Since the Ukrainian government lifted its monopoly on alcohol production a year ago, investors have started buying state-owned distilleries one by one.
As of June 16, the State Property Fund has already sold 25 distilleries, mostly idle, for a total of $45 million, according to Kostiantyn Koshelenko, Deputy Chairman of the State Property Fund.
At the latest auction, the fund sold a distillery located 70 kilometers from Kharkiv in the city of Karavan for $3.7 million, which is five times the starting price.
“This year we expect more price increases at the upcoming auctions and bigger interest from market players in these properties,” said Koshelenko during the forum “Ukraine 30. Economy without Oligarchs.”
Overall, the government plans to sell 41 distilleries owned by the state enterprise Ukrspyrt, seven of them in 2021.
Selling distilleries is just one part of an ambitious governmental privatization program for some 1,000 non-strategic properties, from small old barns to large factories.
“We are constantly expanding our investment menu as there is a possibility to include more properties that aren’t used by the state,” said Koshelenko.
According to Taras Galaiko, production director at Aqua Solar Invest, the company bought a distillery in Vinnytsia Oblast for $730,000 in October last year and plans to export spirits abroad.
“Our alcohol is the best in quality in the European Union: we have water suitable for its production, and plenty of other high quality raw materials for it,” the Vinnytsia Regional State Administration reported on June 11.
Tackling the shadow spirit market
Until recently, Ukraine and Belarus were the only two countries in the world with monopolies on spirit production. Regardless, the illegal production of alcohol was widespread.
In 2019, half of the spirit production in Ukraine was in the shadows, according to the State Property Fund. Its production has quadrupled over the past decade due to the booming illegal alcohol market.
“Transparent privatization of alcohol assets opens up new opportunities for both the country and investors,” the Fund stated.
Although Galaiko estimated that a company would have to invest an additional $ 370,000 in the plant, he is sure that it is “one step forward” for the industry.
“Everything that worked in the shadows is now open,” said Galaiko. “Once you get the permission to produce alcohol, you can start.”
Income plans from privatisation
By the end of this year, the state expects $450 million in privatization revenues, 30% from sales of small businesses worth less than $10 million, such as UkrSpirts’ distilleries.
Over the first five months of 2021, the state has already held 180 auctions and earned about $40 million, which is three times more than in the same period last year.
For example, the Fund will sell three hotels that used to belong to the Ministry of Defense — Vlasta Hotel in Lviv, Bratislava Hotel in Kryvyi Rih and Kozatsky in Kyiv.
“Why should the Ministry of Defense have hotels that are unprofitable?” said Kirill Tymoshenko, deputy head of the President’s Office, during the forum.
“There are hundreds of such non-core objects in different Ministries and government agencies. The state should earn from this,” said Tymoshenko.
