Identifier
Created
Classification
Origin
06MINSK494
2006-05-05 14:31:00
UNCLASSIFIED
Embassy Minsk
Cable title:
Regime Nationalizing and Milking Economy
how-toVZCZCXYZ0028 RR RUEHWEB DE RUEHSK #0494/01 1251431 ZNR UUUUU ZZH R 051431Z MAY 06 FM AMEMBASSY MINSK TO RUEHC/SECSTATE WASHDC 4362 INFO RUCNOSC/ORGANIZATION FOR SECURITY COOPERATION IN EUROPE RUEHGV/USMISSION GENEVA 0308 RUEHVEN/USMISSION USOSCE 1135 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 MINSK 000494
SIPDIS
SIPDIS
DEPT PASS TO USTR
E.O. 12958: N/A
TAGS: ECON ETRD PREL USTR BO
SUBJECT: Regime Nationalizing and Milking Economy
Ref: 05 Minsk 1383
UNCLAS MINSK 000494
SIPDIS
SIPDIS
DEPT PASS TO USTR
E.O. 12958: N/A
TAGS: ECON ETRD PREL USTR BO
SUBJECT: Regime Nationalizing and Milking Economy
Ref: 05 Minsk 1383
1. Summary: By most estimates the GOB controls about 80% of
economic activity, but the state has refused to divulge the exact
amount. Over the past few years the state's share of the economy
has been growing as the GOB renationalizes previously privatized
companies and increases its ownership stake in a number of firms.
In past years the regime used the Golden Share as the means to take
over companies, but recently has abandoned the Golden Share for
other methods of seizing enterprises. Such ownership is highly
lucrative for the regime; only a handful of companies, almost all
of which are state-owned, are responsible for most government
revenues and even for most of Belarus' GDP. In December the GOB
issued a decree demanding more revenue from these most profitable
companies. In March Lukashenko additionally transferred Belarus'
largest exporter, the state-owned Belneftekhim conglomerate, under
his personal control and supervision. End summary.
GOB's Share of the Economy
--------------
2. Ivan Ivanov, local representative for the International Finance
Corporation, told Econoff that he has asked various GOB
interlocutors many times for data on how much of the Belarusian
economy is state-owned, but the GOB refuses to divulge this
information. Valery Dashkevich, a former analyst with
Belgazprombank, estimated that Belarus has roughly 10,000
registered corporations. Of those, 5,900 are fully state-owned and
the rest are either fully private or joint-stock companies (whose
ownership is divided between the GOB and private entities).
3. GOB statements on state ownership of companies have been
contradictory. The Ministry of Economy announced that as of the
beginning of the year Belarus had 4,636 stock corporations. Of
these, 1,818 were open stock corporations (which generally means
the state and private entities share ownership) and 2,818 were
closed stock corporations (all but eleven of which are believed to
be fully private). The ministry claimed the GOB owned 68.5% of the
shares of all these companies. [Note: the ministry did not explain
this statement, but perhaps meant it owns 68.5% of the value of
these companies. Further complicating this picture is that the
ministry was only referring to companies owned at the national
level, not those with shares owned by local governments.] The
ministry's statement went on to say that 904 stock companies still
exist which were once privatized by the government. The GOB owned
shares in 634 of these, and no shares in 270. Of that 634, the GOB
owned more than 75% of 355 (up from 303 a year earlier),between
50% and 75% of 80 (up from 66),between 25% and 50% of 122
companies (down from 166),and less than 25% of 77 companies (down
from 129). This trend demonstrates that not only does the GOB own
shares in a large number of companies, but that over the past year
it has been increasing its ownership stake in these companies.
4. In a somewhat contradictory statement, in April the Ministry of
Economics announced that as of the beginning of the year there were
895 registered open stock companies in Belarus, only 99 of which
were fully private. In 2005 the GOB only sold its shares in only
four companies, earning USD 27,400.
Highly Centralized Economy
--------------
5. Several economists have told Econoff that just 20 companies
account for half of Belarus' exports and that 133 companies,
employing around one million workers (one-quarter of the
workforce),are responsible for nearly all government revenue and
the vast majority share of GDP. Independent economists told
Econoff that the GOB considers the list of these most profitable
companies to be classified information. Another 60% of companies
are estimated to be operating with very low profitability or else
are loss-making. The GOB recently announced that there were 2,600
unprofitable Belarusian companies during the first three months of
2006. Unprofitable companies were concentrated in metalworking and
machine building, light industry, food processing, and timber,
woodworking and paper production.
