BELARUS' MOST PROFITABLE STATE-RUN COMPANIES

C O N F I D E N T I A L SECTION 01 OF 02 MINSK 000937

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/25/2016
TAGS: ECON ETRD PREL USTR BO
SUBJECT: BELARUS' MOST PROFITABLE STATE-RUN COMPANIES

REF: MINSK 494

Classified By: Acting Deputy Chief of Mission Dereck Hogan for reasons
1.4 (b) and (d).


1. (C) Summary: The GOB published its list of state-owned
companies contributing the most revenue to the GOB budget in

2005. This list suggests some significant changes in the
Belarusian economy, particularly in the fertilizer and oil
industries, since the GOB prohibited publication of its list
of most profitable state-run companies after 2004. The new
GOB list reflects Belarus' withdrawal from a fertilizer joint
venture with Russia, significant increases of profits from
refining and transporting foreign-produced oil, and a growing
market for recycled metals and pharmaceuticals. Ultimately,
a comparison of the 2004 list of the top grossing state-run
companies and the more recent list of top contributors to
2005 GOB revenue underscores the increasing reliance on
energy subsidies from Russia. End summary.

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The "Classified List" of Belarus' Most Profitable Companies
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2. (C) In 2004, the GOB published an open-source list of the
country's top grossing state-owned companies. However, the
GOB apparently prohibited publication of the corresponding
lists for 2005 and 2006. In May, independent economists told
Econoff that the GOB had "classified" the 2005 and subsequent
lists (reftel). However, in July, Econoff obtained a list of
the 36 companies that contributed the largest percentage of
2005 state revenue from a GOB website,
(http://pravo.by/webnpa/text.asp?start=1&RN=C 20600674). From
this list, it is possible to extrapolate the top state-owned
grossing companies. (Note: On December 28, President
Lukashenko signed a presidential decree stipulating that
highly profitable state-owned companies must give a
proportionally greater share of their profits to the
government. End note.)


3. (C) The online list of top contributers to 2005 GOB
revenue would suggest that Belarus' most profitable
state-owned companies are in rank order: 1) "NAFTAN" oil
refinery; 2) "Belaruskaly" potassium-based fertilizer
producer; 3) "Gomeltransneft Druzhba," a network of pipelines
to transport oil and oil products to western Europe based in
the eastern Belarusian city of Gomel; 4)
"Belaeronavigatsiya," the air traffic controllers' company;
5) "Belfarmatsiya," the umbrella enterprise for all
state-owned drug stores; 6) "Beltsvetmet," a metal-recycling
company based in Minsk; 7) "Vitebskvtormet," a
metal-recycling company based in the northeastern city of
Vitebsk; 8) "Minskaya Farmatsiya," a Minsk-based
pharmaceutical company; 9) "Belenergosetproekt," an energy
utility company; and 10) "Farmatsiya," a pharmaceutical
company based in the southwestern city of Brest.

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A Closer Look at the Top Three Revenue Generators
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NAFTAN Oil Refinery
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4. (C) One of the most notable differences between the 2004
list and 2005 list was the jump of the NAFTAN oil refinery
from seventh place. The data for 2005 match economic
developments. In 2005, Belarus' largest export commodity was
oil and refined oil products, despite Belarus' import of 93
percent of its crude from Russia. The state-owned concern
Belneftekhim controls Belarus' oil refining, including NAFTAN
and 39 other oil-related companies with 116,000 employees,
which account for 30 percent of Belarus' industrial output
and 35 percent of its exports. The reported success of
NAFTAN is substantiated by regime's announcement in late
March Belneftekhim would be placed under the personal control
and supervision of President Lukashenko.

Belaruskaly
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5. (C) Almost as remarkable as NAFTAN's rise was the potash
fertilizer producer Belaruskaly's decline. Assuming the 2004
official list was accurate, Belaruskaly plummeted from first
to a distant second place among the top companies for 2005,
when Belaruskaly's contribution to state revenue was slightly
more than half of that of the NAFTAN oil refinery.
Belaruskaly's fall can be attributed to a rift between Russia
and Belarus. In April 2005, President Lukashenko pulled

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Belarus out of the International Potassium Company (IPC),a
joint venture between Belaruskaly and Russia's Silvinit and
Uralkaly, and created its own potash export company, the
Belarusian Potassium Company (BPC). BPC was created as a
wholly-owned subsidiary of the GOB petroleum concern
Belneftekhim, (Note: Russia's Uralkaly subsequently bought a
50% share. End note.) BPC did not make its first sale of
Belaruskaly potash until a September 9, 2005 purchase by the
Philippines.


6. (C) Apparently, Belaruskaly's decline continued into

2006. On July 28, independent economist and United Civic
Party (UCP) Deputy Yaroslav Romanchuk gave Poloff an
unofficial list of 164 state-run companies in order of their
contributions to the GOB budget for the first six months of

2006. Belaruskaly ranked thirteenth and contributed a mere
0.78 percent of the total GOB business tax revenues. Recent
events corroborate Romanchuk's information. Belarusian
exports of potash halted this year because of a price dispute
with China. Belarus wanted to increase prices from USD 165
to USD 205 per ton, but China sought to reduce prices by USD

20. (Note: In June, Belaruskaly, Belarus' state-owned potash
fertilizer company in Soligorsk ceased operation of all four
its mines for a week because its storage facilities
ostensibly reached full capacity.) Belarus' First Deputy
Prime Minister Vladimir Semashko's June 1 report to President
Lukashenko stated the export of potash fertilizers had fallen
by 25 percent duri
ng the first four months of 2006. On July 25, Semashko
announced Belarus had signed a contract for the supply of
potash fertilizers to China. On August 16, following a
similar price dispute, Belarus signed a contract to resume
potash exports to India.

Gomeltransneft Druzhba
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7. (C) Given the importance of oil refining to the
Belarusian economy, the commensurate significance of oil
transport and the profitability of Gomeltransneft Druzhba are
not surprising. Between January and October 2005, the
Gomel-based pipeline delivered 7.939 million tons to the
Mozyr refinery and transited 60.421 million tons, the largest
amount of any Belarusian pipeline, across the country. Of
that amount, 40.662 million tons went to Adamovo in Poland
and 19.758 million tons to Brody in Ukraine. Taken together,
all Belarusian pipelines transported 88.231 million tons of
oil, three percent more than the previous year. Transit
increased 3.4 percent, to 72.34 million tons for that period.
(Note: During the same period, the next largest pipeline,
the Novopolotsk-based Druzhba, delivered 7.095 million tons
to the Novopolotsk refinery and 11.918 million tons to
Mazeikiu and Butinge in Lithuania. End note.)

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Comment
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8. (C) The GOB considered the list of most profitable
state-run companies after 2004 to be "classified." The GOB's
efforts to protect this information may relate to the
discrepancies between the two lists regarding the relative
success of various economic sectors. Besides the obvious
bulwarks of the Belarus economy, potash and oil refining and
transport, the top ten list was rounded out by pharmaceutical
and recycling companies. Such a list may be a sign of an
atrophying industrial base and an increasing reliance on
energy subsidies from Russia.
Moore