09.05.09

The crisis has dealt a blow to the country's unified economic space. Seeking to plug the growing holes in their regional budgets, the authorities in the constituent parts of the Russian Federation have turned to the prescriptions of the mid 1990s, when the regions closed off their markets to goods from neighboring oblasts and (internal) republics, all but setting up regional customs offices. So far the emphasis has been placed on items that account for the biggest share the budget. Twenty-two regions of the country have, to some extent, restricted access to their alcohol markets for goods from non-local producers. Meanwhile, the Federal Antimonopoly Service (FAS), which was created to prevent such violations, so far plans to institute administrative proceedings against just two of the offending regions: Tatarstan and Krasnodar Kray.

The FAS was unable yesterday (23 April) to confirm or deny FAS chief Igor Artemyev's statement on Tuesday that his department had instituted administrative proceedings against Tatarstan and Krasnodar Kray, the authorities of which have restricted access to their market for alcohol goods from other regions. The person in charge of this issue, Timofey Nizhegorodtsev, who heads the FAS's Department for Monitoring the Social Sphere and Trade, was unavailable. A day earlier he told journalists that the relevant proceedings had been prepared but had not yet been instituted, and that the offenders had been advised to "rectify the violations voluntarily."

Artemyev first announced on 20 March that he intended to look into local authorities' discrimination against alcohol producers from other regions. At the time, he was referring to four regions, which, incidentally, were not identified. According to him, the administrations are creating local obstacles to producers of alcoholic goods from other regions, creating various administrative barriers, imposing discriminatory requirements, and setting additional excise taxes. "Such behavior violates not only our antimonopoly laws but also the Russian Constitution's article on the unity of economic space throughout the territory of the state," the FAS chief lamented.

The relevant regions have now been named. In particular, the authorities of Tatarstan refused this January to accept applications for the certification of vodka brought in from outside the republic, thereby ensuring that the republic's shops only sold goods produced by Tatspirtprom JSC (Tatarstani distillery). Over a period of four months, this producer managed to boost its own sales by 5-6%. In April, meanwhile, Krasnodar Kray Governor Aleksandr Tkachev called on the kray administration to create the necessary conditions to ensure that 80% of the kray's alcohol market was held by local producers. Whereas previously regional separatism mostly pertained to the distribution of regional state orders and control over the construction sphere, it is now spreading to other areas. But the problem is becoming even more widespread in the alcohol market, experts surveyed by Nezavisimaya Gazeta point out. According to Mikhail Blinov, head of the State Duma's expert council on alcohol and executive director of the Union of Alcoholic Goods Producers (SPAP), at least 22 regions of Russia are currently protecting their markets to some extent from alcoholic goods originating in other constituent parts of the Russian Federation. "One of the leaders in alcohol separatism is Tatarstan, which almost completely closed off its market to outside goods on 1 January," Blinov explained to Nezavisimaya Gazeta. Other violators of the country's unified economic space, according to the experts, include Bashkortostan, Chuvashia, Nizhniy Novgorod Oblast, and Tver Oblast.

In this difficult economic climate, the regions have what to fight for. Excise taxes on the production of vodka are currently set at R38.2 per half-liter bottle, Blinov explained. "Out of this sum, 20% goes directly to the regions, while 80% goes to the federal budget. In principle, this too gets returned to the regions, but already in chunks that have to by approved separately under a federal supplement to the budget," Blinov pointed out. "In other words, local authorities are only guaranteed to receive 20%, while the remaining part will be shared out among the regions according to the established rates."

But the federal authorities have placed an even more powerful bomb under the unified economic space with their recent decisions. "At the Finance Ministry's suggestion, an amendment to the Budget Code was adopted at a session of the three-party interdepartmental commission on interbudgetary relations in late summer 2008, whereby the regions' guaranteed share of the excise tax was doubled to 40%," Blinov explained. "During this crisis, the governors will simply be fighting for it, so the process of market segregation will only accelerate." And Blinov is not at all happy that the FAS is showing "a certain degree of passivity" in this matter.

Other industry analysts also recognize the problem. "On the one hand, such measures by the regional authorities lead to economic fragmentation," Vadim Drobiz, head of the Center for Federal and Regional Alcohol Market Studies, pointed out. "But the regions are experiencing a severe funding shortage, which is getting worse as a result of the crisis and the drop in funding from the center (Moscow)." Federal and local producers also have different capabilities, Drobiz emphasized. The authorities should solve this problem at the highest level by creating competitive conditions for both sides.

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Source: Nezavisimaya Gazeta