Russia orders oil cut to Belarus after potash clash

Oil pumpjacks are seen near the Belarussian village of Kaporovka, some 300 km (186 miles) southeast of Minsk, June 12, 2013.

Credit: Reuters/Vasily Fedosenko (

By Dmitry Zhdannikov and Vladimir Soldatkin

MOSCOW | Wed Aug 28, 2013 11:40am EDT

MOSCOW (Reuters) - Russia ordered its oil firms on Wednesday to cut supplies to neighboring Belarus by around a quarter, in a major escalation of a trade and diplomatic dispute following the arrest in Minsk of the boss of Russian potash firm.

Trade disputes between Russia and Belarus have affected oil deliveries in the past, causing knock-on disruptions to pipeline flows via Belarus to European countries such as Poland and Germany.

Memories of those cuts, which led to oil price spikes, resurfaced this week after a major diplomatic row erupted between Moscow and Minsk.

Belarus this week detained chief executive of Russia's Uralkali (URKA.MM), the world's top potash producer, accusing him of inflicted severe economic damage following the collapse of a Russia-Belarus sales cartel.

Russia demanded the release of Vladislav Baumgertner. Uralkali controls 20 percent of the world market and is partially owned by Suleiman Kerimov, a billionaire with close ties to Russian President Vladimir Putin's administration.

"It looks like we are heading for a new trade war again," one trader with a Russian oil firm said after the pipeline monopoly Transneft ordered a cut in oil supplies to Belarus by 400,000 metric tons for September.

Transneft (TRNF_p.MM) cited environmental concerns, saying it needed to replace 700 km (440 miles) of old pipelines. "We have to speed up work as it is ecologically dangerous," vice-president Mikhail Barkov said.

Oil traders said the order was completely unexpected. Belarus relies entirely on Russian oil to keep its two major refineries running and supply the local market.

Also unexpected was Belarus' order this week to steeply raise excise taxes on gasoline and diesel, which will make sales in Belarus of refined products produced from Russian oil loss-making, traders added.

According to a decree by Belarussian President Alexander Lukashanko, excise taxes will rise by 45 percent on gasoline and 70 percent on diesel to reach $200-$250 per metric ton (1.1023 tons) respectively.

Lukashenko, in power since 1994, has a history of maneuvering between Russia and Europe to shore up his isolated leadership and Soviet-style economy.

The potash incident has led to one of the biggest diplomatic row in years with Russia's Foreign Ministry summoning the Belarusian ambassador to issue a rebuke, warning of unspecified consequences for bilateral ties.

(Additional reporting by Andrei Makhovsky in Minsk,; Editing by Douglas Busvine)

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Ukraine PM tells Russia to accept "reality" of EU trade deal

Ukraine's Prime Minister Mykola Azarov gestures during a session of the parliament in Kiev April 19, 2013.

Credit: Reuters/Gleb Garanich

By Richard Balmforth

KIEV | Wed Aug 28, 2013 7:54am EDT

KIEV (Reuters) - Ukraine's prime minister, seeking to ward off Russian pressure, urged Moscow on Wednesday to accept his country's drive towards a new trade relationship with the European Union as a "reality".

Clearly alluding to Kremlin threats of possible retaliatory trade moves, Mykola Azarov said: "The whole world is changing, the global system of economic relations. But to build a fence to protect yourself from changes using artificial barriers is simply pointless."

The former Soviet republic hopes to sign key agreements with the European Union in November, including one on free trade, which will mark a shift in its traditional close economic relationship with Russia, its biggest single trading partner.

The prospect of EU goods entering Ukraine, free of import duties, and then being re-exported to Russia and posing competition for Russian goods has caused alarm in the Kremlin and calls for Kiev to halt its drive towards Europe.

Firing a warning shot towards Kiev, Russia this month imposed laborious extra customs checks on Ukrainian imports over several days, causing delays at the border.

Russian President Vladimir Putin said the Russia-led Customs Union, which also includes Belarus and Kazakhstan, might take "protective measures" to defend its markets.

