However, the expected exchange of strategic assets has not yet taken place. The Russian Government has announced 100 percent duty on oil supplied to Belarus from January 1st. Minsk views this as a violation of Customs Union regulations — which came in force early this year. Accordingly, the Belarusian leadership has insisted on clarification of the principles of the Union; it is supposed to be a duty-free zone between Belarus, Russia and Kazakhstan, including for strategic supplies of oil and gas. Moscow appears to think differently, believing that energy trading should follow other rules, stipulated by the additional agreements to the Customs Union. Political analyst Yuri Shevtsov notes, “In Belarus, national interests are placed above private, as is the country’s social-economic model. Russia has a different approach, with the interests of large corporations defended at high state level. These often determine policy.”
The Dean of the Belarusian State University’s Economic Department, Mikhail Kovalev, adds, “There may be some logic in the fact that export duty on Russian oil cannot remain in Belarus. However, let’s look at the situation from another angle. Huge amounts of products arrive on the Belarusian market from South East Asia, via the Russian border. However, entrance duties do not enter our budget in the least! It is not correct to exempt oil, or any another commodity group, from the general context of the Customs Union. Rather, we should find an all-embracing and systematic solution to the issue of duties.”
Such a decision would probably lift acute problems in our bilateral relations. However, the experience of recent years shows that, in spheres where turnover reaches billions of dollars, compromise is difficult. Extremely complicated talks regarding terms of supply for Russian oil to Belarus in 2010 ended with document signing. Raw materials for domestic needs are to be supplied to our refineries without duties (in line with the Customs Union). Meanwhile, oil for processing and exports will be liable to 100 percent duty. The capacity of Belarusian oil processing facilities exceeds domestic needs for oil products; from January to February, the issue of local refineries’ loading and profitability was acute. Diversification of the energy policy - which began in 2007 after the Russian Government, headed by Mikhail Fradkov, introduced a partial duty on oil for Belarus (then, Minsk convincingly proved that the tariff contradicted the basic documents of the Belarus-Russia Union State. However, Moscow did not abolish the duty.) - will continue. The risk from relying exclusively on a single supplier of raw materials is too high.
Belarus already has concrete results in its search for an alternative to Russian oil.
In late 2009, Venezuelan PDVSA Corporation gave Belorusneft the rights to control, service and mine two oil deposits near the Orinoco River basin. The agreement was signed by Alexander Lukashenko and Hugo Chбvez in September 2009 and this top level agreement was quickly realised. The extension of collaboration in the oil sphere can be easily explained, since it brings commercial benefit to both Minsk and Caracas. Once two oil deposits are mastered, joint Petrolera BeloVenezolana’s extraction volumes should double. Last year, the joint venture extracted 680,000 tonnes of oil, bringing profits to Belorusneft of $60m (it owns a 40 percent share).
Venezuelan oil is not transported to Belarus (as this would be economically unfeasible) but is sold on the global market. As a result, the country earns currency to pay for Russian oil. However, in emergencies, Venezuelan raw materials could be delivered to Belarusian refineries, via Baltic ports.
Apart from working on the Venezuelan market, Belarusian oil specialists have been operating in Iran since 2007 — at joint Belpars Petroleum Company Limited. The company is mining the Jofeir field, whose hydrocarbon deposits are estimated at 273m tonnes. The Caspian region is another attractive direction, where there is potential for selling extracted oil or transporting to Belarus.
In recent years, Kazakh oil supplies to Belarus have been discussed, as highlighted by the Ambassador of Kazakhstan to Minsk, Anatoly Smirnov. He announced in January that exports to our Mozyr and Novopolotsk refineries could begin this year. The diplomat explained that oil would be processed and transported further — to the EU. Previously, high tariffs on hydrocarbon transportation hampered such co-operation but, with the Customs Union’s establishment, the problem is being solved. Mr. Smirnov noted that Kazakhstan is ready to supply raw materials to Belarus in any volume.
Theoretically, Kazakh oil could satisfy Belarusian oil processing branch fully. Mozyr and Novopolotsk refineries have a joint capacity of 30m tonnes a year. In 2008, Kazakhstan mined 75m tonnes, while its domestic processing slightly exceeded 7m tonnes. Governmental experts consider that, this year, up to 100m tonnes will be mined; by 2015, the figure is expected to reach 150m tonnes.
Is Kazakh oil attractive for Belarus from a commercial point of view? In an interview with Business FM radio station, Dmitry Alexandrov, an analyst from Univer-Capital Company, noted, “Kazakhstan previously charged export duties but these are now gone. In this sense, Kazakhstan can offer greater concessions than Moscow. An average tonne of Kazakh oil is cheaper for Belarus by $60 to $85.”
The Managing Director for Oil Processing and Marketing at National KazMunaiGas Company, Daniyar Tiesov, told the Kazakh media, “If it’s profitable, then it’s quite possible that we’ll go to these plants.” He noted that the project needs detailed study, jointly with Belarusian colleagues.
Economist Leonid Zaiko explains his view, saying, “Pumping Kazakh oil to Belarus through Russian oil pipelines makes better commercial sense. However, this conflicts with the interests of Russian energy companies.” This was underlined back in 2007 by the former Ambassador of Kazakhstan to Belarus, Bolat Iskakov. “Tariffs are set by the pipe’s owner. Of course, we would be ready to pump oil to Novosibirsk and then directly to Belarus. We are also ready to supply oil and gas. However, the owners continue to tell us that the pipes don’t have infinite capacity.” The diplomat stressed, “Of course, we are interested in raising oil transportation volumes via Belarus, as well as increasing deliveries to Belarusian refineries. Ninety percent of petroleum refinery products are exported to the European Union.”
“Transportation of Kazakh oil to Belarus by rail could be a possibility, as transportation tariffs must be unified within the Customs Union format. This would make transportation via Russian territory more feasible,” emphasises Mr. Zaiko. “It’s also potentially possible to deliver Kazakh oil via the Black Sea to Ukrainian ports and transport it via the Odessa-Brody oil pipeline.”
Evidently, raw material delivery from Kazakhstan to Belarus is a real possibility for the future (although, probably, some time ahead). Belarus is just as interested in the proposal as Kazakhstan.
Belarusian refineries would not be able to fully substitute Russian raw material in the near future. Russian oil businesses are not interested in seeing this happen, since Belarusian processing is attractive. Its level of modernisation is quite high and delivery schemes for raw materials and exports of ready oil products to the EU are functioning well. “If oil suppliers owned the refineries, facilities would be fully loaded and stable deliveries would be ensured,” explains Mr. Kovalev. “However, what price are such buyers ready to offer? Logically, Belarus won’t sell its prime assets for less than they are worth. It’s a real issue!”
The problem remains a stumbling block to oil co-operation with Russia, pushing Minsk to find alternative partners.
By Vitaly Volyanyuk