6. The GOB owns all the largest companies. In 2004 the GOB
published a list of the country's 14 top grossing companies, all of
which were state-owned. [The list is in descending order:
Belaruskaly (potash),Belarus Metallurgical Factory BMZ, Minsk
Tractor Factory MTZ, Minsk Automobile Factory MAZ, Belarus
Automobile Factory BelAZ, Khimvolokno (chemical fibers),AZOT
(chemicals),Mozyr Oil Refinery, NAFTAN oil refinery, Atlant
(refrigerators),Horizont (televisions),Integral (microchips),
Belomo (optics),and Vityaz (televisions and domestic appliances).
Post believes the two oil refineries now top this list.] The GOB
also considers 221 of the country's largest companies to be
"natural monopolies." By law the state owns all these companies
and prevents them from facing competition. Examples of natural
monopolies include oil refineries and pipelines,
telecommunications, postal services, railroad and air transport,
and all utilities (heat, power, water).
Largest Exporter and All its Income to be Put Under President
-------------- --------------
7. In 2005 Belarus' largest export commodity was oil and refined
oil products, even though the country imported 93% of its crude
from Russia. The state-owned concern Belneftekhim controls
Belarus' oil refining, much of its oil trade and a host of other
companies. [Note: A Belarusian state concern operates roughly at
the level of a ministry.] Belneftekhim controls 40 companies with
116,000 employees, which account for 30% of Belarus' industrial
output and 35% of its exports. In late March Lukashenko's press
service announced Belneftekhim would be placed under the personal
control and supervision of Lukashenko. This move will give
Lukashenko personal control over all of Belneftekhim's significant
revenues.
GOB Takes Over Yet More Companies, Uses Golden Share Less
-------------- --------------
8. The GOB is invoking its internationally unpopular Golden Share
to take over companies less frequently than in the past (reftel).
During 2006 Post knows of only one usage of the Golden Share. On
April 6, the GOB extended its Golden Share control over the
Obuvtorg shoe factory for another three years. The GOB owns 19% of
the company, but the Ministry of Trade used the Golden Share to
take control in October 2003, preventing two shareholders from
buying a majority stake in the company. The shareholders were
offering two to three times the listed price for shares, but the
GOB announced it feared these shareholders would use the company's
warehouses to store goods other than shoes if they took control.
9. Instead of using the Golden Share, the GOB has been increasing
its ownership share of companies in exchange for providing
financial assistance. As in the past, the GOB pays significantly
less per share in these companies than their public list price. On
April 25, Deputy Prime Minister Vladimir Semashko announced that
Lukashenko would soon sign a presidential decree mandating that the
GOB only provide a company with financial assistance after it
transfers 100% ownership to the government.
10. In December the GOB announced it was paying off the debts of
motorcycle and bicycle manufacturer Motovelo in exchange for a 90%
stake in the previously 100% private company. While shares in the
company were previously worth BYR 10,000 [USD 4.65], the GOB
acquired its 90% at BYR 600 [USD 0.28] per share.
11. Also in December the GOB used the Golden Share to raise its
stake in the Kamvol woolen fabric company from 33.8% to 99.9%, in
exchange for restructuring the company's debt to the state. In
this case the GOB had to use the Golden Share since the owners of
32% of the company opposed the state taking control.
12. In February the Council of Ministers issued a decree giving the
state an 80.54% stake in Krasnoselskstroimaterialy, one of Belarus'
largest construction material companies, in exchange for forgiving
USD 5.8 million in debt.
13. In February the GOB took control of equipment at ten factories
in exchange for the state paying BYR 34.8 billion [USD 16.2
million] which these companies owed to German banks.
14. In March under a presidential decree the GOB increased its
stake in the Neman Glass Factory from 94.32% to 100% in exchange
for forgiveness of tax arrears. After taking full control the GOB
immediately granted the company a USD 6.7 million loan from the
budget, ordered a state-controlled bank to provide another USD 2.2
million, and reduced by half the factory's utility and tax
payments.
15. Also in March Lukashenko signed a presidential decree giving
the GOB 100% ownership of the Minsk Bearings Plant, up from the
state's previous 70% share. In return the GOB will restructure the
company's debt.
16. On March 30, the CEO of IT company Infopark complained at
Minsk's annual IT convention that the Ministry of Communications
stifles internet-based business with its monopoly on
telecommunications and stated that the ministry frequently
nationalizes successful IT start-ups. He called on Belarus' IT
companies to unite and confront the ministry.
17. In April the Council of Ministers announced the state budget
would pay half the interest in a loan for malt producer Belsolod,
in exchange for an unspecified increase in government ownership.
