Belarus seeks private energy providers

20/05/2007 | Simon Pirani

Investment needed after Russia oil spat

Belarussian economy minister Nikolai Zaichenko will today ask the EBRD to help his country find private investors for six small hydroelectric stations and two combined heat and power plants.

“Given the increase we have had in the prices of fuels [imported from Russia], we are very interested in doing energy saving schemes in cooperation with the EBRD,” Zaichenko told Emerging Markets in an interview.

“We are putting the accent on private business, and these enterprises will be privately owned – whether partially or totally can be decided in the course of negotiations.”

It is understood that, under the terms of the EBRD’s country strategy – which limits the bank to working with non-state companies in Belarus, because of the lack of political reform under president Aleksandr Lukashenko– such projects could be undertaken as public-private partnerships (PPPs).

Any final decision would be made by the EBRD board. While it is understood that the US opposed amending the country strategy to specifically allow energy-saving projects in the municipal sector, nothing in the current wording excludes these projects.

“Whereas previously we considered this a state sector, we have made a principled decision to encourage private investment,” Zaichenko said. “Let investors come, produce electrical energy, and sell it for a profit.”

Zaichenko is due to raise the issue in a meeting with EBRD president Jean Lemierre today in Kazan. Mike Davey, the EBRD senior banker responsible for Belarus, told Emerging Markets: “The fact that the government is looking at private sector involvement in the power sector is a positive step.”

Zaichenko said that the gas price increases and changed terms for oil exports, imposed by Russia earlier this year, had not done serious harm on a macroeconomic level. In the first four months of the year, inflation had “risen slightly”, and stood at 2.8%, up from 2.5% in the same period of 2006. “More serious” was the increase in the cost of industrial goods, which was 6.5%, up from 3.1% the previous year.

“But changes in the terms of Russian oil exports have had a substantial impact on our oil refineries,” Zaichenko said. Profitability had sunk from 26% last year to 1% this year. This follows the decision of Russian exporters to scrap a scheme under which oil was exported 60% on a tolling basis (with refiners paid to process the oil before returning it to Russia for sale), and 40% sold outright to the refineries. All oil is now being sold to the refineries at world market prices, and they have taken out bank loans to finance the purchases.

Asked whether the government saw privatization as part of the answer to the price hikes, Zaichenko said: “We have kept this issue under review since 2002, and don’t forget that 42.5% of the Mozyrsky refinery [Belarus’s largest] is already privately owned.

“Our companies will listen to serious proposals from those who have money to spend and who can guarantee a supply of oil.” Any final decision would rest with the government, he said. He declined to comment on whether Rosneft or Gazprom had expressed an interest.

Zaichenko said the ministry’s analysts estimate that the European Union’s decision in December last year to exclude Belarus from its system of trade preferences will cost the republic $20-$30 million. “The harm this does to us is not critical, but it makes a difference. It will make our exports less competitive in the European Union.”

The exclusion came after an international trade union campaign calling for sanctions against Belarus, for its failure to meet International Labour Organisation standards on labour legislation and workers’ rights.

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