EU billions flow to Lukashenko despite sanctions

Lucrative oil and petrochemical contracts between the EU and Belarus help keep the former Soviet republic's economy afloat.

Belarus declared a €2.5 billion trade surplus in 2011 after trade between the two sides shot up by 76 percent in the first nine months alone.

Despite the economic hardships endured by most of the population, the country has seen a significant increase in trade with the EU over the last year - Belarus effectively doubled exports to Europe compared to 2010.

Some of the extra profit may go towards paying off its €30 billion of external debt, though an unstable currency could still be a problem.

Poverty in Minsk is hidden away - the streets are well maintained and clean, but in the back alleys and courtyards, homeless people can be seen rummaging through bins in the early morning hours before disappearing from view once again. Nobody dares to beg openly.

As import-export profits fill the state's coffers, the deterioration of living standards continues.

In Minsk, the price of meat has soared: the careful display of chicken behind shop windows has become an exercise in voyeurism for many who can no longer afford it.

While the price of food recently increased by 127.4 percent, the official average wage dropped from $530 to $353 per month. The president of Minsk's Organisation of Trade Unions says the real figure is closer to $150 per month. "People who work in the factories are earning this kind of wage," he told EUobserver.

Almost everyone is forced to work on a one-year contract, which helps keeps workers obedient to the regime. Contracts by the employer can be terminated at any moment without reason or following a phonecall from the KGB.

A deputy director of ideology staffed at every state-owned company ensures the workers understand their duty toward President Alexander Lukashenko. "His main duty is to inform on people who differ from the state line," said the trade union leader.

Meanwhile, behind closes doors in large government offices, the tight circle of the country's elite - dubbed the "regime's bagmen" - boast of huge profits with their EU business partners. At this level, their ideologue and overseer is Lukashenko himself.

Regime bagmen

Oligarchs such as Vladimir Peftiev and Yuriy Chizh have extensive European business connections.

The railway oil terminal in Zhabinka near Brest in Poland officially belongs to the state-owned enterprise Belspetsvneshtechnika but is allegedly connected to Beltechexport, the weapons defence firm owned by Peftiev.

Aside from receiving, storing and shipping petroleum products at its Zhabinka terminal, Belspetsvneshtechnika is also one of the leading companies in the Commonwealth of Independent States specialising in the export and import of armaments, military equipment and other hi-tech products and science-intensive technologies.

Meanwhile, Chizh's Belneftegaz, NeftekhimTrading and Neonafta facilitate Belarus oil-based product trade in Europe. Neonafta is located in northern Belarus near the Polotsk river that flows from Russia all the way to Latvia and finally the Baltic Sea. The company sells diesel via Lithuania’s port of Klaipeda, from where it is shipped to the Netherlands and UK.

Some of the oil-based products exported by Chizh are also said to go through the railway terminal in Zhabinka. In Latvia, Chizh owns the Mamas-D biodiesel factory, established in 1992.

Belneftegaz is based off the Pripyat river in Mozyr where the world's longest pipeline, the Druzhba, carries crude oil from Russia to be refined into petrol. The pipeline has a 2 million barrels per day (bpd) capacity, most of which goes to Europe, while around 0.5 million bpd stays in Belarus.

Belneftegaz also sells low-octane fuel to Ukraine and diesel to Poland, while NeftekhimTrading supplies paraxylene to the Netherlands.

Altogether, around 30,000 people in Belarus work for these companies, according to Fedynitch Gennadi, chairman of a Minsk-based trade union. He believes that EU sanctions against these companies would cripple Lukashenko. "We are 10 million in Belarus. We already live under sanctions - Lukashenko's sanctions," he told EUobserver in Minsk.

Peftiev and Chizh recently went on the EU's visa ban and asset freeze list together with 29 individual companies. But just one of the firms listed above - NeftekhimTrading - was put under the EU ban. Their holding companies - Beltekh Holding and LLC Triple - are also on the list. But this does not affect subsidiary firms, such as Chizh's Elite real estate company or others.

Belarus welcomes EU money

At a press conference in Minsk at the end of December, Lukashenko described healthy business relations with Europe as one of his crowning achievements in 2011, regardless of the EU sanctions on literally hundreds of his officials.

"Paradoxically, more economic support for the regime in 2011 has been coming not from the east, as most people believe, but from the west" said a recent study by the Moscow-based Committee on International Control, a human rights organisation specialising in Belarus.

The country ranked only 41 in 2010 as an EU trade partner, just below Iraq. But to Belarus, EU trade represented 30 percent of its total exports, most of which came in the form of fuels and mining products.

One senior EU official told EUobserver that Belarus is now seeking to open and expand its trade with Europe, focusing on transport, pharmaceuticals and nano-technology.

A source within the fragmented opposition - who wants to remain unnamed - told this website in Minsk that today half the country's trade is with the EU. "Oil products are directly connected to the Lukashenko family and [the income] is used for repression," he said.

Wealthy businessmen in Belarus pay into a presidential fund, which is used at Lukashenko's discretion. During election years, the fund balloons to almost $1 billion, though some believe it could be nearly eight times the amount.

Alaycsandr Makaev, deputy-chair of the Co-ordinating Council of Individual Entrepreneurs in Belarus, told this reporter in November that the fund is used to extort money and ensure loyalty from the business elite. "This fund payout is typical to all companies here," he said, adding that even Chizh spent a few days in jail in 2008 for "insubordination."

Black gold flows through Europe

Outside Russia, the Belarus National Statistics Committee says its number one trading partner is the Netherlands. Belarus does not produce oil but instead refines or sells off heavily subsidised Russian crude to other countries, including EU member states.

Belarus says it exported $4 billion to the Netherlands in 2011, more than twice the amount traded in the first nine months of 2010.

"The Netherlands is the second trade partner after Russia. One of the reasons for it is very efficient end professional Belarusian diplomats working in this country. Today, the ambassador there is Alena Gritsenko, former head of the [foreign ministry]," Raman Yakauleuski, a prominent Belarusian political observer, told EUobserver.

Yakauleuski says Gritsenko's predecessor in the Netherlands, Vladimir Gerasimovich, was also the former deputy minister of foreign affairs and a KGB colonel who once headed the external intelligence department.

EUobserver was unable to verify the statistics with the Dutch ministry of economic affairs. Based in The Hague, the ministry has a desk officer dedicated to Belarus but after three weeks of enquiries, it only provided a link to the Statistics Netherlands registry on bilateral trade data. The statistics do not disclose transit trade, which makes up the bulk of its commercial activities with Belarus.

The Statistics Netherlands registry shows the Dutch did not import, trade or transport any energy products from Belarus in 2010. But the numbers are misleading.

"The imports of oil reported in statline [database] are based on the country of origin where the oil comes out of the ground," a spokesman of the Netherlands Statistics Office told this website in an email. The registry shows The Netherlands imported 33 million tons of oil from Russia in 2010.

The Port of Rotterdam's business development manager was more forthcoming. He told EUobsever that Belarus' two major refineries sell products within the EU because its production exceeds domestic demand.

"Some tonnage is sold within Netherlands, diesel. From the Netherlands, it is shipped to mainly the far east," he said.

Nikolaj Nielsen, EUobserver