Anomalously warm winter may lead to lamentable consequences for Russian economy

In terms of history of modern Russia, the unusually warm winter of 2006-2007 may go down as a record setter for the early 21st century. The warm fall spilled across the first half of December with daily temperatures in Moscow and central parts of Russian exceeding the norm by an average of 10 degrees beat the previous records set during the winters of 1953, 1965, and 1989. Following a lengthy period of extremely high temperatures this winter, weather forecasters at Rosgidromet, the state weather monitoring unit, already started drawing a parallel between the winter’s “abnormality” and similar weather twists recorded 120 years ago.

However, there is more in it than meets the eye. Russia remains one of the most weather-dependent countries of the world. Not unlike the dollar exchange rate and stock indices fluctuations, temperatures may have an impact on the Russian economy. By and large, Russian business community takes a rather cautious stand on the issue. No profit and loss statements relating to this year’s weather anomaly are immediately available. Meanwhile, representatives of the Russian alcohol industry do not seem be shy of making comments on the impact of air temperatures on liquor sales. Russians are traditionally considered steadfast drinkers regardless of weather.

According to an opinion poll conducted by Vremya Novostei correspondents late December, Russia’ power and fuel supply industry is the only sector that is quite happy about the unusually warm weather this winter. Contrary to estimates, the industry has not yet used up its winter stock of natural gas, coal and fuel oil. According to Pavel Rogachev, a press secretary of Moscow’s Department of Power and Fuel Supply, an increase in outside temperatures always leads to necessary adjustments in operation of heating equipment. “The temperature of hot water in the radiators of residential buildings is automatically controlled by a hot-water heating system. The radiators grow cooler as the temperatures go up,” said Pavel Matveichuk, deputy chief of the city’s department of new equipment and power supply, in an interview to Vremya Novostei.

Estimated power consumption in December would total 93.6 billion kWh, said a spokesperson for the United Energy System of the Russian Federation (RAO UES). The figures are based on data compiled for 24 days, with recorded 8.5 degree increase above mean values. The totals constitute a mere half percent increase, compared to the figures for December 2005. The consumption growth rate ranged between 4 and 7% in the previous months. The RAO UES power stations are estimated to have produced 68.1 kWh; the output figures are practically comparable with those for December 2005. Experts indicate that warm weather enabled power stations to save up approximately 2.5-3 billion rubles’ worth of fuel in December.

On the other hand, this sort of optimism seems rather cautious since a significant amount of natural gas (about 70-80% in total) is used for power generation whose production levels should be increased after the arrival of a really frosty winter in central Russia. Therefore, the Moscow government may as well go ahead with its plan of switching off a number of power consumers that had been deemed of “minor importance.”

“I don’t believe that power consumption was considerably lower than usual,” said Stepan Orlov, chairman of the Commission for Municipal Economy at Moscow’s City Duma, in an interview to Vremya Novostei. “The outside temperatures have no effect on power consumption because it largely depends on the length of light and dark period of the day,” added Orlov. Yet the Duma deputies may cut down on budget expenditure relating to residential sector. However, the city authorities would not be able to count “unexpected profits” before springtime, according to Orlov. Even Rosgidromettsentr, the state central weather forecast agency, refrains from making any predictions about cold severity for the remaining two months of the winter.

“Should we be in luck and manage to save up some money, it will be allocated on tackling seasonal problems of the next budget and calendar year.

So far, it’s still too early to celebrate the warm start of the winter. There are some reasons to expect a regular snowfall in Moscow this winter,” said Orlov.

Specialists at Moscow public utilities sector are also quite reluctant to debate pros and cons of the warm December. Marina Orlova, a press secretary for the city’s department of public utilities and welfare, believes it is fair to say that utility services have economized some anti-icing chemicals in December. “Basically, the services have to use chemicals in winter instead of using water for road cleaning in summer. That’s the major difference. Anyway, we’ll have to wait for the end of the season to count our profit and loss due to the first month and a half of the unusually warm end of the fall and the start of the winter,” said Orlova.

