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The government can’t reckon with the financial flows Soyuzplodimport could generate from the Soviet alcohol legacy.
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July 30, 2008
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Soyuzplodimport to Get out of the Bottle
// The last Soviet vodka brands are handed over to Rosimushchestvo
Federal enterprise Soyuzplodimport may lose control of alcohol brands. It has disputed the right of ownership with Yury Shefler’s SPI group since 2001. Russia’s First Deputy Prime Minister Victor Zubkov ordered that the Economic as well as the Industry and Trade Ministry prepare the handing over of the right of ownership of these brands to Rosimushchestvo (the Federal Agency for State Property Management). After Soyuzplodimport was defeated in a crucial region for the Stolichnaya vodka – the USA – the government can overhaul the strategy of working with Soviet vodka brands, it can even sell several brands “by retail.”
Kommersant found out that Russia’s First Deputy Prime Minister Victor Zubkov ordered two ministries – the one of Economy and the one of Industry and Trade – to prepare documents depriving federal enterprise Soyuzplodimport of the rights to alcohol production, that is 17 brands including the Stolichnaya and Moskovskaya. The decision was approved of by Russia’s Prime Minister Vladimir Putin. His order was followed by Victor Zubkov’s one, where he suggested that the two ministries should take measures so that Soyuzplodimport could no longer use these brands “handing over the rights and the brands proper to Rosimushchestvo.” The latter is to get the credentials “to restore and protect the rights” of the state to these brands. It need be reminded that Soyuzplodimport was set up in 2001 to contest the rights to these brands with the SPI group controlled by Yury Shefler, an entrepreneur and emigrant. Is seems that the White House’s strategy concerning the Stolichnaya is changing again.

At the end of 2001 after court hearings between Russia’s Ministry of Agriculture and the SPI group 40 vodka brands (Stolichnaya, Moskovskaya, Russkaya and so on) were re-registered so that the Russian Federation, that is the Ministry of Agriculture, got the rights to them. Later the rights were handed over to Soyuzplodimport, which was founded specially for that purpose. SPI’s attempts to appeal the re-registration failed and Yury Shefler’s group stopped its business in Russia removing the production of the contested brands to a factory in Latvia it owned - Latvijas Balzams. Now Soyuzplodimport controls the sells of vodka brands in Russia (the Stolichnaya and Moskovskaya are produced at a plant in the Chernogolovka town of the OST group and Moscow’s Kristall plant), and the SPI is in control of overseas sells. Patent and court examinations were brought to the international level in 2002. In every state where the SPI sells its production under these trade marks Soyuzplodimport tries to dispute the registration of the Stolichnaya and Moskovskaya.

Yesterday the government apparatus confirmed that these orders exist, but the officials refused to give the reasons for this step. Soyuzplodimport refused to give any commentary, too. Unofficially, Soyuzplodimport stated that it’ll “seek to block this decision of the government.” In Rosimushchestvo they told Kommersant that they “heard about such orders.” Kommersant hasn’t managed to find out the details of the project yet – yesterday the official in charge of this branch in the department of Rosimushchestvo deputy head Yury Mitrofanov was not available for commentary. The Ministry of Industry and Trade also refused to comment specifying that Deputy Minister Andrey Dementyev is in charge of this issue. But you wouldn’t contact him yesterday.

As Soyuzplodimport loses the rights to the Soviet brands, it is put into question whether the organization proper should exist. The state company is responsible for launching production and distribution of food stuffs, alcoholic and non-alcoholic drinks under the trade marks owned by the Russian Federation on the territory of Russia and in 30 countries abroad including Chili, Brazil and the Benelux states. However, it hasn’t achieved any special results in using the Soviet brands. In 2006 the attention of Russia’s Accounts Chamber was attracted by a fall in Soyuzplodimport’s financial indexes. After auditing the officials confirmed without giving exact numbers that the production volume of the state vodka brands after the rights to them were given to the company plunged. In February, 2007 auditor of the Chamber Alexander Nazarov stated, “The trade marks must be given back to the state (Rosimushchestvo).”