A Kremlin aide told Ukraine on Tuesday it would lose its "strategic partner" status if it signs association agreements with the 28-member EU bloc at Vilnius, Lithuania, in November.

The pressure has led to talk of a trade war in Kiev and injected new tension into Moscow's relationship with Ukraine, which has pleaded unsuccessfully for a lower price for strategic supplies of Russian gas to bring relief to its economy.

It comes at a time when Ukraine faces record payments to service foreign debt, including to the International Monetary Fund, and when foreign currency reserves are below the safety threshold of three months worth of imports, analysts say.

Ukraine's economy relies on exports of steel, chemicals and grain. More than 60 percent of its exports go to the former Soviet market, with Russia, Belarus and Kazakhstan the most important.

But Ukrainian big business sees greater prosperity in European markets and has resisted entreaties by Moscow to join the Customs Union - a move which would be incompatible with a free trade deal with Europe.

DIVIDING LINES

Azarov, who met Russian Prime Minister Dmitry Medvedev in Moscow on Monday to try to calm Russian concerns over trade, told his cabinet that no matter what the circumstances were, Ukraine wanted to increase the volume and quality of trade with Russia in the future.

For that reason, he said, "drawing up new dividing lines is not in the interests of our peoples."

He said a 10-year grace period after the signing of the Association Agreement with the EU would give Ukraine and Russia the chance to adjust to the new reality, according to the principles of the World Trade Organisation of which both are members.

He said Ukraine had accepted the formation of the Customs Union on its borders and the plans to upgrade it from January 2015.

"In the same way, after signing the Association Agreement with the EU, Ukraine will create a free trade zone with the EU - this also has to be inevitably accepted as a reality," he said.

It is by no means a foregone conclusion that the association and free trade agreements will be signed in Vilnius in November.

Many EU member states are disappointed at the pace of democratic reform in Ukraine since President Viktor Yanukovich was elected in February 2010 and are pressing particularly for the release from jail of former Prime Minister Yulia Tymoshenko, his fiercest political adversary.

Tymoshenko was jailed in late 2011 for seven years for abuse of office after what the EU says was a politically-motivated trial.

Speaking in Brussels on Tuesday after meeting Yanukovich's point man on European integration issues, EU enlargement commissioner Stefan Fuele indicated the Tymoshenko question had been broached as well as Ukraine's progress on democratic reform to meet specific criteria laid down by the EU.

These relate to reforming the judiciary, ending politically-motivated prosecutions and improving electoral legislation.

"I have emphasized ... the need to ensure determined action and tangible progress on all the benchmarks set out," Fuele told journalists.

(Additional reporting by Justyna Pawlak in Brussels; Writing by Richard Balmforth, editing by Elizabeth Piper)

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Russia fiercely rebukes Belarus for detaining potash boss

People walk out from an office of the Belarusian Potash company in Minsk, August 26, 2013.

Credit: Reuters/Vasily Fedosenko

By Andrei Makhovsky and Alessandra Prentice

MINSK/MOSCOW | Mon Aug 26, 2013 1:52pm EDT

MINSK/MOSCOW (Reuters) - Belarus detained the head of Russia's Uralkali (URKA.MM), the world's top potash producer, after he met the country's prime minister on Monday, drawing a fierce rebuke from Moscow in an escalating dispute over the collapse of a cartel.

Vladislav Baumgertner was detained on suspicion of abusing his position and official powers over Uralkali's decision to quit the Belarusian Potash Co (BPC) joint trading venture, according to investigators in Belarus.

It is the first time a top manager of a Russian firm has been detained in Belarus, run since 1994 by President Alexander Lukashenko, who styles himself as "Europe's last dictator".

Uralkali said it refuted any allegations of wrongdoing by Baumgertner or any other of its managers.

"What happened today is way out of line," Russian First Deputy Prime Minister Igor Shuvalov told reporters in Moscow, describing the situation as "odd, inappropriate and not fitting to a partnership".

