EDITOR: | October 29th, 2013 | 3 Comments

The Eastern European potash war continues, and it’s not ending anytime soon

| October 29, 2013 | 3 Comments
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Under house arrest in Belarus, Uralkali CEO Vladislav Baumgertner.

On July 29th, as I began my seemingly endless journey home after leaving Weslosky’s downtown Toronto office, I had a long telephone conversation with a CEO of one of the more advanced-stage junior potash companies. As usual, we talked for a few hours and although we touched on the subject of potassium chloride’s spot price, the real crux of the call was the current economic climate, raising money and some of the strategies that had to be employed to stimulate interest by sophisticated international investors. We both agreed, however, that because of Belarusian Potash Co. (BPC) and the lucrative duopoly’s price-over-volume policy, at least there would always be a floor in the global price of potash. And that was a great thing. I believe I even said something to the effect of: “You’ve got to emphasize the stability of price… and obviously that [BPC’s pricing strategy] will never change. Remember, no major corporation would act against its own self-interest.” In less than 24 hours I would realize how incredibly wrong I was.

The ongoing potash war between Belarus and Russia, which has affected all potash companies — from the largest powerhouse players to the most junior of juniors — continues. And apparently it’s not ending anytime soon. The question is, when will prices for the essential crop nutrient stabilize?

So buckle up and fasten your chinstrap… it’s going to be a bumpy ride as we recap some of the recent events since Russian Uralkali’s July 30th decision to rock the potash world by dissolving its BPC partnership with Belarus’ Belasrukali. As most InvestorIntel readers know, BPC controlled more than 40% of global potash exports. Uralkali publicly stated that it would sell potash on its own — focusing on maximizing production – vowing to cut prices to boost volumes. Subsequently, in a severe over-reactive panic by investors, share prices of all potash companies worldwide were (and still are) negatively affected.

Belarus' President Lukashenko speaks to reporters after a meeting with the Knights of Malta at their headquarters in Rome

Belarusian President Alexander Lukashenko.

On August 26th, less than four weeks after Uralkali’s devastating blow to the potash industry, its 41-year-old CEO Vladislav Baumgertner (who also chaired the supervisory board of BPC) was invited to Minsk, Belarus to meet with the country’s Prime Minister Mikhail Myasnikovich and discuss his company’s unexpected withdrawal from the BPC trading venture. I guess the meeting didn’t go as the Belarusians had planned. After talks had concluded, Baumgertner was arrested at the Minsk airport and charged with “abuse of office” over the BPC cartel’s termination, as he was preparing to fly back to Russia. Belarus is absolutely infuriated by the Uralkali the move — potash accounts for 12% of Belarus’ state revenues, approximately 10% of export income and, as a result, the collapse of the BPC sales alliance has caused severe economic damage to Belarus. Baumgertner is still under arrest in Belarus. He spent a month in a KGB prison, but after an appeal from the Uralkali CEO’s mother to Belarusian President Alexander Lukashenko, Baumgertner was moved to a rented apartment in Minsk and placed under house arrest — kept under surveillance by KGB operatives. Uralkali has called the arrest of Baumgertner a provocation and has denied wrongdoing.

President Lukashenko revealed earlier this month that the charges against Mr. Baumgertner had been amended to also include embezzlement. On October 21st, President Lukashenko warned that Mr. Baumgertner would be extradited to Russia only if Uralkali compensated Belarus for the damage (allegedly) caused by the executive’s actions. “Until we get more damage, let them compensate for this amount,” he told media leaders in Minsk. “If they compensate us for the damage, we will make some moves to hand over Baumgertner, who is loved by you and the Russian people [to Russia].” Previously, Lukashenko said his country could hand over Baumgertner as long as Russia took steps to prosecute him.

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KGB Headquarters in Minsk, Belarus.

And it gets weirder. A lot weirder. An ongoing effort to improve soured Russian-Belarussian relations has come under threat after reports surfaced that Belarussian KGB tried to arrest and abduct a Russian citizen in downtown Moscow. Yesterday, Russian daily Novaya Gazerta reported that Dmitry Samoilov, a senior executive with Uralkali, was accosted by four men at Moscow’s Leningradsky train station on October 25th while traveling to St. Petersburg. According to the paper, the KGB officers arrested Samoilov, who offered resistance. Russian police freed Samoilov after a well-timed shout for help as he was being led away. Although the KGB officers reportedly produced a Belarusian arrest warrant for Mr. Samoilov, they were told by Russian police officers that they had no right to apprehend the manager in Russia. No charges were filed against the four men; however, they were reportedly advised not to repeat their attempts to make arrests outside Belarus. According to Russian media sources, the Belarussian KGB called the incident a “provocation.” Moscow police said that they could not confirm the report and, not surprisingly, the Belarusian KGB denies the story.

But Uralkali isn’t taking any chances. Apparently ambushing and arresting one senior executive is enough. Early this morning, Russian newspaper Izvestiya reported that Uralkali’s security service is guarding senior managers to prevent arrest by Belarusian KGB. Belarus has launched criminal proceedings against three other Uralkali senior executives who combined their duties in Uralkali and BPC. In fact, the three managers in question, Konstantin Solodovnikov, Igor Yevstratov and Dmitry Samoilov, who hold Russian citizenship and live in Moscow, have recently noticed unknown men watching their houses from cars parked on the streets and following them when they travel in their own vehicles.

In what is widely viewed as an effort to appease Belarus, Russia opened its own criminal investigation into Vladislav Baumgertner for abuse of power in mid-October and demanded his extradition — a move some observers think could be a way of returning him to Russia before dropping the charges against him entirely. But Belarus stated yesterday that the authorities in Minsk had extended a criminal investigation into Baumgertner’s case by another two months.

Belaruskali has said a reconciliation won’t be possible unless the Russian company, the world’s largest producer of potash, changes its strategy and/or owner and President Lukashenko has expressed the hope that the lucrative partnership can be re-formed if there is a change in Uralkali’s ownership. He has estimated losses to Belarus from the cartel’s collapse to be between $1.5 and $2.0 billion.

Belarus has also called for the arrest of Russian billionaire and Uralkali’s top shareholder Suleiman Kerimov, who has since held talks on selling his stake (although a sale has yet to be formalized), people familiar with the matter have said. There has been intense lobbying by Russian businessmen to buy the 21.75% stake in Uralkali held by Kerimov (Kerimov values Uralkali at $20 billion). Vladimir Evtushenkov, owner of the Russian oil-to-telecoms conglomerate Sistema, last week became the first person to publicly state interest in owning a stake in Uralkali.


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Comments

  • Tracy Weslosky

    This is quite the melodrama — and is not in the best interest of our sector. Who has the influence to step in and mediate this crisis? The line that stood out to me in the above was as follows: “The ongoing potash war between Belarus and Russia, which has affected all potash companies — from the largest powerhouse players to the most junior of juniors — continues. And apparently it’s not ending anytime soon. The question is, when will prices for the essential crop nutrient stabilize?”

    We are all affected here…

    October 29, 2013 - 11:50 AM

    • Ty Dinwoodie

      Why are we not talking (far) more about potash as it relates to food scarcity? I truly believe that food scarcity as is one of the critical factors the economic gurus have ignored.

      November 4, 2013 - 11:36 AM

  • J. Best

    This was a really good article Ty, interesting and full of drama but at the end of the day Tracy said it best– ‘we are all affected here’. This may make a good story but not a good reality. Time for this to end. Looking forward to your next offering.

    October 29, 2013 - 2:25 PM

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