The business dispute roiling the global potash market escalated after Belarus accused top executives at Russian producer OAO Uralkali (URKA) of a criminal scheme, threatening to embroil both governments in a conflict that could cause broader economic and political damage.
Belarus officials detained Uralkali Chief Executive Officer Vladislav Baumgertner after inviting him to Minsk for talks. He’s still chairman of Belarusian Potash Co., the joint venture with state-owned Belaruskali that the Russian company said July 30 it was withdrawing from.
Baumgertner was charged with abusing his office at the venture and could face as many as 10 years in prison if found guilty, Pavel Traulko, a spokesman for Belarus’s Investigative Committee, said yesterday by phone.
Belarus officials have issued warrants for the arrest of four more Uralkali executives, accusing them along with Baumgertner of a scheme to cut Belaruskali out of decision-making at the venture, causing damages and losses of about $100 million.
Uralkali, the world’s largest potash producer, quit BPC last month over a dispute about foreign sales. The Russian company is better positioned to go it alone outside the venture, which had controlled more than 40 percent of global exports, because it has the lowest costs of any major producer. Potash is used by farmers to help crops resist drought.
Uralkali has said potash may drop to less than $300 a metric ton, from about $400 in the first half, as it exits BPC and steps up output to gain market share. Prices may already be falling in Brazil, where Soc. Quimica & Minera de Chile SA is in talks to sell the fertilizer at a discount of as much as 10 percent compared with July, two people with knowledge of the process said yesterday.
A price drop is unwelcome news for Belarus, a country of 9.5 million people, where revenue from its potash industry accounts for almost 20 percent of the budget.
Belarus has a history of economic and political disputes with its much larger neighbor. Russian crude oil imports were briefly cut off in 2011 after the countries failed to agree on price.
Baumgertner’s arrest “crosses every line,” Russian First Deputy Prime Minister Igor Shuvalov told reporters yesterday. Russian Prime Minister Dmitry Medvedev ordered the government to resolve the situation with Belarus, Shuvalov said. The move is “inappropriate and not like a partner’s.”
Uralkali issued a statement denying the allegations against Baumgertner. The act was an “outrageous provocation,” Alexander Babinsky, a company spokesman, said by phone. The CEO traveled to Minsk at the invitation of Belarusian Prime Minister Mikhail Myasnikovich and was detained at the airport after their talks, he said.
“This will make it difficult for the two to get back together in any kind of trading venture,” Boris Krasnojenov, an analyst at Renaissance Capital in Moscow, said by phone. “Belarus may be pushing Uralkali to split markets between them after the breakup of the venture.”
Uralkali dropped 3.5 percent to 157.62 rubles in Moscow yesterday, the biggest decline since Aug. 5. The situation is “painful” for the company because it’s starting talks with customers for next year’s supply contracts, Konstantin Yuminov, an analyst at ZAO Raiffeisenbank in Moscow, said by phone.
Belarus may be pressuring Uralkali to give it at least the option to sell potash to China this year, Elena Sakhnova, an analyst with VTB Capital in Moscow, said by phone.
Outside Russia, investors bought potash stocks on speculation the latest development means there won’t be a “race to the bottom” on potash prices, Horst Hueniken, a Toronto-based money manager at Dundee Corp. (DC/A), said by phone.
Potash Corp. of Saskatchewan Inc., North America’s largest producer, climbed 2.3 percent in New York yesterday while Calgary-based Agrium Inc. (AGU) rose 3.2 percent and U.S. competitor Mosaic Co. gained 1.2 percent. Israel Chemicals Ltd. (ICL) advanced 2.7 percent in Tel Aviv.
The other four Uralkali employees being pursued by Belarus include Oleg Petrov, the company’s director for marketing and sales as well as a BPC board member. Belarus is seeking the help of Interpol, Traulko said. The country plans to seize Uralkali property and other assets, Interfax reported yesterday.
“We’re not talking about separate criminal incidents,” Traulko said by phone. “Officers of the law discovered a whole criminal scheme and an intricately thought-out strategy to implement over many years.”
Investigators are probing whether Russian billionaire Suleiman Kerimov, Uralkali’s biggest shareholder with a 22 percent stake, is involved, Traulko said by phone. Anton Averin, spokesman for Kerimov’s investment company Nafta Moskva, declined to comment.
Belaruskali CEO Valery Kirienko said Aug. 19 that his company and BPC opposed Uralkali’s strategy and would seek an investigation. He said the Russian managers at BPC had fled Belarus, leaving their belongings behind, and “were afraid to return for some reason.”
Alexander Lukashevich, a Russian Foreign Ministry spokesman, said yesterday he’s aware of the issue and declined to comment further. Olga Dolgaya, Myasnikovich’s spokeswoman, didn’t immediately answer phone calls seeking comment.
The Russian Embassy in Minsk sent a note to Belarus’s Foreign Ministry asking for a meeting with Baumgertner, Interfax reported yesterday, citing embassy adviser Vladimir Marchukov.