How Much Longer Can They Pump Huge Money Into Unprofitable Enterprises?

• 15.02.2022, 20:01

This question has become more acute.

Analysts have repeatedly wondered: why are many flagships of the Belarusian industry burdened with unsustainable debts? Materials sometimes appear in the media that partly shed light on this problem, Narodnaya Volya writes.

Thus, the Decree of the Council of Ministers of the Republic of Belarus dated January 3, 2022 #1 “On the payment of interest for the use of bank loans” has been made public. Here are some of its fragments: “To pay in 2022 at the expense of the republican budget ... interest on loans provided by Belarusbank OJSC and Development Bank of the Republic of Belarus OJSC: Belarusian Cement Plant OJSC, Krichevcementnoshifer and Krasnoselskstroymaterialy in Belarusian rubles — in the amount of the loan rate, but not more than 100% of the refinancing rate of the National Bank ... in US dollars and euros — in the amount of the loan rate, but not more than 7 annual percent …”

In other words, this is a clear example of how the production of Belarusian cement is kept afloat at the expense of the budget, that is, taxpayers' money. One could understand if this assistance was of a one-time or temporary nature. But let's look at some visual data. For example, in June 2009, the Belarusian Cement Plant received a $30.75 million loan from Belarusbank at an annual rate of 7 percent; as of October 1, 2021, the outstanding debt amounted to $28.55 million. That is, over the past 12 years, the company has returned only 2.2 million to the creditor. In May 2011, a ruble loan in the amount of 35.4 million was taken from the same bank. More than 10 years have passed: the outstanding balance on the same date amounted to 32.2 million rubles. Other enterprises producing cement are also in such debts.

In the same government decree, Hrodna Glassworks OJSC is also mentioned. Glassworks “Neman” also has something to surprise: for a loan of 1,172.7 thousand dollars at a rate of 7.5 percent, the balance of the debt after 7 years is 712.3 thousand USD, or 60.8 percent. For the second loan in euro, the outstanding debt in the same 7 years is 93.8 percent.

Whether these enterprises will be able to repay their debts with their financial capabilities is a rhetorical question. As for the cement plants, they were initially modernized under tied Chinese loans. When the time came to give them back, the enterprises operated at a loss. They began to analyze why. Either the Chinese delivered the technology of yesterday, as they say, or they did not correctly predict the price of products, or the demand for cement on the Russian market did not meet hopes.

Other Belarusian enterprises were also modernized with Chinese tied loans. For example, by the end of the modernization, the Svetlahorsk Pulp and Cardboard Mill refused the services of a Chinese contractor altogether, and decided to complete the process on its own. This is not the first Chinese project to modernize the enterprises of the Bellesbumprom concern, the results of which are questionable.

For now, the Belarusians are expecting a proper return from the well-known Belarusian-Chinese Great Stone industrial park. It would be good if things turned out the way the JV BelGee did. Geely cars are sold in Belarus and Russia, and the company makes a profit.

An illustrative example is how the authorities all over the world saved the Belarusian Metallurgical Plant, which employs 11 thousand people. This is a city-forming enterprise. It was built by Europeans using modern technologies. After the start-up, high salaries were paid here, the enterprise sponsored the city's infrastructure, and today the plant takes loans to pay salaries. The Austrian company Voest Alpine was directly involved in the creation of the Belarusian Metallurgical Plant. As part of the reconstruction of the enterprise, which began in 1996, it supplied the necessary equipment in exchange for the right to sell its metallurgical products in foreign markets. It supplied products abroad at deliberately low prices, as a result of which the United States launched an anti-dumping investigation, imposed a 114% duty, and the US market, which was beneficial for Belarusian Metallurgical Plant, actually turned out to be inaccessible. The plant was surrounded with dealers with whom it was necessary to share profits.

According to many experts, the project for the production of seamless steel pipes turned out to be ill-planned. As you remember, the world market did not take into account the competition from the same Chinese. Endless modernization undermined the financial condition of the enterprise, it is mired in foreign currency loans. The first serious financial shock in the form of Belarusian Metallurgical Plant’s inability to pay off its debts on time was partially offset by the issuance of $240 million worth of bonds by the plant in 2016, which were purchased by banks. And the state had to save the enterprise from bankruptcy at the beginning of 2021.

The Ministry of Finance issued government bonds in excess of the planned sum in the amount of more than 600 million dollars, which were purchased by Belarusian banks on a voluntary basis, and the currency was transferred to the Belarusian Metallurgical Plant. If the plant does not return the debt to the budget (does anyone else believe in this?), then the budget, that is, all of us, taxpayers, we will redeem these bonds to banks. It turns out that the country does not have a budget, but a cash cow. After all, the main value of the Belarusian Metallurgical Plant for the state is that it brings currency into the country. Its share in the foreign exchange earnings of Belarus is 3.8 percent. This, of course, is not the 11-12 percent provided by our two refineries and Belaruskali, respectively, but still...

Such industrial flagships as Gomselmash, Belshina and others are in the same critical financial condition. As of November 1, 2021, the total overdue debt of large and medium-sized enterprises, according to Belstat, amounted to 10 billion rubles. Of these, 7.8 billion are bad loans and 2.2 billion are non-performing loans and borrowings. Such an economy burdened with debts, when some enterprises live at the expense of others and the population, not caring about their financial results, knowing that the state will return their debts anyway, cannot be efficient by definition. And it will never be able to provide the people with a decent standard of living.

It is long overdue for Prime Minister R. Halouchanka, Minister of Economy A. Charviakou, headed by the head of the Lukashenka Administration I. Siarheyenka, to seriously think and decide on a radical transformation of the economic development model of Belarus, which in principle has remained unchanged for more than a quarter of a century. And there is no need to invent another Belarusian know-how. There are standards of a real market economy in which everyone is responsible for the financial results of their activities. The state represented by the budget is responsible for its obligations, enterprises for theirs.

By pumping billions of dollars from the budget into constantly unprofitable large enterprises, the authorities thus inefficiently manage taxpayers' money. If huge amounts were not allocated from the treasury every year to support the same unprofitable plants and factories, then it would be possible to reduce the tax burden on their workers. This means that people's wages would increase, their well-being would increase. Benefits would increase for all categories of those in need of assistance from the state. Yes, and pension funds would be filled in a different way, the elderly would not feel poverty, but would feel like their peers in developed countries, who, having gone on a well-deserved rest, do not need anything.

Needless to say, the most acute question arose: how much longer can they pump huge budget money into unprofitable enterprises?