Oil is now like a magic wand of the Belarusian economy. Plus fertilizers and petrochemical products. The respective producers operate under one roof: the Belarusian State Petrochemical Concern, or Belnaftakhim. It is a holding that brings together 78 companies critically important for Belarus. The most precious ones, like Belarus' family silver, among them are Naftan, an oil refinery in Mazyr, Hrodna Azot, Belaruskaly and others.
The Belnaftakhim management recently unveiled its vision of the concern's development. Since its place is unique in the Belarusian economy, the development of its constituent companies has great importance for the country. Belnaftakhim's enterprises employ a total of about 120,000 people, 2.8 percent of the country's workforce, produce about 19 percent of total industrial output and account for 25 percent of the Belarusian exports. Consumers of as much as 70 percent of their products are foreigners. Last year their production amounted to 19 trillion Belarusian rubels in current prices, or 30 percent of GDP, a 7.9-percent increase year-on-year. However, the forecast of growth was 10 percent. The year-on-year growth in 2004 was 14.8 percent.
In actual prices and taking into account industrial producer price index (110.2 percent, December 2005 to December 2004), there is a decline in production in value terms. Still, Belnaftakhim ranks first among other concerns and ministries in terms of physical production. Enterprises under the Ministry of Industry made products valued at 7.6 trillion less in 2005 in comparison with Belnaftakhim. The stability of the Belarusian model is to a great extent linked with the operation of this concern.
The government cannot fully count on the continuation of Russian oil supplies on the terms of 2004 and 2005. The fact is that Russia needs to achieve its own targets concerning GDP growth and revenues of public budget. The Russian government's pressure on the country's exporters to sell oil for world prices is likely to grow. Rosneft can take the same position with regard to the export of crude oil to CIS countries as Gazprom took with respect to gas. Thus, having enough raw materials for two large Belarusian oil refineries can become a problem. The two of them account for 58 percent of the concern's output. Belaruskaly gives another 16 percent and Belarusnafta - just three.
The forecast that gas prices will grow in the future also causes concerns in Belnaftakhim. The higher prices can seriously hit chemical enterprises in Hrodna and Mahilyow. Belnaftakhim would face serious problems. And if it gets even a minor sickness, it will bring about dangerous disease complications for the entire economy. The Belnaftakhim leadership suggests strengthening cooperation within the sector, diversifying sources of raw materials and introducing new technologies. The concern's companies plan to launch 15 new productions. Belnaftakhim is going to expand the network of its filling stations all over the country. There are 647 filling stations in Belarus, and 398 of them belong to Belnaftakhim. The concern intends to build 165 new stations by 2010.
All the planned investment projects are going to cost $3.8 billion, which is by 46 percent more expensive than in the previous five-year period. As many as $935 million is to be invested in oil production, $997 million - in oil processing, $1.581 billion - in petrochemical industry, and $315 million - in pipelines.
Considering also other costs, which are not included into the concern's development programs, Belnaftakhim is going to spend $4.5 billion in 2006-2010, or 70 percent more than in 2001-2005. Seventy-nine percent is expected to be taken from own resources, eight percent to be made available as loans, nine percent will come from the concern's centralized funds and four percent from other sources.
There are no plans of privatizing Belnaftakhim companies. The hope of Russian investors to but stock in the sector does not yet have solid grounds. As a result of using planned investments, the concern expects to increase oil processing to 24 million tons per year and production of gasoline and diesel to 4.9 million tons (by 47 percent) and 9.2 million tons (by 42.8 percent), respectively. The production of mineral fertilizers is expected to reach 5.9 million tons per year (by five percent), including nitrogen fertilizers by 15.6 percent, potash fertilizers by 2.4 percent and phosphorous fertilizers - by 33.3 percent. The production of synthetic yarn is going to be reduced by 10.6 percent to 193,400 tons. At the same time, the production of cord is to grow by 42.4 percent. Also, Belarus should increase the production of tires to 4.2 million tires per year (by 42.3 percent).
If everything goes according to the Belnaftakhim plan, its companies will produce much more of benzene, paraxylene and ortoxylene. They will also start making Euro-4 and Euro-5 gasoline and European-standard diesel. However, Belaruskaly and Belarusnafta cannot secure substantial growth of industrial products because of depleting reserves of potash and oil. This means that one source of hard currency proceeds is getting dry.
The concern's plans are certainly ambitious. Their implementation is based on the questionable expectations that Belarusian products will continue to be in high demand in external markets and that the conditions of trade with Russia will remain the same. Belnaftakhim's strategy does not take into account the growing competition on traditional sales markets. Moreover, it is not likely that Belnaftakhim made any adjustments with a view to increases in prices for crude oil. And of course, the strategy does not consider business cycles of other sectors of the Belarusian economy.