2021.11.24 15:29

Lithuania gears up for losses as US slaps sanctions on Belarusian company

Roma Pakėnienė, BNS2021.11.24 15:29

Belarusian fertilisers make up a bulk of business for Lithuanian transportation and stevedoring firms – but as US sanctions come into effect next month, it is still unclear how they will cope with the loss of revenue.

Last August, the United States introduced sanctions on Belaruskali, the Belarusian state-owned firm which is one of the world's largest producers of fertilisers. It has been exporting via Lithuania's port of Klaipėda for more than a decade, but December 8 is the deadline given to businesses to get ready and wind down their transactions with Belaruskali.

Experts surveyed by BNS almost unanimously agree that none of the banks operating in Lithuania, including those that do not directly deal with the US, will finance deals with Belaruskali as they will not want to risk their reputation.

However, a small bank or a fintech company might take the risk of funding deals with Belaruskali, observers say.

Sources have told BNS that Lithuanian Transport Minister Marius Skuodis met with representatives of the US Department of the Treasury during his visit to the United States in early October and discussed sanction application issues. That was the key goal of the minister's US visit.

The minister has refrained from commenting on this meeting, but says a lot of uncertainty still remains regarding the US sanctions, differently from the European ones, adding that countries need to assess risks themselves.

“The European sanctions are fairly clear, but many discussions still continue regarding the US sanctions. Moreover, everything might change in one day, and the US and the EU might introduce new sanctions if nothing changes [in Belarus],” Skuodis told BNS.

Lietuvos Geležinkeliai (Lithuanian Railways, LG), the country's state-owned railway company, is set to lose around a quarter of its cargo traffic, once the flow of Belaruskali products stops.

Its CEO Mantas Bartuška says that, theoretically, the sanctions by the Office of Foreign Assets Control (OFAC) do not apply to Lithuanian firms, and LG was told this by OFAC officers themselves.

“During the conversation, we were assured and explained that in the current scope, if the chain does not involve US entities, the sanctions do not apply [to Lithuanian businesses],” Bartuška told BNS.

Moreover, he added, Belaruskali pays for LG services in euros, not US dollars.

Sources say a lot of things will also depend on Yara, a Norwegian company that is one of the largest buyers of Belaruskali fertilisers, purchasing around 2 million tons a year. It is inclined to continue buying Belarusian fertilisers that transit via Lithuania and its port of Klaipėda.

Yara has refrained from official comments, but sources have told BNS the company is still assessing risks and has not made the final decision yet.

Fertilisers might still be moving

Some experts say Belarusian fertilisers are likely to continue moving via Lithuania for some time after December 8, but the transit will stop next year.

“Some deals might already be signed and advance payments might be done, and the time buffer might be longer,” Algis Latakas, CEO of the port of Klaipėda authority, told BNS.

“Nothing will stop moving on December 8 yet,” one source told BNS on condition of anonymity.

Latakas is convinced that the inflow of Belaruskali fertilisers to Klaipėda will stop next year.

Minister Skuodis says the government is analysing several possible scenarios of how the sanctions will affect businesses and government revenue.

“Macroeconomically, the impact on Lithuania's economy will be small, minimal. Three companies – LG, the port of Klaipėda and Birių Krovinių Terminalas (Bulk Cargo Terminal, BKT) – will be hit the most. Possible impact on LTG Infra [the state-owned company managing Lithuania's railway network] is also in my focus,” Skuodis told BNS.

In his words, LG's new strategy is based on operations without Belarusian fertilisers. “That's the base scenario,” he said.

LG CEO Bartuška says that once the fertiliser transit stops, LG is estimated to lose around 60 million euros in revenue. Therefore, the company will have to review its service rates, he added.

Bartuška agrees that a lot of uncertainty remains, as the flow of Belaruskali cargo will depend on.

“We are speaking with Lithuanian banks and also banks outside Lithuania and we are now evaluating the situation,” Bartuška told BNS.

Asked whether LG is in contact with Yara or other buyers of Belaruskali, Bartuška said that his company was primarily looking for its own solutions.

LG signed its current contract with Belaruskali in the spring of 2018 and it is valid until the end of 2023. But the Lithuanian company refrains from commenting on its specific provisions.

Belaruskali fertilisers account for around four fifths of all rail freight in Lithuania. LTG Cargo carried around 53 million tons of cargo last year (24 million tons in the first half of this year) and received 397 million euros in revenue (177 million euros this year).

No comment from BKT

BKT, a Klaipėda-based stevedoring company which is owned by Igor Udovickij and Belaruskali and handles around 11 million tons of Belaruskali fertilisers annually, has also refrained from comment about the expected impact of the sanctions.

Latakas, the CEO of the port of Klaipėda, which is set to lose around 20 million euros in annual revenue once fertiliser exports stops, says prior EU and US sanctions for Belarus led to a drop of 11 percent in cargo volumes in the first nine months of this year, pointing out, however, that the flow of Belaruskali fertilisers rose 4 percent.

“Belaruskali fertilisers were moving steadily, with a small growth rate. And BKT was under development since Belaruskali has been increasing its production capacity every year, and if everything remains normal, those volumes would growth every year,” Latakas said.

Belaruskali bought a 30-percent stake in BKT in 2013. Up until then, the Belarusian company had been BKT's biggest client, accounting for 85-95 percent of its business.

Belaruskali exported 1.4 million tons of fertilisers via Klaipėda in 2009, and the volumes rose to 8.1 million tons in 2017, accounting for 98 percent of BKT's total handling volumes. They further grew to 10.7 percent in 2020 (98 percent).

BKT executives told BNS earlier they planned to increase the terminal's annual capacity from 12 million tons to 16 million tons in 2024-2025.

Last year, Klaipėda handled 15.8 million tons of Belarusian cargo. It has already lost around 2 million tons of oil products so far this year, as well as up to 1 million tons of products from the Grodno nitrogen fertiliser plant.

Latakas points out that Klaipėda no longer includes Belaruskali cargo into its 2022 plans, meaning that its handling volumes are estimated to drop around 30 percent.

“It's a huge loss. And nothing will plug that hole quickly. Those volumes have been growing since around 2010 or even before that, by around 1 million tons a year. So we can understand how many years we might need to grow to cover for it. We have huge expectations for containers, agricultural and ro-ro cargo,” Latakas said.

Under the OFAC order of August 9, any transactions with Belaruskali or any other company with Belaruskali's direct or indirect ownership of 50 percent or more, need to be wound down by 19:00 Lithuanian time on December 8.

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