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By John Helmer, Moscow

Does the Russian vodka lobby fear or hate beer so much, it’s thought up a devious customs regulation to make the latter more expensive, and thus less drinkable among penniless Russians? And are the vodka schemers so devious, they have hidden their intention by introducing the customs regulation in the guise of standardizing (harmonizing is the bureaucrats’ term) the different customs rules of Russia, Kazakhstan and Belarus, which together comprise a single customs union these days?

You don’t have to drink either beverage to be curious about the answers. Nor will you find a particular oligarch on one side or another of this conflict. The only oligarch with a vodka interest, Sergei Generalov, sold out to Lion Capital, an American drinks conglomerate, two years ago. Oligarchs own vineyards and cognac distilleries for toys; there is no cachet for them in growing hops and collecting water. One oligarch would stand to gain, however, if beer bottle drinkers are forced to drink their beverage out of cans. And there is only one oligarch in Russia who makes aluminium for beverage cans – Oleg Deripaska. But hold on – this may not be his story.

Notwithstanding, what is happening in the Russian beer business is entirely political, uniquely Russian, possibly corrupt, in ways you are about to realize. The paradox is that, as much as someone wants badly to get beer out of plastic bottles, noone will own up to initiating such a packaging change which puts Russia on the opposite side of the Europe-wide, nay world-wide consensus on how to package popular drinks, and recycle them when they are empty.

The money-shot in this story is $1.5 billion; that’s the current value of Russia’s PET (polyethylene terephthalate) packaging market, about one-third of which is filled by beer. The Russian beer market, in 2010 figures, was worth about $6.6 billion, so the plastic bottled segment of the market is worth $2.2 billion, including the value of the beer.

First patented in bottle form in 1971, PET is made from petrochemical feedstocks, so its principal producer and supplier in Russia is Sibur, once the petrochemical affiliate of Gazprom and now owned by Leonid Mikhelson and Gennady Timchenko; Sibur claims a 16% share of the Russian polyethelene market. About one in every two bottles of beer sold in Russia is made of PET (aka plastic). Getting rid of (recycling) them is also a booming business in Russia. At present installed capacity can turn 160,000 tonnes of PET bottles per annum into polymer pellets; they are produced nowadays by a competitive market of about 30 companies. Compared to glass or paper and cardboard packaging, PET bottles are much easier to recycle, and it’s much more profitable to do so.

Here is the draft Russian rule on banning plastic bottles for beer: “Production and sales of alcoholic beverages in plastic consumer packaging (consumer package based on polyethylene, polystyrene and other plastics material) is not permitted.” It appeared in the second half of 2011, initially as a proposed amendment to the technical regulations on the safety of packaging of the Customs Union of Russia, Belarus and Kazakhstan.

The author of the proposed ban on plastic beer bottles may have been the Federal Agency on Technical Regulation and Metrology (Rosstandart).It may have been the work of the Federal Service for Alcohol Market Regulation (Rosalkogolregulirovanie). When each agency was asked this week if it had originated the plastic bottle ban rule for the Customs Union, they wouldn’t quite say. This doesn’t mean they didn’t do the drafting, or that they don’t support the ban. But since the draft was released for public comment, the two government agencies don’t want to admit either. That is because there has been an avalanche of comment, all of it negative.

Rosstandart refuses to discuss the ban at all, deflecting questions to the website of the secretariat of the Customs Union. There by telephone officials acknowledge there is a proposal to ban plastic beer bottles; that the public discussion period for this proposed regulation ended on December 23, 2011; and that for the time being, the regulation has not been implemented. The detailed regulatory proposal of the Union covers, not only PET, but also glass:

“38. Production and sales of alcoholic beverages in plastic consumer packaging (consumer package based on polyethylene, polystyrene and other plastics material) is not allowed.
The volume of consumer packaged soft drinks should not exceed 330 ml. Bottling of alcoholic beverages is allowed in glass returnable packaging except for wines, wines with a protected geographical indication, wines with a protected designation of origin, vintage wines, sparkling wines and sparkling fruit table wines. The [bottle] closures must be leak-proof packaging…”

More package security regulations are here. And here’s what is ordered for glass bottles of beer: “6.2. Glass packaging:…must not be reused for contact with alcoholic beverages and baby food.”

