How Belarusian potassium can circumvent Lithuania’s ban on transit
On February 1, the Lithuanian government decided to terminate the Lithuanian Railways’ (LTG) contract with Belaruskali for the transportation of potash fertilizers. This is stated in a statement posted on January 12 on the website of the Cabinet of Ministers. The reason for the termination of the contract was called “the interests of national security.”
The Lithuanian direction is one of the key ones for Belaruskali’s exports. The company delivers products to ports for further transportation by sea. The current agreement with the Lithuanian Railways was signed in 2018 and is valid until 2023, the volume of transportation – up to 12 million tons of potassium per year, said the Lithuanian government.
Problems with potash transit through Lithuania arose in December 2021, when another trap of US sanctions hit a trader “Belaruskali” – the Belarusian Potash Company (BPC). Sanctions were imposed on the fertilizer producer in the summer of 2021. The reason for the new restrictions at the end of the year was the situation on the western border of Belarus, through which migrants from Asia entered the European Union. But it was difficult for LTG to comply with the US ban on doing business with Belaruskali and its trader: the Belarusian side had advanced its shipments in advance. Termination of the contract in this situation would result in loss of LTG. At the same time, Vilnius had time to continue the transit of potassium until April, when US sanctions should come into force.
BPC threatened lawsuits in case of termination of transit, said on December 21, a representative of the trader Irina Savchenko of the Lithuanian radio company LRT. In addition, she did not rule out lawsuits from fertilizer buyers. Savchenko also mentioned the risk of retaliation by Belarus: “If Lithuania fails to fulfill its international obligations, Belarus will be forced to retaliate – because your country is also a transit country” (quoted by “Interfax”). Vedomosti sent a request to BPC.
Stopping Lithuanian transit is not the only problem of Belaruskali. Earlier, large consumers have started to refuse fertilizers due to sanctions. On January 10, Norwegian Yara (one of the largest fertilizer producers in Europe) announced its cessation of procurement at BPC. But Yara intends to suspend business relations with Belarusian companies by April 2022, while Vilnius is going to terminate the contract without waiting for US sanctions to take effect (Vedomosti wrote in detail on January 11).
Moreover, the Minister of Transport of Lithuania Marus Skuadis noted that the government will consider other agreements on the transit of fertilizers from Belarus in the interests of national security. This possibility was mentioned on January 12, and LTG itself in its message on the site. LTG stated that it was ready to fulfill the government’s decision, but reminded that orders for fertilizer transportation could be placed not only by Belaruskali, but also by other companies that were not subject to sanctions. LTG Cargo (LTG Cargo Division) must have a legal basis for refusing to transport such cargo, the railway company said in a statement.
It will be difficult to collect any compensation from the Lithuanian BPC and Belaruskali, lawyers say. Marat Samarski, a lawyer for the practice of international economic compliance Art de lex, notes that it is difficult to judge the prospects of BPC’s lawsuit against LTG without knowing the nuances of the agreement. The parties did not officially disclose the terms of the contract of carriage. Sergei Glendin, head of the Pen & Paper Bar Association’s practice of compliance and compliance, said that the parties had concluded a “normal contract of carriage that can be terminated on general grounds, including unilaterally by carriers.” “In addition, as a general rule known to the civil law of most countries, acts of government are grounds for termination or amendment of civil contracts,” he added. Therefore, LTG, according to the lawyer, now “will have to consider unearned income.”
But, according to Samara, there are clear arguments both in favor of recognizing the actions of the Lithuanian counterparty legal and against him. On the one hand, it can be argued that there is no actual control by the Lithuanian counterparty over the development of the situation through the actions of official Vilnius. “No matter how hard a Lithuanian counterparty tries to act in good faith, he cannot violate the regulation of his own government,” the lawyer said. In addition, he adds, the decision to withdraw from the relationship was as prompt as possible and made on clear terms.
“But against the legality of the refusal, the Belarusian side can clearly develop a version of the potential anticipation of such a negative scenario, and, as a consequence, the adoption of Lithuanian counterparties to ensure compliance with obligations (penalties, harmonization of loss calculation mechanism, etc.). confirm consent to such a risk, ”Samara thinks.
Glandin agrees that LTG is obliged to comply with the decisions of its own government. In addition, according to him, Lithuanian Railways is an economic entity covered by the 2006 EU regulation (as amended in 2021), which imposed restrictions on the transportation of Belarusian potash fertilizers through the EU. The lawyer also failed to assess BPC’s chances of recovering compensation.