18. On April 4, the Council of Ministers signed a resolution
increasing the GOB's ownership in seven companies (including three
of Belarus' four sugar refineries). For each company the state
budget covered a portion of interest on their loans in 2005. The
GOB already owned a controlling stake in each company, but further
raised its ownership by 0.01% to 16.2%.
More Nationalization to Come?
--------------
19. In December an anonymous source in the GOB told Interfax that
the government was drafting a decree on "coercive alienation of
former state property." This decree would allow the state to
nationalize previously state-owned companies if their current
owners "mismanage or do not invest in their development." So far
such a decree has not been made public. In March Lukashenko told
the Third All-Belarusian People's Assembly that the GOB would not
privatize any of Belarus' largest companies, but would allow them
to "incorporate smaller and less profitable companies. They will
make Belarusian monsters that will swallow weaker companies, and
gigantic companies will appear. Then we will hit the world's stock
exchanges with their billion-dollar capitalization. That will be
the right time to sell shares, but we will not trade a share for a
bottle of Belarusian vodka. A share will cost millions of
dollars."
GOB Asking for More from Its Companies
--------------
20. On December 28, Lukashenko signed a presidential decree
stipulating that highly profitable state-owned companies must give
a greater share of their profits to the government. Companies with
a profit of up to 20% must transfer to the state an additional 5%
of net profit, between 20% and 22% profit must give 10%, 22% to 25%
give 15%, 25% to 27% give 17%, 27% to 30% give 20% and those with
profit of more than 30% must give an additional 25% of net profit
to the GOB. The GOB estimated this decree would increase state
revenues by BYR 105.2 billion [USD 48.9 million]. The Cabinet of
Ministers added a proviso that made this decree retroactive for
several of the largest state-owned companies. The proviso
specified that in December Belaruskaly had to pay an additional USD
29.7 million, Belarus Metallurgical Factory BMZ USD 7.6 million,
Belorusneft USD 6.5 million, Gometransneft Druzhba USD 3.5 million,
Belarusian Lotteries USD 702,000, and Druzhba USD 690,000.
Comment
--------------
21. By most estimates the GOB now controls around 80% of economic
activity. Over the past few years the GOB has been increasing this
share by renationalizing previously privatized companies while
selling just a few poorly performing state companies. In past
years the GOB used the Golden Share mechanism to take over
companies. Now, perhaps as a result of international criticism of
the Golden Share -- including in WTO negotiations, the GOB has
found other means through which to nationalize the economy. The
state now owns more companies and greater shares of each of these
companies than it did before, and the GOB is finding new ways to
extract profits from these firms. Lukashenko's recent move to take
personal control over Belneftekhim, Belarus' largest conglomerate,
is particularly indicative of the means to which the regime will go
to find revenue.
KROL
SIPDIS
SIPDIS
DEPT PASS TO USTR
E.O. 12958: N/A
TAGS: ECON ETRD PREL USTR BO
SUBJECT: Regime Nationalizing and Milking Economy
Ref: 05 Minsk 1383
1. Summary: By most estimates the GOB controls about 80% of
economic activity, but the state has refused to divulge the exact
amount. Over the past few years the state's share of the economy
has been growing as the GOB renationalizes previously privatized
companies and increases its ownership stake in a number of firms.
In past years the regime used the Golden Share as the means to take
over companies, but recently has abandoned the Golden Share for
other methods of seizing enterprises. Such ownership is highly
lucrative for the regime; only a handful of companies, almost all
of which are state-owned, are responsible for most government
revenues and even for most of Belarus' GDP. In December the GOB
issued a decree demanding more revenue from these most profitable
companies. In March Lukashenko additionally transferred Belarus'
largest exporter, the state-owned Belneftekhim conglomerate, under
his personal control and supervision. End summary.
GOB's Share of the Economy
--------------
2. Ivan Ivanov, local representative for the International Finance
Corporation, told Econoff that he has asked various GOB
interlocutors many times for data on how much of the Belarusian
economy is state-owned, but the GOB refuses to divulge this
information. Valery Dashkevich, a former analyst with
Belgazprombank, estimated that Belarus has roughly 10,000
registered corporations. Of those, 5,900 are fully state-owned and
the rest are either fully private or joint-stock companies (whose
ownership is divided between the GOB and private entities).
