Not Too Sweet? 'Sugar Scandal' Rocks Lukashenka's Belarus
By Tony Wesolowsky, Kanstantsin Lashkevich February 14, 2020
MINSK -- A Belavia Belarusian Airlines jet was on a routine flight from Minsk to Munich on January 24 when suddenly it turned back over Poland and made an unscheduled landing in Hrodna, where police removed two passengers.
The two, it later emerged, were directors of two of Belarus's four plants producing sugar, a heavily subsidized industry that has fallen on hard times in the Eastern European country of about 10 million people. Almost immediately, rumors began to swirl that the directors of the two other plants had been nabbed by the police as well.
But the strictly controlled state media had nothing to say on the subject.
Belarusian President Alyaksandr Lukashenka broke the media silence on February 4, confirming that all four directors were in police custody on suspicion of masterminding an unprecedented scam, the Belarusian leader suggested.
"There's never been anything like this before in Belarus," Lukashenka, in power since 1994 and largely ostracized by the West for his authoritarian ways, said during a visit to Dobrus, some 300 kilometers southeast of the capital, Minsk.
According to Lukashenka, the sugar-plant directors had conspired to manipulate the price of sugar for personal gain, illegally amassing millions of dollars. At least one high-ranking Belarusian official, whose bailiwick was fighting crime and corruption, was ensnarled in the scandal as well.
"What did these businessmen do? They created in Moscow a shell company -- a trading house," Lukashenka explained to a huddle of journalists. "A normal shell company. They sold Belarusian sugar at bargain prices from the factories to the trading house in Moscow. There, the price was raised, and it [the sugar] was sold on the market. The difference was divvied up among the directors of the plants."
"I have no personal grievances against anyone; I defend the interests of the state," Lukashenka continued, calling the suspects "bastards" who "steal in broad daylight" and warning that their arrest would become a "lesson to all directors."
In the latest twist, the Belarusian KGB confirmed to RFE/RL's Belarus Service on February 13 that a Russian national, Sergei Kononenko, owner of a Russian firm implicated in the scandal, had been arrested in Belarus and was in custody.
Up to 11 suspects, depending on the report, are being detained in connection with the alleged scam. Charges have not been announced, but the KGB, which never shed its Soviet-era tag or many of the practices of that time, has accused them of "massive bribery," which, under the Belarusian Criminal Code, carries a prison term of up to 15 years.
In his tirade, Lukashenka accused the directors of reaping huge rewards, with them and their families allegedly having dozens of expensive cars, dozens of apartments, "villas and a huge amount of money."
The scandal, with its Russian link, could further strain ties between Moscow and Minsk, already tested by disputes over energy prices and deeper integration. Russia cut energy supplies to Belarus at the beginning of the year after Lukashenka balked at plans for deeper integration with Russia under a 1997 union treaty.
Lukashenka has made something of a pivot away from his country's traditional ally to seek alternative energy sources and political backing. U.S. Secretary of State Mike Pompeo visited Minsk on February 1, the first such visit by a U.S. secretary of state since 1994.
The "sugar affair," as the case has been dubbed by Belarusian media, also comes as Lukashenka faces a presidential election later this year, although a firm date and his candidacy, for that matter, have not been confirmed. Nevertheless, it must occur by August 30 and Lukashenka is nearly certain to run.
Analysts say Lukashenka is using the sugar scandal to burnish his image as a corruption buster and to send a message.
"I think that Lukashenka needed some visible example of shady illegal ties between Belarusian government officials and Russian business to send a clear signal: 'No ties like this will be tolerated; you must be loyal and obey the rules,'" explained Kamil Klysinski, a Belarusian analyst at the Warsaw-based Center for Eastern Studies in comments to RFE/RL. "That's very important for the stability of the system of power in Belarus, especially in the context of the upcoming elections and Russian pressure."
Sugar produced from beets -- grown by more than 450 agricultural companies in Belarus -- is big business in a country that is still saddled with clunky, Soviet-style industries. There are four sugar refineries in the country turning the white root into the sweet, white powder in Slutsk, Zhabinka, Skidal, and Haradzeya.