Customs Union officials concede that the proposed ban has yet to pass a review and approvals process by all three states. But Belarus has already acted, the Union website concedes, with an offer to withdraw from the ban on beer in plastic bottles. An estimated 85% of all beer retailed in Belarus is bottled in plastic.

Sources in the beer brewing and the broader alcoholic beverages industry say the initiative for the ban appears to have started in Kazakhstan, and to have been picked up by RosAlkogolRegulirovanie. These sources say the Kazakhs are trying to protect their domestic beer brewers and bottling companies, because the proportion of PET beer bottles in that market is relatively small, and the established beer companies want to keep it that way.

In Moscow RosAlkogolRegulirovanie, on the other hand, has come up with the conviction that PET bottles are bad for drinkers’ health. While this is widely viewed in the Russian industry as nonsense, and the Union of Russian Brewers, the beer lobby, doesn’t doubt it is camouflage for a commercially competitive interest, it doesn’t identify who that might be. The spokesman for RosAlkogolRegulirovanie would not agree to speak on the record, except to say that his agency’s role is to prepare the dossier on the regulatory impacts, the public discussion, and the pros and cons of the proposed policy change for the final review by the Russian government. RosAlkogolRegulirovanie, its officials claim, doesn’t report its own views.

There are at least three ministry-level objections to the PET ban. These are from the Ministry of Economic Development, the Ministry of Industry, and the Federal Antimonopoly Service (FAS). All three have concluded the ban is anti-competitive in intention and in outcome.

As for the proposed ban on the re-use of glass bottles for beer and wine, the glassmakers’ lobby has mobilized in the Federation Council, the upper house of the Russian parliament, where Alexander Torshin, the acting speaker, has written a letter to the government urging rejection of the glass ban.

Industry sources say the first attempt at imposing the ban on beer bottles of PET was made in the lower house, the State Duma, by deputy Viktor Zvagelskiy. He has been an active campaigner for tougher regulation of alcohol consumption in Russia, ostensibly to stop the illegal production of samogon (moonshine vodka), and to reduce alcohol abuse among the young. He was rebuffed when he attempted to introduce the bottle ban in Russian legislation. At the time, industry sources now claim, Zvagelskiy was one of the leaders of the anti-beer lobby, and was acting for the established vodka distillers’ lobby. The kompromat file on Zvagelskiy looks like this.

Rashid Nureyev, spokesman for Sibur, suggests the government cannot act against the global trend toward more, not less PET bottling. “To our knowledge, there is no a prohibition on the use of PET bottles for beer and non-alcoholic products anywhere in Europe. Sibur hopes that consideration of the regulations on prohibition of the use of plastic packaging in the beer industry will be objectively reviewed and finally rejected by the Customs Union. It is in no way justified.”

Vadim Drobiz is the director of the Moscow-based Centre for Research on Federal and Regional Markets for Alcohol (TsIFFRA). In his assessment, the attempt to ban PET bottles will fail because it lacks a powerful commercial constituency, and has no effective arguments. “Beer is not a competitor in the Russian market with strong alcohol. The producers of vodka don’t care what is going on in the beer market. With a beer the only drink that can compete is low-alcohol beverages. With strong alcohol, only wine can compete.

Zvagelskiy, who leads the fight against the beer industry, has not come up with a reason for the ban. As for Kazakhstan, it is a very small country. Russia is the weather vane in this matter. It is nonsense to suggest that plastic bottles are harmful to health.”

“If initially this initiative was directed against cheap beer, then it would be understandable, and many community organizations would agree with it. But now that beer consumption is growing, the beer market has no competition.”

All industry sources engaged in the battle against the PET ban acknowledge that if one product is banned, the makers of a competing product will gain.

But does that extend to the aluminium can and its Russian monopoly maker, the Dmitrov Aluminium Can Tape Test Plant (DOZAKL), owned by Oleg Deripaska?

Dobriz thinks not. “Aluminum cans are low in popularity, and not the most reputable package. In our [alcohol beverages] market, it’s 50% for glass bottles, 30% for plastic, and only about 20% for cans. So the only one who might gain [from the PET ban] is the glass manufacturers.”

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