3. GOB statements on state ownership of companies have been
contradictory. The Ministry of Economy announced that as of the
beginning of the year Belarus had 4,636 stock corporations. Of
these, 1,818 were open stock corporations (which generally means
the state and private entities share ownership) and 2,818 were
closed stock corporations (all but eleven of which are believed to
be fully private). The ministry claimed the GOB owned 68.5% of the
shares of all these companies. [Note: the ministry did not explain
this statement, but perhaps meant it owns 68.5% of the value of
these companies. Further complicating this picture is that the
ministry was only referring to companies owned at the national
level, not those with shares owned by local governments.] The
ministry's statement went on to say that 904 stock companies still
exist which were once privatized by the government. The GOB owned
shares in 634 of these, and no shares in 270. Of that 634, the GOB
owned more than 75% of 355 (up from 303 a year earlier),between
50% and 75% of 80 (up from 66),between 25% and 50% of 122
companies (down from 166),and less than 25% of 77 companies (down
from 129). This trend demonstrates that not only does the GOB own
shares in a large number of companies, but that over the past year
it has been increasing its ownership stake in these companies.
4. In a somewhat contradictory statement, in April the Ministry of
Economics announced that as of the beginning of the year there were
895 registered open stock companies in Belarus, only 99 of which
were fully private. In 2005 the GOB only sold its shares in only
four companies, earning USD 27,400.
Highly Centralized Economy
--------------
5. Several economists have told Econoff that just 20 companies
account for half of Belarus' exports and that 133 companies,
employing around one million workers (one-quarter of the
workforce),are responsible for nearly all government revenue and
the vast majority share of GDP. Independent economists told
Econoff that the GOB considers the list of these most profitable
companies to be classified information. Another 60% of companies
are estimated to be operating with very low profitability or else
are loss-making. The GOB recently announced that there were 2,600
unprofitable Belarusian companies during the first three months of
2006. Unprofitable companies were concentrated in metalworking and
machine building, light industry, food processing, and timber,
woodworking and paper production.
6. The GOB owns all the largest companies. In 2004 the GOB
published a list of the country's 14 top grossing companies, all of
which were state-owned. [The list is in descending order:
Belaruskaly (potash),Belarus Metallurgical Factory BMZ, Minsk
Tractor Factory MTZ, Minsk Automobile Factory MAZ, Belarus
Automobile Factory BelAZ, Khimvolokno (chemical fibers),AZOT
(chemicals),Mozyr Oil Refinery, NAFTAN oil refinery, Atlant
(refrigerators),Horizont (televisions),Integral (microchips),
Belomo (optics),and Vityaz (televisions and domestic appliances).
Post believes the two oil refineries now top this list.] The GOB
also considers 221 of the country's largest companies to be
"natural monopolies." By law the state owns all these companies
and prevents them from facing competition. Examples of natural
monopolies include oil refineries and pipelines,
telecommunications, postal services, railroad and air transport,
and all utilities (heat, power, water).
Largest Exporter and All its Income to be Put Under President
-------------- --------------
7. In 2005 Belarus' largest export commodity was oil and refined
oil products, even though the country imported 93% of its crude
from Russia. The state-owned concern Belneftekhim controls
Belarus' oil refining, much of its oil trade and a host of other
companies. [Note: A Belarusian state concern operates roughly at
the level of a ministry.] Belneftekhim controls 40 companies with
116,000 employees, which account for 30% of Belarus' industrial
output and 35% of its exports. In late March Lukashenko's press
service announced Belneftekhim would be placed under the personal
control and supervision of Lukashenko. This move will give
Lukashenko personal control over all of Belneftekhim's significant
revenues.
GOB Takes Over Yet More Companies, Uses Golden Share Less
-------------- --------------
8. The GOB is invoking its internationally unpopular Golden Share
to take over companies less frequently than in the past (reftel).
During 2006 Post knows of only one usage of the Golden Share. On
April 6, the GOB extended its Golden Share control over the
Obuvtorg shoe factory for another three years. The GOB owns 19% of
the company, but the Ministry of Trade used the Golden Share to
take control in October 2003, preventing two shareholders from
buying a majority stake in the company. The shareholders were
offering two to three times the listed price for shares, but the
GOB announced it feared these shareholders would use the company's
warehouses to store goods other than shoes if they took control.
9. Instead of using the Golden Share, the GOB has been increasing
its ownership share of companies in exchange for providing
financial assistance. As in the past, the GOB pays significantly
less per share in these companies than their public list price. On
April 25, Deputy Prime Minister Vladimir Semashko announced that
Lukashenko would soon sign a presidential decree mandating that the
GOB only provide a company with financial assistance after it
transfers 100% ownership to the government.
