9. Russia running out of vodka?

On January 31, the Federal Tax Service failed to start issuing a new type of excise stamps to vendors of hard liquor. From the beginning of this year, no liquor may be sold without this official mark on the bottle. But since these excise stamps have not been issued to distillers, alcohol production has been at a standstill for more than a month.

Unsurprisingly, Russia is never ready to live by any new law it has passed. The same is true of the recently adopted Law on State Regulation of the Production and Circulation of Ethyl Alcohol, Alcoholic and Spirits-containing Products, which took effect on January 1, 2006. Consequently, liquor producers have not yet received the new type of excise stamps. According to the estimates of the National Alcohol Association (NAA), the month of idleness has cost the alcohol market a total of some $500 million. This loss of cash, however, is nothing compared to more serious consequences.

Adulterators Ready to Come Forward

"We will always have our vodka," says a tipsy guy buying the drink from a liquor store just down the road from our editorial offices. "How could it vanish?"

That customer was right: Vodka cannot possibly disappear in Russia. The shelves in that liquor store, like in thousands of others, will soon be full of liquor bottles. The point is whether the liquor is adulterated or not. For example, one of Russia's largest vodka distillers, Kristall, was out of stock a fortnight or so ago, having sold all the vodka produced before January 1. Dmitry Dobrov, chief of information and external relations at state-run distiller FGUP Rosspirtprom (which oversees Kristall), told MN: "Today, all subsidiaries of Rosspirtprom and over 100 enterprises whose state-owned share packages are managed by Rosspirtprom are in approximately the same situation."

Everyone Stands to Lose

Ironically, the new law on alcohol production and sale, designed primarily to combat the illegal market, has unwittingly become its ally. Yet the present shortage of hard liquor was quite predictable. The alcohol law, over which the State Duma deputies had been racking their brains for three years, introduces major changes into the rules of the game on the alcohol market. Besides new excise stamps, it introduces tough requirements on denaturing additives and a unified state computerized information system of accounting, and tightens control over alcohol retailing. Even when the law was at the adoption stage last summer, it was obvious that it would need numerous by-laws and regulations to be effectual. Dmitry Dobrov says the Union of Producers of Alcohol Products requested the government and the State Duma to speed up the adoption of those indispensable documents, but of no avail.

Direct losses are being incurred by all distilleries and winemakers who have to pay huge sums of money for heat and electricity, and wages to the workers. The Russian Alcohol group told MN that January's losses due to idle time came to $1.5 million, while the month's lost earnings amounted to $26 million. The state too is suffering losses from its sluggishness: Because of the month-long idleness of Russian Alcohol's vodka distilleries alone, the state failed to receive $13.5 million in excise taxes and VAT. And according to the estimates of Rosspirtprom, a month's idleness caused the state treasury to lose eight billion rubles in unpaid excise duties and in unpaid taxes on goods not produced.

Meanwhile, vodka poisoning is killing 40,000 Russians a year. The cause of the tragedy this time is the sluggishness of the state bureaucracy.

P.S. While this issue was going to print, it was reported that the Federal Taxation Agency announced the decision to give new excise stamps to alcohol producers. Thus, Russia's main vodka vendors continued to supply their much coveted products. Insiders told the MN that an acute alcohol crisis was prevented just days before retail shops were about to run out of supplies.