so far Belarus has declined. Analysts say the arrest is a negotiating tactic: the next tranche of a $3 billion Belarusian bailout package, granted by a regional economic organization dominated by Russia, is set to be released soon.

As part of the loan, the organization has urged structural reforms, including the privatization of state-owned Belarusian businesses. While most observers, including the International Monetary Fund, think getting Belarus’ government out of business would be best for the country’s economy, Belarus sees it as an attempt to give politically-connected Russian billionaires another crack at the liberalization bonanza.  Belarus is also investigating Suleiman Kerimov, a Russian politician-tycoon who owns 22% of Uralkali and has expressed an interest in purchasing some or all of Belaruskali in the past.

In short: Belarus needs the loan, but doesn’t want to sell its potash cash-cow, so it’s pressuring executives like Baumgertner for leverage.

The region is well known for this kind of hard sell: Russia under Prime Minister Vladimir Putin has shut off gas shipments to Belarus and other countries when other negotiations failed. But the arrest of a private citizen by Belarus—while common enough within Russia—is a new tactic, further complicating matters in a part of the world where it was already tricky to do business.

Tim Fernholz
Reporter
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