The company's surprise decision to quit the joint venture with Belarussian partner Belaruskali at the end of July caused outrage in Minsk, which had long resisted Russian pressure to sell its potash interests.

Belarus is Moscow's staunchest ally among former Soviet republics but its economy is stagnating after a financial crisis in 2011.

The dissolution of the cartel, which could cause the global potash price to plummet 25 percent in the second half of 2013, is a major headache for Belarus where it is a major foreign-currency earner. BPC had 31 percent of the world's potash market in 2012 and North American consortium Cantopex had 35 percent, according to Bank of America Merrill Lynch.

"The unexpected break was meant to strike a blow at Belarussian producers that were seen as competitors ... They planned the collapse of the global potash market," Belarussian Investigative Committee representative Pavel Traulko said.

The news of the detention pushed Uralkali shares down 3.4 percent to be the biggest loser in Moscow's MICEX blue chip stock index , in one of its largest daily losses since it stunned the global potash industry by walking out of BPC.

DYSFUNCTIONAL

Uralkali representative Alexander Babinski told Reuters that Baumgertner, who is also a supervisory board member at the BPC, had been in Minsk at the invitation of Prime Minister Mikhail Myasnikovich. "He met with him, and after the meeting he was detained at the airport," he said.

If charged and found guilty, Baumgertner could face up to 10 years in prison.

Belarus is also investigating Uralkali's top shareholder, Russian tycoon Suleiman Kerimov, on suspicion of involvement in illegal activity, the Belarussian Investigative Committee said on Monday.

A representative for Kerimov, who has launched a fire sale of players from his Russian Premier League soccer club Anzhi Makhachkala to cut costs, declined to comment.

The intensification in tensions between Minsk and Moscow comes as the centrally planned Belarussian economy faces a widening of external deficits that, economists say, risks a repeat of a currency collapse suffered in 2011.

Potash accounts for about a 10th of Belarus's export income and 12 percent of government revenues. BPC's collapse will raise pressure on Minsk as it eyes the release of a further tranche from a $3 billion loan facility from a Moscow-led bailout fund.

"It doesn't look like a mortal blow but it complicates an already difficult situation," said Jacob Nell, an economist at Morgan Stanley in Moscow who covers the region.

The clash is symptomatic of dysfunctional trading relations that blight the former Soviet space - even though Russia, Belarus and Kazakhstan have formed a joint customs union and are the anchor economies in a broader regional economic partnership.

(Additional reporting by Darya Korsunskaya, Polina Devitt, Andrey Kuzmin, Natalia Shurmina, Douglas Busvine, and Rod Nickel in Toronto; Writing by Alessandra Prentice; Editing by Pravin Char)

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Russia slashes economic growth forecasts, second time this year

A worker operates a mixer of fused aluminium at the foundry shop of the Rusal Sayanogorsk aluminium smelter outside the town of Sayanogorsk, some 480 km (298 miles) south of the Siberian city of Krasnoyarsk, August 21, 2013.

Credit: Reuters/Ilya Naymushin

By Darya Korsunskaya

MOSCOW | Mon Aug 26, 2013 11:02am EDT

MOSCOW (Reuters) - Russia cut its economic forecasts for the second time this year, increasing pressure on Vladimir Putin to revive growth that has faded since a state spending splurge helped secure his election to a third Kremlin term.

The Economy Ministry slashed its forecasts for 2013 and 2014 after growth in the second quarter of this year was the slowest since the slump of 2009, documents obtained by Reuters on Monday showed.

The news broke as the president made one of his many tours to key industrial regions - this time to Kemorovo in the Kuzbass coalfields - to demand greater urgency in developing Russia's vast resource base.

The lower growth forecast reflects home-grown problems of weak industrial output - now expected to barely grow this year - slowing investment and a waning of the feel-good factor that helped Putin win a third term as president in March 2012.

