MINSK/MOSCOW Belarus detained the head of Russia's Uralkali (URKA.MM), the world's top potash producer, and threatened to seize its assets in the country on Monday, drawing a fierce rebuke from Moscow in an escalating dispute over the collapse of a cartel.
Vladislav Baumgertner was detained on suspicion of abusing his position and official powers over Uralkali's decision to quit the Belarusian Potash Co (BPC) joint trading venture, according to investigators in Belarus.
It is the first time a top manager of a Russian firm has been detained in Belarus, run since 1994 by President Alexander Lukashenko, who styles himself as "Europe's last dictator".
"What happened today is way out of line," Russian First Deputy Prime Minister Igor Shuvalov told reporters in Moscow, describing the situation as "odd, inappropriate and not fitting to a partnership".
Belarussian state television ONT showed footage of the grey-haired Baumgartner, who only hours before met with the country's prime minister, in handcuffs and surrounded by police.
Belarussian investigators said later they intended to seize Uralkali's assets and property, claiming the company incurred $100 million of damages in Belarus, according to a report by the RIA agency.
"Evaluating the documents received by investigators, a decision will be reached to seize the property and assets of Uralkali," a Belarussian Investigative Committee spokesman told Russian news agency RIA.
Uralkali said it refuted any allegations of wrongdoing by Baumgertner or any other of its managers. It declined to comment on the seizure of assets or property in Belarus.
The company's surprise decision to quit the joint venture with Belarussian partner Belaruskali at the end of July caused outrage in Minsk, which had long resisted Russian pressure to sell its potash interests.
Belarus is Moscow's staunchest ally among former Soviet republics but its economy is stagnating after a financial crisis in 2011.
The dissolution of the cartel, which could cause the global potash price to plummet 25 percent in the second half of 2013, is a major headache for Belarus where it is a major foreign-currency earner. BPC had 31 percent of the world's potash market in 2012 and North American consortium Cantopex had 35 percent, according to Bank of America Merrill Lynch.
Analysts estimate the global potash market to be worth $23 billion based on 2012 traded volumes and average prices.
"The unexpected break was meant to strike a blow at Belarussian producers that were seen as competitors ... They planned the collapse of the global potash market," Belarussian Investigative Committee representative Pavel Traulko said.
The news of the detention pushed Uralkali shares down 3.4 percent to be the biggest loser in Moscow's MICEX blue chip stock index , in one of its largest daily losses since it stunned the global potash industry by walking out of BPC.
Uralkali representative Alexander Babinski told Reuters that Baumgertner, who is also a supervisory board member at the BPC, had been in Minsk at the invitation of Prime Minister Mikhail Myasnikovich. "He met with him, and after the meeting he was detained at the airport," he said.
If charged and found guilty, Baumgertner could face up to 10 years in prison.
Belarus is also investigating Uralkali's top shareholder, Russian tycoon Suleiman Kerimov, on suspicion of involvement in illegal activity, the Belarussian Investigative Committee said on Monday.
A representative for Kerimov, who has launched a fire sale of players from his Russian Premier League soccer club Anzhi Makhachkala to cut costs, declined to comment.
The intensification in tensions between Minsk and Moscow comes as the centrally planned Belarussian economy faces a widening of its external deficit that, economists say, risks a repeat of a currency collapse suffered in 2011.
Potash accounts for about 10 percent of Belarus's export income and 12 percent of government revenue. BPC's collapse will raise pressure on Minsk as it eyes the release of a further tranche from a $3 billion loan facility from a Moscow-led bailout fund.
"It doesn't look like a mortal blow but it complicates an already difficult situation," said Jacob Nell, an economist at Morgan Stanley in Moscow who covers the region.
The clash is symptomatic of dysfunctional trading relations that blight the former Soviet space - even though Russia, Belarus and Kazakhstan have formed a joint customs union and are the anchor economies in a broader regional economic partnership.
(Additional reporting by Darya Korsunskaya, Polina Devitt, Andrey Kuzmin, Natalia Shurmina, Douglas Busvine, Thomas Grove, Megan Davies and Rod Nickel in Toronto; Writing by Alessandra Prentice; Editing by Pravin Char and David Evans)