Belarusian Railway Offers to Ways to Deliver Potassium Through Ust-Lug. Problems Arose

• 7.09.2021, 11:46

The US sanctions are designed in such a way that any attempts to circumvent them are impossible.

Nasha Niva received documents from Belarusian Railways proposing an alternative route to Russia's Ust-Lug instead of Klaipeda. They plan to transport oil products and potash after the Lithuanian side said it would stop shipments via Lithuania.

Background

Most Belarusian potash fertilizers are exported through the port of Klaipeda. Fertilizers are transshipped through a special terminal Biriu kroviniu terminalas. Belarus has owned 30% of the terminal since 2013.

In early August, Lithuania said it might stop the transit of Belarusian fertilizers from December. Following the Lithuanian statement, the Belarusian authorities said they were considering alternative supply options. These include Murmansk and the port of Ust-Lug in the Leningrad Region.

Belarusian Railways estimates the increase in delivery price at three to four dollars per tonne

The documents available to Nasha Niva say the Belarusian Railway is considering options for the transportation of potash through Russian ports.

Thus, when transported through Russia, the distance to the ports stretches to 1096 kilometres (500 kilometres of it in Belarus) instead of 715 kilometres (287 kilometres of it in Belarus) to Klaipeda.

It would seem to be advantageous for Belarusian Railways, as the distance is increasing, which means higher revenues for higher tariff (regulated by the MART) multiplied by the weight of cargo and distance.

But things are not so simple in the mutually intertwined state economic system.

According to official information, Belarusian Railways estimates the increase in delivery price at $3...$4 per tonne. At the same time, it is not known how this increase is calculated.

Longer route and change of railways means at least several things. Firstly, the capacity of the railway in the direction of St Petersburg is modest, there is the so-called "single track" - one track for reversible traffic. In the direction of Lithuania, there are two railway lines.

On the way to Klaipeda, both Belorussian and Lithuanian sides electrified lines, trains are pulled by electric locomotives. In the direction of St. Petersburg, there is no electrification on either side. One will have to use diesel, which considerably increases the cost.

In 2015, Vladimir Morozov, director of Belarusian Railways, said "the cost of freight transportation on electrified sections is almost 20% lower compared to those where diesel traction is used".

Currently, Belarus is electrifying the line from Svetlogorsk to Barbarov (MNPZ), and then there were plans to electrify the line Baranovichi - Luninets - Sitnitsa (Granit) section. It seems that these plans may change and forces will go to Russian destinations.

Besides, the turnover of carriages will change. The time spent in transit will extend. It is not known whether Belarusian Railways have enough carriages for the transportation of petroleum products and fertilizers after the change of transportation routes.

In their letter to "the top" the railway workers hint at the need to seek discounts

Given the existing scheme of cross-subsidization, when revenues from potassium transportation covered unprofitable transportation of passengers, as well as construction, agricultural and other freight, problems may arise in those areas as well.

Today, the financial state of the Belarusian Railways is bleak: it is an organization with negative net assets, which generated a net loss of 109 million rubles in 2020.

In their letter to the "top", the railroad workers hint at the need to seek discounts from Russian ports - Lithuanian ports are cheaper. It is unclear what will come of it. According to the simple business logic, when the Belarusian side has no alternatives, the likelihood of a discount from the monopolist looks doubtful.

As for Belaruskali, given the rise in potash prices, a three to four per cent increase in costs per tonne does not seem critical from a financial point of view.

But two more fundamental points are still unclear.

"It is unclear whether there is spare transhipment capacity at Russian ports. The expert says the ports are already overloaded, and the new transhipment capacities for potassium fertilizers have already been reserved by Uralkali", says Katerina Bornukova, the Academic Director of BEROC.

It should be recalled that back in this March the Belarusian authorities expressed their intention to build their terminal in Ust-Lug. However, the fate of these intentions is still unknown.

The second important point: the very reason why Belarusian Railways and Belkali have to seek alternative routes is the Western sanctions.

Economist Ales Alekhnovich explains that the American sanctions are designed in such a way that any attempt to circumvent them is impossible.

"If we discuss potassium transhipment, it's not just Belkali and BRR involved. It is also the port itself, the companies involved in loading and unloading, the companies directly involved in shipping. Many major players will not risk cooperating with Belarus, as well as the buyer will have to seek opportunities to pay for the goods in dollars and euros. Therefore, against the backdrop of rising logistics costs, the discount to performers for risks will increase," Alekhnovich said.