Not even oil prices at a historically-high $110 per barrel have been enough to avert the slowdown in the world's top energy producer - even if Russia's external surpluses and low debts do shield it from the current turmoil in other emerging markets.

"To grow this time it will not be enough to stimulate private consumption," said Vladimir Miklashevsky, an economist at Danske Bank.

Miklashevsky was referring to Putin's past reliance on distributing windfall energy revenues to boost living standards and drive average annual gross domestic product (GDP) growth rates of 7 percent during his first two presidential terms from 2004-08.

The Economy Ministry cut its 2013 forecast to 1.8 percent from 2.4 percent, also hit by weaker exports and consumption growth. The forecast was below median expectations of 2.5 percent growth in a regular Reuters poll of economists.

It downgraded the 2014 outlook to a range of 2.8-3.2 percent from 3.7 percent.

REALITY CHECK

Economy Minister Alexei Ulyukayev has warned that Russia's $2 trillion economy could stagnate, but played down risks of a recession, even though some economists estimate that real growth has now contracted for two consecutive quarters.

Weaker growth will put pressure on Finance Minister Anton Siluanov's budget, which is due to go before parliament soon and which foresees a modest deficit next year.

Economists see next year's forecast as over-optimistic.

"Growth may accelerate next year only if the government increases expenditure substantially," said Natalia Orlova, chief economist at Alfa-Bank.

The government has already broken Putin's pre-election pledge to balance the books by 2015, proposing measures that would only increase Russia's reliance on commodities.

The government has been considering various stimulus measures, unveiling a $13 billion investment plan to build new roads and railways by tapping a rainy-day fund.

Officials and bankers have been pressing, meanwhile, for easier monetary policy to lift growth towards the government target of 5 percent.

The central bank, now led by Elvira Nabiullina, Putin's former economic adviser, kept interest rates on hold in August. It has said it will start cutting rates when inflation is inside its target corridor of 5-6 percent, expected in the second half of 2013.

The economy ministry kept its inflation forecast for the end of 2013 unchanged at 5-6 percent, but raised its 2014 estimate by half a percentage point to 4.5-5.5 percent.

"The central bank will not cut rates. The global environment is setting higher rates in the world economy and we should not ignore it," said Orlova.

The rouble fell to its lowest in four years against the dollar-euro basket the central bank tracks, hit by capital outflows as emerging market investors expect the U.S. Federal Reserve to wind down its money-pumping measures.

(Writing and additional reporting by Maya Dyakina; Editing by Douglas Busvine, Ruth Pitchford)

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Russia slashes economic growth forecasts, second time this year

A worker operates a mixer of fused aluminium at the foundry shop of the Rusal Sayanogorsk aluminium smelter outside the town of Sayanogorsk, some 480 km (298 miles) south of the Siberian city of Krasnoyarsk, August 21, 2013.

Credit: Reuters/Ilya Naymushin

By Darya Korsunskaya

MOSCOW | Mon Aug 26, 2013 11:02am EDT

MOSCOW (Reuters) - Russia cut its economic forecasts for the second time this year, increasing pressure on Vladimir Putin to revive growth that has faded since a state spending splurge helped secure his election to a third Kremlin term.

The Economy Ministry slashed its forecasts for 2013 and 2014 after growth in the second quarter of this year was the slowest since the slump of 2009, documents obtained by Reuters on Monday showed.

The news broke as the president made one of his many tours to key industrial regions - this time to Kemorovo in the Kuzbass coalfields - to demand greater urgency in developing Russia's vast resource base.

The lower growth forecast reflects home-grown problems of weak industrial output - now expected to barely grow this year - slowing investment and a waning of the feel-good factor that helped Putin win a third term as president in March 2012.

Not even oil prices at a historically-high $110 per barrel have been enough to avert the slowdown in the world's top energy producer - even if Russia's external surpluses and low debts do shield it from the current turmoil in other emerging markets.

"To grow this time it will not be enough to stimulate private consumption," said Vladimir Miklashevsky, an economist at Danske Bank.