According to data from the UN's Food and Agriculture Organization (FAO), Belarus produced nearly 5 million metric tons of sugar beet in 2018. In the past, much of this ended up as sugar on the Russian market. But Russia has revamped its own sugar industry, analysts say, and by 2017 had turned into a net exporter.
Pricing Strategy Backfires
In 2018, Belarus introduced a minimum price at which Belarusian sugar could be sold on the home market: $700 per metric ton. The price hike was meant to prop up domestic sugar producers, explained Klysinski. But Belarusian sugar earmarked for the market in Russia was to be sold cheaper: $400 per metric ton. The thinking, Klysinski and other analysts say, was to make Belarusian sugar competitive with its Russian counterpart.
However, a look at the numbers suggests the strategy did not work. In the first 10 months of 2019, Belarus exported a total of 252,000 metric tons of sugar, earning $102 million gross. That's down from 2018, when Belarus exported 391,000 metric tons of sugar, earning $165 million.
The price fixing may not have helped the country's sugar industry overall, but plant directors may have found a way to exploit it, Klysinski explained. The directors are accused of making sugar sales through Belasahar, the Belarus Sugar Company, headquartered in Moscow. Although the sugar apparently never left Belarus, it was then "resold" at the higher price inside Belarus, with the difference pocketed by the scammers.
Lukashenka himself explained how his regime believes the scam may have worked.
"Maybe, sugar wasn't even delivered to Moscow and shipped back," he said on February 4. "Maybe the documents went there, were reissued, and then directly from the factories here to our market this sugar was delivered with the markup. And then this margin was divvied up as plunder. Is that normal?... They're all here and we will sort it out."
Mikhail Kryshtapovich, director of the Haradzeya plant, was apprehended from the Minsk-Munich flight on January 24. Mikalau Prudnik, director of the Slutsk sugar refinery, was also pulled from the same flight, although his office said on January 27 that he had "gone on vacation." It later emerged that Viktar Mironau, director of the Zhabinka sugar plant, and Dzmitry Yahorau, director of the Skidal sugar factory, had also been detained.
Dzmitry Kirylau, director of the Moscow-based Belarusian Sugar Company that is believed to have arranged the "sales" in Russia, has also been detained.
On February 4, a special investigative report entitled Sugar Mafia was broadcast on the Belarus 1 television channel's Panorama program. In it, a KGB official confirmed the detention of the former head of the Second Directorate for Combating Organized Crime and Corruption, Uladzimer Tsikhinya. It turned out he was the first one arrested, according to the television report.
The involvement of such a high-level member of the Belarusian security services must have especially irked Lukashenka, Klysinski said.
"I suppose that Lukashenka was really concerned with his participation in those deals," he told RFE/RL.
The detained Russian, Kononenko, is alleged to have supplied overpriced materials from his company, Polimer, to another Belarusian company -- Eurotarex -- which produces sugar packaging, according to the February 4 Panorama program on the scandal. He allegedly paid the four sugar directors -- also part of the management of Eurotarex -- bribes that were alleged to have come from the proceeds from the materials sold at inflated prices.
All are facing charges of massive bribery and possible 15-year prison terms, although trial dates, official charges, and other information has not been released. The exact amount of the alleged loss to the Belarusian state has not been revealed, although it is believed to be in the millions of dollars.
A similar scandal rocked the country's pharmaceuticals industry less than two years ago. In 2018, authorities arrested dozens of top health officials, medical professionals, and drug company representatives on suspicion of siphoning off millions of dollars in state funding. Lukashenka fired then-Prime Minister Andrey Kabyakou over the scandal.
Given the closed and opaque nature of the Belarusian system, such corruption is inevitable and tolerated by Lukashenka, up to a point, noted Klysinski.
"Lukashenka doesn't fight corruption," he explained. "He uses it in order to control his people, according to the old rule divide and rule. If it's needed, the KGB and other structures can 'suddenly' expose some new corruption scandal to make a point or send a message."
Written by RFE/RL senior correspondent Tony Wesolowsky based on reporting by RFE/RL Belarus Service correspondent Kanstantsin Lashkevich
NOTE: This article has been amended to correct Belarus's sugar-production figures for 2018
Copyright (c) 2020. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036.
|Join the GlobalSecurity.org mailing list|