Belarusian potash set to continue transit via Lithuania

Belarusian potash that does not contravene EU sanctions appears set to continue to transit through neighbouring Lithuania, if the necessary financing can be secured.

Lithuania and key seaport Klaipeda are used by landlocked Belarus for exports of producer Belaruskali's potash to markets around the world.

The UK, US and Canada announced new sanctions on Belarus on 9 August, after the EU in late June finalised the legal process to impose further sanctions against the country's government.

Crucially, the EU and UK sanctions do not ban Belarus' largest export category of potash products. Potassium chloride (MOP) with a potassium content evaluated as K20 by weight, exceeding 40pc but not exceeding 62pc on the dry anhydrous product — that which falls under CN code 3104 20 50 — has not been included in the regulations.

EU officials have noted that the bloc's ban is "relatively limited" and "mild".

Despite this, reports suggested that Lithuania's transport and communications minister Marius Skuodis had said that US sanctions would lead to a cessation of Belarusian fertilizer exports through Lithuania — an EU member — from December.

But Mr Skuodis has clarified his position to Argus, through a communication from his ministry.

"The sanctions imposed by the US are being implemented by legal persons, primarily commercial banks," the statement said. "Although the US sanctions do not affect Lithuanian companies directly, the role of banks is essential in ensuring operations.

"Services are provided when they can be paid — that is the logic of business. For instance, SEB bank, which provides services according to the agreement between LTG (Lithuanian Railways) and Belaruskali, has recently informed that after the transitional period established by the US, they will cease all operations with Belarusian companies which are subject to sanctions. Other banks operating in Lithuania are stating the same.

"Therefore… we can say that cargo can be transported as long as financial institutions allow making payments under existing agreements."

BPC expects continued transshipment

In response to the initial reported comments from Mr Skuodis, BPC — which markets Belaruskali product — acknowledged that there were payment issues still to be resolved. But it said that after talks with its transport and shipping partners in Lithuania, it is confident that transshipment will continue.

"During the meetings with the leadership of the Lithuanian Railway and the BKT terminal … they expressed their readiness to fulfil the existing contracts for the transportation of potash fertilizers through the territory of Lithuania and their transhipment in the port of Klaipeda," BPC said. "The subject of termination of co-operation is not on the agenda. Currently, the work is underway with banks on the issue of payments in the context of the adopted restrictions.

"The current EU sanctions do not restrict the transit of all types of potash fertilizers. There is a corresponding conclusion — Legal Opinion — on the matter made by a European law firm, and this opinion meets the principle of freedom of transit for landlocked countries set out in the UN Convention on the Law of the Sea."

Lithuanian Railways and BKT were contacted for comment but have not responded.

The ‘extraterritorial' effect

The US Department of Treasury on 9 August directed US companies to wind down business with Belaruskali OAO, or any company that it has a 50pc or greater ownership in, by 8 December.

Belaruskali's 48pc stake in BPC falls below the Treasury's threshold, potentially enabling US importers to continue to receive Belarusian potash.

But in practice, while US sanctions have clearly prescribed legal limits, they often have an ‘extraterritorial' effect because of the importance of US financial institutions — and the US dollar — in the payment processes that underpin global trade.

The European Commission said it is "in principle" against the extraterritorial effect of the US sanctions. While sanctions against Belarus have been also coordinated with the US and the UK, EU firms are bound to comply with the EU's own sanctions. The commission is currently reviewing legislation — the EU's 1996 Blocking Statute — to make Europe "more resilient" to extraterritorial application of sanctions by third countries, notably US measures.

BPC also said it "should be noted that the EU does not recognise the extraterritorial application of sanctions and considers it to be contrary to international law". "Moreover, the limited supply in the potash market and the continuing rise in potash prices may encourage many companies to strive to support their established business," it added.

By David Maher