Miklashevsky was referring to Putin's past reliance on distributing windfall energy revenues to boost living standards and drive average annual gross domestic product (GDP) growth rates of 7 percent during his first two presidential terms from 2004-08.

The Economy Ministry cut its 2013 forecast to 1.8 percent from 2.4 percent, also hit by weaker exports and consumption growth. The forecast was below median expectations of 2.5 percent growth in a regular Reuters poll of economists.

It downgraded the 2014 outlook to a range of 2.8-3.2 percent from 3.7 percent.

REALITY CHECK

Economy Minister Alexei Ulyukayev has warned that Russia's $2 trillion economy could stagnate, but played down risks of a recession, even though some economists estimate that real growth has now contracted for two consecutive quarters.

Weaker growth will put pressure on Finance Minister Anton Siluanov's budget, which is due to go before parliament soon and which foresees a modest deficit next year.

Economists see next year's forecast as over-optimistic.

"Growth may accelerate next year only if the government increases expenditure substantially," said Natalia Orlova, chief economist at Alfa-Bank.

The government has already broken Putin's pre-election pledge to balance the books by 2015, proposing measures that would only increase Russia's reliance on commodities.

The government has been considering various stimulus measures, unveiling a $13 billion investment plan to build new roads and railways by tapping a rainy-day fund.

Officials and bankers have been pressing, meanwhile, for easier monetary policy to lift growth towards the government target of 5 percent.

The central bank, now led by Elvira Nabiullina, Putin's former economic adviser, kept interest rates on hold in August. It has said it will start cutting rates when inflation is inside its target corridor of 5-6 percent, expected in the second half of 2013.

The economy ministry kept its inflation forecast for the end of 2013 unchanged at 5-6 percent, but raised its 2014 estimate by half a percentage point to 4.5-5.5 percent.

"The central bank will not cut rates. The global environment is setting higher rates in the world economy and we should not ignore it," said Orlova.

The rouble fell to its lowest in four years against the dollar-euro basket the central bank tracks, hit by capital outflows as emerging market investors expect the U.S. Federal Reserve to wind down its money-pumping measures.

(Writing and additional reporting by Maya Dyakina; Editing by Douglas Busvine, Ruth Pitchford)

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Russia fiercely rebukes Belarus for detaining potash boss

People walk out from an office of the Belarusian Potash company in Minsk, August 26, 2013.

Credit: Reuters/Vasily Fedosenko

MOSCOW | Mon Aug 26, 2013 12:20pm EDT

MOSCOW (Reuters) - The head of Russia's largest potash producer Uralkali (URKA.MM) has been detained in Belarus, Russian news agencies reported on Monday, escalating friction between the two ex-Soviet neighbors after the collapse of a joint sales pact.

Vladislav Baumgertner, also a supervisory board member at the Belarus Potash Co (BPC), was held by the Belarusian Investigative Committee on suspicion of abusing his position and official powers, RIA Novosti news agency reported.

Belarus, led by President Alexander Lukashenko since 1994, is a staunch Russian ally, but Uralkali's surprise decision to quit a joint trading venture with BPC in July strained relations between the two countries.

The dissolution of the cartel, which could cause the global potash price to plummet 25 percent in the second half of 2013, raised the prospect of aggressive competition in a market where a few powerful suppliers have long been able to command high prices for the soil nutrient.

Potash is a key foreign-currency earner for Belarus, which has kept in place a largely Soviet-style economy with full employment and price controls. A cheaper potash price could hit the value of Belarus's currency.

Last week, BPC displayed its hostility towards Uralkali's management as a result of the cartel decision, when it ruled out returning to a joint venture with Uralkali under the current ownership.

The Russian company declined immediate comment. Reuters could not reach the Belarus Investigative Committee, the country's top crime-fighting body, for immediate comment.

Shares in Uralkali eased 2.2 percent by 1200 GMT, extending losses since before the cartel's collapse to 27 percent.