10. In December the GOB announced it was paying off the debts of
motorcycle and bicycle manufacturer Motovelo in exchange for a 90%
stake in the previously 100% private company. While shares in the
company were previously worth BYR 10,000 [USD 4.65], the GOB
acquired its 90% at BYR 600 [USD 0.28] per share.
11. Also in December the GOB used the Golden Share to raise its
stake in the Kamvol woolen fabric company from 33.8% to 99.9%, in
exchange for restructuring the company's debt to the state. In
this case the GOB had to use the Golden Share since the owners of
32% of the company opposed the state taking control.
12. In February the Council of Ministers issued a decree giving the
state an 80.54% stake in Krasnoselskstroimaterialy, one of Belarus'
largest construction material companies, in exchange for forgiving
USD 5.8 million in debt.
13. In February the GOB took control of equipment at ten factories
in exchange for the state paying BYR 34.8 billion [USD 16.2
million] which these companies owed to German banks.
14. In March under a presidential decree the GOB increased its
stake in the Neman Glass Factory from 94.32% to 100% in exchange
for forgiveness of tax arrears. After taking full control the GOB
immediately granted the company a USD 6.7 million loan from the
budget, ordered a state-controlled bank to provide another USD 2.2
million, and reduced by half the factory's utility and tax
payments.
15. Also in March Lukashenko signed a presidential decree giving
the GOB 100% ownership of the Minsk Bearings Plant, up from the
state's previous 70% share. In return the GOB will restructure the
company's debt.
16. On March 30, the CEO of IT company Infopark complained at
Minsk's annual IT convention that the Ministry of Communications
stifles internet-based business with its monopoly on
telecommunications and stated that the ministry frequently
nationalizes successful IT start-ups. He called on Belarus' IT
companies to unite and confront the ministry.
17. In April the Council of Ministers announced the state budget
would pay half the interest in a loan for malt producer Belsolod,
in exchange for an unspecified increase in government ownership.
18. On April 4, the Council of Ministers signed a resolution
increasing the GOB's ownership in seven companies (including three
of Belarus' four sugar refineries). For each company the state
budget covered a portion of interest on their loans in 2005. The
GOB already owned a controlling stake in each company, but further
raised its ownership by 0.01% to 16.2%.
More Nationalization to Come?
--------------
19. In December an anonymous source in the GOB told Interfax that
the government was drafting a decree on "coercive alienation of
former state property." This decree would allow the state to
nationalize previously state-owned companies if their current
owners "mismanage or do not invest in their development." So far
such a decree has not been made public. In March Lukashenko told
the Third All-Belarusian People's Assembly that the GOB would not
privatize any of Belarus' largest companies, but would allow them
to "incorporate smaller and less profitable companies. They will
make Belarusian monsters that will swallow weaker companies, and
gigantic companies will appear. Then we will hit the world's stock
exchanges with their billion-dollar capitalization. That will be
the right time to sell shares, but we will not trade a share for a
bottle of Belarusian vodka. A share will cost millions of
dollars."
GOB Asking for More from Its Companies
--------------
20. On December 28, Lukashenko signed a presidential decree
stipulating that highly profitable state-owned companies must give
a greater share of their profits to the government. Companies with
a profit of up to 20% must transfer to the state an additional 5%
of net profit, between 20% and 22% profit must give 10%, 22% to 25%
give 15%, 25% to 27% give 17%, 27% to 30% give 20% and those with
profit of more than 30% must give an additional 25% of net profit
to the GOB. The GOB estimated this decree would increase state
revenues by BYR 105.2 billion [USD 48.9 million]. The Cabinet of
Ministers added a proviso that made this decree retroactive for
several of the largest state-owned companies. The proviso
specified that in December Belaruskaly had to pay an additional USD
29.7 million, Belarus Metallurgical Factory BMZ USD 7.6 million,
Belorusneft USD 6.5 million, Gometransneft Druzhba USD 3.5 million,
Belarusian Lotteries USD 702,000, and Druzhba USD 690,000.
Comment
--------------
21. By most estimates the GOB now controls around 80% of economic
activity. Over the past few years the GOB has been increasing this
share by renationalizing previously privatized companies while
selling just a few poorly performing state companies. In past
years the GOB used the Golden Share mechanism to take over
companies. Now, perhaps as a result of international criticism of
the Golden Share -- including in WTO negotiations, the GOB has
found other means through which to nationalize the economy. The
state now owns more companies and greater shares of each of these
companies than it did before, and the GOB is finding new ways to
extract profits from these firms. Lukashenko's recent move to take
personal control over Belneftekhim, Belarus' largest conglomerate,
is particularly indicative of the means to which the regime will go
to find revenue.
KROL