Boosting a Role in Belarus

Chinese loan support may ease pressure on Lukashenko.
An analysis by Michael Lelyveld
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beltransgaz-305.jpg The Beltransgaz office in Minsk, June 18, 2010.

China may be coming to the rescue of Belarus at a critical time as the cash-strapped country faces pressure from Russia to turn over its gas network by the end of the year.

During a four-day visit from China's top legislator Wu Bangguo that started on Sept. 17, officials announced a U.S. $1 billion soft loan to Belarus along with a grant of 70 million yuan (U.S. $10.9 million), the official BelTA news agency said.

While China's loan is for joint projects, it is likely to prop up the sagging Belorussian ruble, which was backed by only U.S. $4.6 billion in official reserve assets as of Aug. 31.

The currency plunged 38 percent when it was freed for trading on Sept. 14 after a similar slide last May.

China's help has been a rare ray of hope for President Alexander Lukashenko, who has been shunned and sanctioned by the international community. The autocratic leader has found few places to turn since a brutal post-election crackdown in December amid allegations of fraud.

Runaway spending before the election has been blamed for the country's dire straits after years of resisting reform. On Sept. 13, the International Monetary Fund rejected a request for an U.S. $8 billion loan, urging Belarus to show "commitment to strong policies" before seeking bailouts.

Russia has also withheld direct loans, at least until Belarus completes a deal to sell the remaining shares of its Beltransgaz gas transit system to monopoly Gazprom for U.S. $2.5 billion.

But Lukashenko knows that his control over key pipelines to Europe is one of his only levers over Russia and its gas prices, so talks over the sale have dragged on.

'A friend in need'

That may leave China as one of the country's few sources of support.

"A friend in need is a friend indeed," said Edward Chow, senior fellow in the energy and national security program at the Center for Strategic and International Studies in Washington.

While it is unclear whether China means to frustrate Russian objectives, it may now be on the ground floor for investment opportunities, said Chow.

"There are industrial assets that might be valuable," he said. "They're doing it because there's scope for long-term economic cooperation of some sort."

China may already be reaping the benefits of support. On Sept. 20, the Russian daily Kommersant reported that Belarus will allow Chinese companies to participate in the privatization of state-owned assets under an agreement with Wu, who chairs the Standing Committee of the National People's Congress.

Such a deal has yet to be signed with Russia, the paper said.

One possible interest is Belaruskali, one of the world's largest potash producers for fertilizer. Lukashenko may try to sell shares to China instead of Russia to keep it from dominating the world fertilizer market, Bloomberg News said in July.

China's U.S. $1 billion loan is meant to fund projects including an industrial park, power plants, a paper factory, a hotel in Minsk and a communications satellite, according to wire service reports.

The Export-Import Bank of China has also agreed to finance construction of an U.S. $800 million soda ash plant in the Gomel region of Belarus, Interfax reported. Belarus is already implementing over U.S. $4 billion worth of projects with Chinese loans, the government said.

Bargaining for gas

But suspicions will inevitably fall on China's support for Belarus as it draws out the bargaining for Beltransgaz, which carries some 20 percent of Russia's gas exports to Europe.

After a Friday meeting in Minsk, Gazprom CEO Alexei Miller repeated that a sale was close, but the company said a final deal may not be signed until December.

Gazprom already controls 50 percent of the shares under a 2007 deal that gave Belarus a break on gas prices. Moscow has refused further discounts until it gains control of the remaining stake.

At the same time, China National Petroleum Corp. (CNPC) has continued to resist Gazprom's price demands for its own gas supplies from Siberia after five years of talks.

Stephen Blank, research professor of national security affairs at the U.S. Army War College, said China's loans to Belarus send a subtle message to Russia that its gas prices are too high.

"This is China's way of saying, not good enough," Blank said.

During his meeting with Lukashenko, Wu cited "a rise in gas prices" as one of the challenges to Belarus' economy. All of the country's gas imports come from Gazprom.

More important than energy and investment opportunities, China can use Belarus as a source for its military programs, said Blank.

"Belarus is a very useful place for China because it's a place where China can get Russian military technology and platforms, without the Russians having to admit it or the Russians being able to control it," he said. "Having Belarus indebted to them helps them do that."

But perhaps the most striking aspect of China's growing role in Belarus is that it has not observed or deferred to Russia's interests in its neighbor as key assets come up for sale.

"The fact that it might offend Russia doesn't seem to matter anymore," said Chow.

Wu's visit to Belarus was part of a four-nation tour, including stops in Russia, Uzbekistan and Kazakhstan.


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