(Reporting by Andrei Makhovsky and Polina Devitt; Writing by Alessandra Prentice; Editing by Douglas Busvine)

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Russia slashes economic growth forecasts, second time this year

A worker operates a mixer of fused aluminium at the foundry shop of the Rusal Sayanogorsk aluminium smelter outside the town of Sayanogorsk, some 480 km (298 miles) south of the Siberian city of Krasnoyarsk, August 21, 2013.

Credit: Reuters/Ilya Naymushin

By Darya Korsunskaya

MOSCOW | Mon Aug 26, 2013 11:02am EDT

MOSCOW (Reuters) - Russia cut its economic forecasts for the second time this year, increasing pressure on Vladimir Putin to revive growth that has faded since a state spending splurge helped secure his election to a third Kremlin term.

The Economy Ministry slashed its forecasts for 2013 and 2014 after growth in the second quarter of this year was the slowest since the slump of 2009, documents obtained by Reuters on Monday showed.

The news broke as the president made one of his many tours to key industrial regions - this time to Kemorovo in the Kuzbass coalfields - to demand greater urgency in developing Russia's vast resource base.

The lower growth forecast reflects home-grown problems of weak industrial output - now expected to barely grow this year - slowing investment and a waning of the feel-good factor that helped Putin win a third term as president in March 2012.

Not even oil prices at a historically-high $110 per barrel have been enough to avert the slowdown in the world's top energy producer - even if Russia's external surpluses and low debts do shield it from the current turmoil in other emerging markets.

"To grow this time it will not be enough to stimulate private consumption," said Vladimir Miklashevsky, an economist at Danske Bank.

Miklashevsky was referring to Putin's past reliance on distributing windfall energy revenues to boost living standards and drive average annual gross domestic product (GDP) growth rates of 7 percent during his first two presidential terms from 2004-08.

The Economy Ministry cut its 2013 forecast to 1.8 percent from 2.4 percent, also hit by weaker exports and consumption growth. The forecast was below median expectations of 2.5 percent growth in a regular Reuters poll of economists.

It downgraded the 2014 outlook to a range of 2.8-3.2 percent from 3.7 percent.

REALITY CHECK

Economy Minister Alexei Ulyukayev has warned that Russia's $2 trillion economy could stagnate, but played down risks of a recession, even though some economists estimate that real growth has now contracted for two consecutive quarters.

Weaker growth will put pressure on Finance Minister Anton Siluanov's budget, which is due to go before parliament soon and which foresees a modest deficit next year.

Economists see next year's forecast as over-optimistic.

"Growth may accelerate next year only if the government increases expenditure substantially," said Natalia Orlova, chief economist at Alfa-Bank.

The government has already broken Putin's pre-election pledge to balance the books by 2015, proposing measures that would only increase Russia's reliance on commodities.

The government has been considering various stimulus measures, unveiling a $13 billion investment plan to build new roads and railways by tapping a rainy-day fund.

Officials and bankers have been pressing, meanwhile, for easier monetary policy to lift growth towards the government target of 5 percent.

The central bank, now led by Elvira Nabiullina, Putin's former economic adviser, kept interest rates on hold in August. It has said it will start cutting rates when inflation is inside its target corridor of 5-6 percent, expected in the second half of 2013.

The economy ministry kept its inflation forecast for the end of 2013 unchanged at 5-6 percent, but raised its 2014 estimate by half a percentage point to 4.5-5.5 percent.

"The central bank will not cut rates. The global environment is setting higher rates in the world economy and we should not ignore it," said Orlova.

The rouble fell to its lowest in four years against the dollar-euro basket the central bank tracks, hit by capital outflows as emerging market investors expect the U.S. Federal Reserve to wind down its money-pumping measures.

(Writing and additional reporting by Maya Dyakina; Editing by Douglas Busvine, Ruth Pitchford)

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U.S., Russia at odds on who is blocking U.N. probe of suspected chemical attack in Syria

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