The CEO of Russia's Uralkali, the world’s largest potash producer, has been detained and charged in Belarus for at least two months, and could face up to 10 years in prison for cutting out its Belarusian fertilizer partner.
The Uralkali head is being held at 'Amerikanka', a Soviet-style
former KGB detention center in central Minsk, Bloomberg reports.
Baumgertner is charged with 'abusing power' as chairman of Belarusian Potash Co. 'Belaruskali' and causing damages of about $100 million.
Uralkali shares tumbled on trading floors in London after news of
the arrest went mainstream, losing 5.96 percent to $23.20 per
share at 10:41am BST.
Potash is a key ingredient in fertilizer farmers use to protect
their crops from drought. Prices have fallen more than 5 percent
since Uralkali withdrew from its trade venture with its neighbor,
breaking up its world-wide pricing consortium overnight and
causing potash stocks to crash.
The Uralkali CEO's lawyer and mother were due to arrive in Minsk
Tuesday, and Baumgertner's lawyer has not been identified.
"As the investigation continues, this time period may be extended and other punishment applied,” said Pavel Traulko, a spokesman for Belarus’s Investigative Committee.
Russia's Deputy Foreign Minister Grigory Karasin warned
Belarus that the arrest of the chief executive of Uralkali could
strain diplomatic relations between the two neighbors.
The Russian Embassy in Belarus has requested a meeting with
Baumgertner, but so far there has been no response, according to
Russian embassy advisor Vladimir Marchukov.
A meeting could take place later Tuesday, as the Uralkali CEO’s
lawyer and mother are due to fly to Minsk.
If found guilty, Uralkali assets and property could be
confiscated by the Belarusian government.
Belarus law enforcement officials have issued warrants for four
other top Uralkali executives: Oleg Petrov, director of sales and
marketing; Konstantin Solodovnikov, first deputy general
director; Igor Evstratova, deputy general director for finance;
and Dmitry Samoilov, head of the freight division.
The officials are believed to be in Moscow and Interpol has been
informed of the warrants.
"The grounds for prosecution were that they have committed an
abuse of power for private gain, that caused substantial harm to
state and public interests of the Republic of Belarus, as well as
the large scale damage to Belaruskali and BPC," the
Investigation Committee identified criminal charges in a
statement.
'Crude provocation'
The arrest has escalated the cross-border dispute between the two
largest potash companies from the former Soviet Union.
Russia hasn't responded kindly to the detention, and Prime
Minister Dmitry Medvedev has sworn to resolve the matter using
all available means.
"What happened today is beyond all bounds. We think this is a
very strange situation, given the nature of our
relationship," Russia's Deputy Prime Minister Igor Shuvalov
said.
Uralkali’s spokesman Aleksander Babinsky described Monday’s
arrest of the CEO as a ‘crude provocation of Belarusian
authorities' and is 'appalled'.
Uralkali unilaterally announced the end of its 8-year trade
agreement with the Belarusian potash company, breaking up the
world-wide pricing consortium in favor of exporting from its own
unit in order to bolster its market position over time.
“I will never agree to form a joint venture with
Uralkali,” Belaruskali CEO Valery Krienko told reporters on
Monday.
Trading disputes arose when Belaruskali started selling outside
of the joint venture, which caused the Russian company to
suddenly quit the consortium on June 30.
In December, Belarusian President Aleksander Lukashenko,
nicknamed Europe's 'last dictator' cancelled Uralkali’s exclusive
right to Belaruskali’s production.
On July 25, just days before Baumgertner quit the venture, Lukashenko appointed Elena Kudryavets as the new company director, and she was tasked to ‘not lose the Russian company’
Stacked deck
Baumgertner is facing criminal charges of “abuse of power” in his role as chairman of the Belarusian operation, as his decisions are viewed as only benefiting Russian parties.
"They were double-dealing, or rather triple-dealing and cheating in the self-interest… of the Russian shareholders," a spokesman for the Belarusian Investigative Committee, Pavel Traulko, told Interfax.
The July 30 breakup of the Russian-Belarusian consortium caused the price of potash to fall worldwide, hurting both Uralkali’s and Belaruskali’s market capitalization. Belarusian prosecutors are alleging that, in advance of the breakup, Russian affiliates were able to use their inside knowledge to sell off stocks.
In the game of Russian fertilizer roulette, key billionaire shareholders cashed out before the sudden split that led to a fall of nearly 25 percent in Uralkali’s market capitalization. In June, shareholder Zelimkhan Mutsoev sold his 6.4 per cent stake back to the company for $1.3 billion, while Aleksnder Nesis sold off a 5 percent stake over a two-month period before the break with Belaruskali.
Suleiman Kerimov, formerly the majority shareholder in Uralkali, nearly halved his holdings in Uralkali in the last year. In August 2012, Kerimov held a 55.3 percent stake in the potash giant, but his stake was estimated at just 17.16 percent at the time of the breakup of the cartel, on July 30.
Baumgertner previously told Bloomberg News in an interview that the price of potash may fall below $300 per ton. In 2009 prices were over $900 per ton.
“If the share prices of potash companies are plummeting, this
makes it easier for Russians to take over Belarusian
producers,” said Forbrig, a senior program officer at the US
German Marshall Fund in Berlin, told Bloomberg.
“If share prices of potash companies are plummeting, this makes it easier for Russians to take over Belarusian producers.”
State-owned Belaruskali has been the country’s most profitable company, and accounted for nearly 6 percent of total exports. Before the July consortium breakup, the former Soviet Union’s two largest potash companies controlled 40 percent of global potash exports, effectively controlling prices in the $20 billion market.