Soyuzplodimport’s financial indexes have never been made public, but, according to a top-manager of one of the largest vodka companies, “the production volume of all the state marks in charge of Soyuzplodimport was $4 mln in 2001, and the capitalization of the Russian set of brands was some $1 bln, whereas these indexes fell to $200.000 and $250 mln correspondingly, and in 2008 – to 140.000.” At the same time the sells of the Stolichnaya abroad, which is under control of Yury Shefler’s group, have been far better – in 2007, according to the Research Center for Federal and Regional Alcohol Markets, the SPI sold $2.3 mln of vodka.

The USA accounts for the major part of the Stolichnaya brand sells – in April, 2006 Soyuzplodimport lost this market to the SPI in an American court. Independent lawyers assess that annual costs of the hearings against the SPI amount to $5–10 mln. “After Soyuzplodimport was defeated in the USA virtually losing Russia’s key market of the Stolichnaya sells, these costs became senseless,” Yury Dobronravov, head of the Dobronravov and Partners company, says.

More to the point, it’s not obvious that Soyuzplodimport can gain profits from the Soviet vodka brands in Russia. “I’d also doubt the effectiveness of using the state brands. The production volumes of the Stolichnaya and Moskovskaya brands, which were more than popular in the Soviet times, has plummeted by hundred times,” points out chief of Kaluga’s Kristall, Sergey Zivenko, who earlier headed the Rosspirtprom federal unitary enterprise.

The last straw was a failure of negotiations between Soyuzplodimport and Pernod Ricard featuring a sell of the Stolichnaya brand (estimated at $3 bln). Pernod Ricard board chief and CEO Patrick Ricard said in his interview with Kommersant, “We were ready to buy the international rights to the trade mark merging the brand we bought with the mark that is sold in Russia and the CIS.” But, according to him, the deal was cancelled because Soyuzplodimport was not a joint-stock company. “The deal with Pernod failed because of Soyuzplodimport’s sluggishness and carelessness,” Andrey Skurikhin, SPI co-owner, is sure.

It’s not clear what Vladimir Putin expects from Rosimushchestvo. Perhaps, the prospects are connected with a possible setting up of Rosalcohol. It’s not ruled out that Rosimushchestvo will sell some of the marks to third-party companies. And they believe in the market that the best variant is founding a joint venture of Russia and the SPI. Yury Shefler’s group told Kommersant that no one has made any proposals, but they see nothing impossible about it. “We are ready to seek compromise with the Russian government, because court hearings do us no good,” Mr Skurikhin told Kommersant.


The idea of setting up Rosalcohol is presented to Vladimir Putin

Russia’s First Deputy Prime Minister Victor Zubkov suggested that a united “alcohol body” – the Federal Service for Alcohol Market Regulation – be created. In a letter to the Prime Minister, which Kommersant has, Mr Zubkov suggests that “all functions of state management in the sphere of ethyl alcohol production and turnover should be given to a new department Rosalcohol.” Victor Zubkov informs the chairman of the government that as a result of a series of meetings the initiative has been “supported by all the parties involved.” “The information is given so that a decision could be taken,” Victor Zubkov finishes his letter.

Besides, the Deputy Prime Minister informs Vladimir Putin that the ministries didn’t manage to find a compromise in another key issue – changing the principles of taxation in the alcohol branch. The Ministry of Agriculture, the Ministry for Economy, the Federal Tax Service, the Federal Customs Service and the Ministry for Industry and Trade suggest merging and decreasing excise rates to 100 roubles per 1 liter of alcohol. The Finance Ministry has objections stating that these measures will only boost the production of illegal alcohol. Victor Zubkov suggests that Vladimir Putin override the opinion of the Finance Ministry and side with the cluster of departments that are in favour of the idea.

According to the information of Kommersant, Vladimir Putin hasn’t passed judgement yet. Kommersant will be in touch.
Svetlana Mentyukova, Dmitry Butrin, Elena Kiseleva

All the Article in Russian as of July 30, 2008

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