Publication: Monitor Volume: 8 Issue: 97

Swallowing hard, President Alyaksandr Lukashenka is putting his cherished Soviet-era industrial assets on the auction block. Only Russia’s state-connected capital seems interested, and is likely to acquire those depreciated assets at cut-rate prices. This development will enable Moscow to tighten its political grip on Belarus.

Russian President Vladimir Putin has helped keep Lukashenka’s industries barely alive through preferential trade arrangements and discounts on energy supplies. These forms of support, if maintained, would become increasingly costly to Russia as the industries and energy infrastructure of Belarus decline steadily through lack of investment. Putin has conditioned his political support for Lukashenka on the latter’s consent to invite Russian capital to privatize those assets. This understanding was clearly implicit in Putin’s endorsement of Lukashenka for reelection as president last autumn, against the democratic and pro-Western opposition (see the Monitor, September 10, 14, 2001). It was then firmed up and began acquiring some contours in April at the two leaders’ meeting in the Kremlin (see the Monitor, April 19).

A serious beginning is being made with the upcoming takeover of the state gas company, Beltransgaz, to Russia’s Gazprom. This week, the Russian and Belarusan governments each approved documents on Beltransgaz’ “privatization” by Gazprom and creation of a “joint company.” This will include the section of the Yamal-Europe pipeline on the territory of Belarus, the gas storage sites there, and the country’s internal gas distribution system. The price has not been disclosed as yet. Belarus in any case hopes that the sale will extinguish its debts for past deliveries of Russian gas. The arrears are officially valued at US$245 million as of April 2002 and rising rapidly–by US$42 million in the first quarter of 2002 alone, for example (Interfax, May 13, 15).

In the oil sector, Belarus has agreed to cede its 11 percent stake in the Slavneft oil company, which is majority-owned by the Russian government. Slavneft operates a giant oil refinery in Belarus. Lukashenka has recently agreed to put that stake up as collateral for a badly needed US$200 million loan, which he would be in no position to reimburse. In this week’s power struggle among Russian oligarchic groups for control of Slavneft, Lukashenka backed the side that eventually lost to a group supported by Russia’s Prime Minister Mikhail Kasyanov (Interfax, May 10, 13).

This month, Lukashenka is supposed to cancel a wide range of customs exemptions and tax breaks that his industrial flagships have long enjoyed. The cancellation forms part of the agreements he made with Putin at their meeting last month. The measure should, in effect, cut off the life support of those industrial plants, setting the stage for their bankruptcy and the privatization of the more desirable chunks by Russian capital, the only buyer in sight.

Lukashenka has begun preparing his country’s populace for the changes ahead. In recent speeches–such as the state-of-the-country address to his parliament, and a speech in his native Mohilyau Oblast, a preferred scene for major policy announcements–Lukashenka is conveying a two-fold message. The first part suggests to the populace that changes to the existing economic and social system have become inevitable. He is trying to explain that the industrial plants are in urgent need of investment if they are to be competitive; that the investment can only come from abroad, through privatization; and that the state must also reduce the accustomed levels of social protection of the work force.

The other, and contradictory, part of Lukashenka’s message is suggesting that any foreign investors would be “strictly required” to observe “rules set by the Belarusan state” and to “serve the interests of the entire people.” He is holding up the privatization in the Baltic states as a negative example, promising that Belarus will not follow it. He is even implying that privatization may take the form of building new plant sections next to the old ones, and keeping the latter alive–and their workforce employed–at the expense of the modern sections. Whether even Lukashenka believes in the feasibility of such solutions is far from certain. He appears worried by a possible backlash from a populace to whom he has all along promised to retain the Soviet-bequeathed employment and social protection system.

Lukashenka mentions both Russian and Western capital investment in his speeches. But the conditions he has created in Belarus are only palatable to Russian capital. Viscerally opposed to privatization, Lukashenka has resisted the penetration of even Russian capital until now, as in the notorious Krynitsa-Baltika Brewery case. Once he opens the door wide to that capital, his usefulness to Russia will decline, and he may come finally to be seen as a net liability by the Kremlin (Roundup based on recent coverage by Interfax, Belapan, Belarusan Television and Minsk Radio).