Kazakh oil processing in Belarus is not feasible before 2015

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April 22, 2016 18:17

Cooperation between Belarus and Kazakhstan in the oil sphere has been discussed before. The parties expect to resolve the issue of access to the pipe after creating the CES in 2015. However, even if the issue of oil transit via Russia is resolved chances for long-term cooperation are slim.

On August 23rd, Ambassador Extraordinary and Plenipotentiary of Kazakhstan to Belarus Yergali Bulegenov held a press conference in Minsk.

The main reason for Kazakhstan’s accession to the Customs Union was to get access to transit pipelines through Russia to export its energy resources. Belarus does not hide the fact that one of the main reasons behind its joining the Customs Union was to have access to the Russian energy resources at Russian domestic prices. Therefore Belarus is equally interested in processing Kazakhstani oil.

Belarus and Kazakhstan already have similar experience. In 2010, during the conflict with Russia about Russian oil supply, in parallel with the oil supply from Venezuela, Kazakh gas and fuel deliveries were organized for further procession at Belarusian refineries. Annual transit of Kazakh oil through Belarus to consumers in the EU is about 4-6 million tons.

The main obstacles for further cooperation are the lack of guarantees for a steady supply of the necessary amount of Kazakh oil and incomplete contractual basis for further cooperation between the two countries.

Oil supplies to Belarus are adjusted annually. The bulk of oil supply is carried out via Transneft company. In 2012 the supply volume was pre-decided, as well as the share of tolling processing at Belarusian refineries for Russian companies. Belarusian refinery capacity has reached 100% already and there is no possibility for additional processing. Potential processing of Kazakh oil on commission conditions raise the issue of Russian oil deliveries for domestic needs. Kazakhstan is unlikely to agree on terms similar to the Russian ones. It is interested in guaranteed transit and not willing to lose money on providing preferential prices for Belarus.

Cooperation between Belarus and Kazakhstan on Kazakh oil processing lasted only as long as lasted the oil supply conflict between Belarus and Russia. And it would have lasted, if the economy of oil processing was more profitable than similar scheme with Russia. Curtailment of Kazakh supply means this cooperation was unprofitable for Belarus.

The issue of duties payment has not been resolved either. Belarus and Russia have unified duties on oil and oil products export. In Kazakhstan different duties are applied. Until this issue is resolved, there could be confusions regarding duty payments to the budget. Regulatory framework is not likely to be ready before 2015.

Therefore the Kazakh oil procession project is rather a PR campaign meant for Russian companies, than a real cooperation opportunity. Belarus needs secure oil supplies for processing. Today such guarantees can be provided by Russia only.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.

According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.

The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.

Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.

The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.

Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.

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