Moscow department of public utilities and welfare is rather skeptical aboutpotential gains arising from the high temperatures this winter. “Landscapers forecast that a lot of bulbous plants won’t survive due to high temperatures and a lackof snow,” said Orlova. Last fall the Moscow landscapers spent more than 15 million rubles on seeds and materials for the city flowerbeds. Besides, municipal cleaning vehicles are now running on wintertime tire casings, which put more pressure on the pavement. Utility services had to use nearly all the equipment to clean up lots of mud and slush on Moscow streets following a high level of precipitation during warmer-than-usual days. Therefore, the chance of cutting down on fuel costs was pretty slim. About 5 thousand trucks were utilized every night, using “summer” road cleaners and sweeping brushes to remove “lots of dirt mixed with fuel decomposition products brought to Moscow on the wheels of incoming motor transport”, according to Orlova.

Needless to say, Moscow stores specialized in selling goods and services in wintertime cannot expect any shopping spree with the weather like this. However, winter apparel merchandisers still refuse to admit that they are suffering losses. A spokesperson for Snezhnaya Koroleva fur and leather clothes store chain claimed the demand for winter apparel was pretty steady despite a long spell of warm weather in Moscow. The warm November and December had some impact on the sale of winter tires yet the overall trend remained unchanged. “So far the sales have reached a peak in November. Compared to last year’s activity, this season went down more smoothly,” said a spokesperson for a MVO chain store.

Predictably enough, consumer interest for winter sports equipment has been pretty slack this warm and snowless winter. Record high temperatures cannot give a boost to sales, said a spokesperson for Sportmaster store chain in Volgogradsky Prospekt. On the other hand, figure skating became all the rage among Muscovites following the broadcast of a hugely popular TV show Stars on Ice and a larger number of skate rinks opened recently around the city. The spokesperson was not prepared to cite any figures showing an increase in the sale of skates. “No doubt about it, the increase in sales is quite significant on the year ago,” the spokesperson was quoted as saying.

Ski complexes in Moscow and thereabouts opened the season later than planned yet they seem poised to catch up with time lost to weather in November and December. “We had a trial day on November 17th. The slopes were put into operation, and we hoped to open the season on the following day,” said Anton Vinogradov, a marketing director for Kant sports facility, in an interview to Vremya Novostei. According to him, the stores selling winter gear were doing fine at the time. Some difficulties occurred early December, resulting in a drop of sales, which never rose by 50 percent, contrary to estimates. However, Vinogradov strongly denied that his facility would make up for lost revenues by hiking prices for services rendered in January and February. “By comparison with the last season, this year’s tariffs are going to change but the change has nothing to do with the delay of the season.

You know, prices tend to rise anyway,” said he. “We believe there’ll be a 10% increase in ticket prices, while ski rentals will cost just the same, added Vinogradov.

According to data provided by the National Alcohol Association (NAA), the sales of vodka in Russia were not affected by the warm December. On the contrary, sales rose by 1.5-2% in the year by November-December. “On the whole, Russia’s market of vodka depends on weather. People normally drink more when it’s colder outside. Therefore, it would be only logical to assume that this year’s warm winter could bring the sales down,” said Papel Shapkin, NAA board member, in an interview to Vremya Novostei. “But the year 2006 was a special year. The alcohol industry came to a halt for months in the summer following the introduction of new excise labels. Consequently, production rate and sales went up considerably as the year drew to a close. However, some decline in production, estimated at around 8%, will be felt in terms of annual results,” added Shapkin.

Dmitry Rautberg at Kristal trading and industrial group believes that the warm winter had a negative impact on the sales. “Any way you look at it, cold weather gets people to drink more,” he said. Representatives of Istok company are confident that the latest weather anomaly did not affect vodka sales. According to Istok, the soft winter gave a boost to the consumption of wine and champagne. “Judging by the sales of champagne, our consumers display lots of Latin temperament, so to speak. In November and December 2006, we sold almost twice as much of champagne as we did over the same period last year,” said Sergei Aleksukhin, an assistant to president of Istok, in an interview to Vremya Novostei.

Vremya Novostei

Translated by Guerman Grachev

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Author`s name Dmitry Sudakov