Vladimir Putin Insists on Alcohol
// Russian President Demands that the Government Resolve the Industry's Problems by February 1
Russian President Vladimir Putin has sent a letter to Prime Minister Mikhail Fradkov insisting that "urgent measures" be adopted to "secure the government's interests" in the market for alcohol and alcoholic beverages. The problems in the market must be dealt with before February 1; otherwise, the transfer of the alcohol excise stamp regime to automatic operation could cause another crisis in the market. According to the latest data from Rosstat, alcohol production fell almost 30% last year, and distilled beverage production dropped by 10%.
In his letter, which was dated December 26, 2006, the president gave orders to prepare a raft of suggestions for resolving the crisis in the alcohol market: how to optimize the taxation rate on excise stamps for alcohol and alcohol-based products, limit retail sales of alcohol, and increase accountability for the illegal production and sale of spirits and other alcoholic beverages. In addition, the president demanded that a government overseer be designated for EGAIS, the Unified State Automated Information System; that financial sources be found to help finish modifications of the system; and that the system be put into operation as scheduled.
The president wrote the letter, of which Kommersant has obtained a copy, in response to the results of an audit of the activities of the federal government and companies in the alcohol sector that was carried out by the presidential administration. The audit includes the results of all of the stages of last year's crisis in the alcohol market. At the beginning of 2006, the government introduced new excise stamps, but a sufficient quantity of the stamps was not printed, causing the country's vodka-producing enterprises to come to a halt for up to two months. As of July 1, a correction to the law "Concerning government regulation of the production and sale of ethanol…" was introduced, which allows products containing alcohol to be sold only through EGAIS. However, for the first few months of its operation the system was plagued with numerous failures, which led to stoppages in the supply chain and new interruptions in production in several factories.
At first, EGAIS was run in a semi-automated regime: the amount of products produced and shipped by the factories were tallied on a counter by hand instead of automatically. As of February 1 of this year, however, the system is scheduled to go online in an automatic regime, but many factories are not on track to finish installing the necessary equipment and computer software by that date, and many in the market expect a replay of the alcohol crisis.
Adding to their woes, data on the consequences of last year's alcohol crisis were released last Friday. According to Rosstat, in 2006 60.8 million decaliters of ethanol spirits were produced in Russia, which is 29.5% less than the same indicator for 2005; also in 2006, 199 million decaliters of vodka and distilled spirits were produced, 9.6% less than in 2005. "This year was the most difficult year for the alcohol sector in the history of the Russian Federation. In that light, a decline in production of only 9.6% isn't too bad. In January 2006, the field produced only 4% of its January 2005 volume, and all of that was for export. A big drop in production was avoided only by legal enterprises working full-throttle in September through November of last year," said Dmitry Dobrov, the press secretary for the Alcohol Producers' Union. Thanks to the frenzy in the market for all of last year, the overall figures turned out to be not too frightening, especially considering that the volume of the vodka market is falling on average by 2% a year as a result of fluctuations in consumer preferences, believes Istoka marketing director Sergei Plykin. "Our Topaz factory had to shut down in January and in the middle of the summer, as did many other companies in the alcohol sector. About 10% of our yearly volume of vodka production takes place in those periods. So that's how much we lost in sales," said Vadim Kasyanov, the commercial director for the company Russian Alcohol.
After receiving the president's letter, government officials scrambled to fulfill their orders. A Kommersant source in the government said that the possibility of canceling exemptions enjoyed by producers of so-called "surrogate" alcohol, which is produced for purposes other than drinking, was under discussion. Currently the excise tax on a liter of alcohol that is used in the production of vodka is 162 rubles, while a liter of alcohol used to make, for example, paint or photographic film is taxed only 23.5 rubles. But the government is in a bind, because if the tax breaks are discontinued, prices on several common Russian-made products (such as film for cameras and movie projectors, perfume, and household cleaning agents) will increase approximately fivefold. These products will then be unable to compete successfully with imports, said a government official. The requirement that a government overseer be designated for the EGAIS system will benefit the Federal Tax Service (FNS), which already nominally oversees the system, even though the Tax Service is not mentioned in that capacity anywhere in the legislation. "This is a technical question, the resolution of which will raise the status of the FNS, which will allow the Tax Service to open competitive bidding to chose a product engineer for the development of the EGAIS system," said the official.
The president's order was the first official document to mention the possibility of restricting retail sales of alcohol. The venues under discussion are those where large numbers of children and adolescents regularly gather and adjacent areas, as well as venues that are not appropriately equipped to sell such products. "As long as there is no precise interpretation of the president's initiatives, it is difficult to say how aggressive these proposals will be. It is unclear, for example, how and by whom the area of territory adjacent to places where many children and adolescents gather will be defined," said Vadim Kasyanov.
Large Producers of Vodka in 2006
From left to right: Factory, Volume of Production in 2006 (in millions of dal), Volume of Production in 2006 versus in 2005 (%),
1. Kristall (Moscow): 7.4, 82.7
2. Topaz (Russian Alcohol): 7.3, 144.1
3. Veda: 7, 103.6
4. Tatspiritprom: 4.7, 103.7
5. Bashspirit: 4, 100
6. Kristall (Kristall-Gross): 3.4, 180
7. OST-Alko (Noginsk): 3.3, 76.9
8. Soyuz-Viktan: 3, 400
9. SPI-RVVK (SPI Group, Kaliningrad): 2.9, 91.3
10. Omskinprom: 2.7, 195.2
11. Liviz: 2.7, 83.8
12. Ladoga: 2, 100
13. Urozhai Firm: 1.9, 151
14. Traditsii Kachestva (Moscow Oblast): 1.8, 66.4
15. Zavod Sortovykh Vodok: 1.6, 87
Source: Information from market participants and data from Rosstat
Alexander Demchuk and Arina Sharipova
All the Article in Russian as of Jan. 22, 2007
|
