Considering Ukrspyrt for privatization, authorities will realize - there is yet nothing to sale

Author : Olena Holubeva

Respondent : Yury Luchechko

Source :

The Ukrspyrt alcohol state monopoly has remained one of the most closed structures for the last few years. But with it are often mentioned such things as "shadow alcohol", shadow money flows, raider seizures and, of course, endless privatization promises
18:21, 10 October 2017

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Recently, the Cabinet of Ministers announced another competition for the post of Ukrspyrt director, and in mid-September, government appointed Yury Luchechko as acting director. Let's note, since the Revolution of Dignity, the official became the fifth head of Ukrspyrt. In his first interview in the office, Mr. Luchechko frankly told about what happened during the last three years in Ukrspyrt, as well as how privatization will be cinducted and what sort of sensational changes await companies in terms of pricing for alcohol.

- Mr. Luchechko, how many plants are in Ukrspyrt company work, and how many are idle now?

- Since last month, 17 enterprises have been involved in the production plan, and in total we have 41 production sites. In non-working enterprises, people are working in reduced working hours, two-thirds of the time. And this is a huge burden for us. We keep non-functioning distilleries. We have about 3,5 thousand employees, to whom the salary is paid, and more than 20 enterprises, which must be kept in proper technical condition. In a year we spend UAH 150 million on the maintenance of the working places (the places of the activity - production sites, former distilleries before being transferred to the state enterprise Ukrspyrt - were independent legal entities, - Ed.), which do not work.

- Out of 17 factories, how many produce food alcohol, and how many produce the denatured one?

- About 15 plants now produce food alcohol, 2 - denatured.

- In general, what about the results of Ukrspyrt state enterprise in the export sector?

- Of course, we have a problem with the deterioration of our production assets, and, accordingly, with a high production cost. However, as soon as there is an opportunity to work for export, we use it. We are ready to consider the project even with minimal profitability. After all, exports - this is the receipt of currency, and image. Now in the state enterprise Ukrspyrt only three plants work for export. They supply denatured alcohol to foreign markets.

- Tell me, please, more about the Strategy you are working on ...

- This will be a strategic plan for the development of the alcohol industry. Of course, the ultimate goal is privatization, since the state's course for denationalization has already been determined. However, I would like to see this privatization proceed as correctly as possible. We understand that the process will be accompanied by the dismissal of factory workers. And these are jobs, besides the plants are located in the villages - in fact, they are in the countryside. Where in this area fired chemical engineer or engineer-technologist could find another job?

- Should the Cabinet of Ministers approve the strategy?

- No, this is our internal document.

- In what terms do you plan to develop it?

- I think, by the end of October we will come out with our vision.


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Privatization of Ukrspyrt

- So, how do you see the situation with privatization? How do you think it should be done?

- In the Verkhovna Rada now there is a government bill and the bill of People's Deputy Igor Lapin (the "People's Front" faction). We joined the writing of the deputy bill and we will defend it at the committee of agrarian policy and land relations. We believe that it is precisely in this draft law that Lapin proposed we have the most appropriate formula for the denationalization of the alcohol industry.

- Why do you consider this formula the most appropriate?

- It provides the denationalization of the alcohol industry in three stages. Let's be honest, now is not the time to put up for sale the entire industry. Honestly, there is nothing to privatize. Ukrspyrt is a monster, you know? 80 factories, thousands of workers, bales of documents, unsolved issues, criminal cases. At first authorities seize documents at one plan, then at another. If we now look at Ukrspyrt in the legal plane, then we see ourselves on a dark ocean floor. If tomorrow authorities start to consider our sites for privatization, they will understand that we really have nothing to sell.

But according to the formula provided in the Lapin bill, the first enterprises for sale will be those where depreciation of fixed assets is actually 70%. And these are potential sites for conversion to other types of products. Those enterprises that can be put up for sale at the second stage, there working hands are needed. We will insist on stipulation of investment obligations with the requirement to preserve the workplaces of engineering and technical personnel.

- What is the profitability of the enterprises of SE Ukrspyrt now?

- About 15%.

- At what stage is the Lapin’s bill now?

- It has already passed the economic policy committee, was approved and ready to enter the session hall.

- According to what principles will enterprises be selected for each of the stages of privatization?

- Now we conduct a technical audit of our enterprises and create an electronic asset accounting system, according to which enterprises will be divided into categories. Now, at the end of the year there is an annual inventory. Its results, in particular, should form the basis of the future electronic business accounting database. We held a large technical meeting with the production units: each was given a specific task. They are instructed that before going to the inventory, they sent questionnaires to the factories. Questions, in particular, will be the following: availability of fixed assets, whether the enterprise work, what capacity, what it produced, what it can produce. Also we will ask the number of employees, the number of residents of the locality where the enterprise is located. We indicate the main partners of production sites (vodka companies). By the way, on October 10, I should already have a vision of programmers, how this registry will look and work. I think that in general, the implementation of the project will take at least 2-3 months.


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Price of alcohol

- Do you see the reasons for revising the prices for alcohol now?

- Regarding the price of alcohol. Until recently, it was created behind the scenes: it was agreed between directors. Now we come out with the initiative to introduce an absolutely transparent pricing formula. We are a state monopoly and must earn. Consequently, the formula will include the profitability with which we must work. Plus, what should be the profit, because the state requires that we have a profit. Now I came to the office and I see that all transactions for the sale of alcohol (with a fixed price, - Ed.) are concluded before the end of the year. I have a simple question - who could in March, when they were concluded, predict the price of gas, grain? How can we conclude contracts with the main partners before the end of the year at a fixed price?

- Do you want to change this situation?

- Absolutely. We will make a transparent price and formula for alcohol. It will include the price of grain, the price of gas, our administrative costs plus our profitability. This is a simple formula, which until today did not work.

- That is, the new agreements from January 1, 2018 will already be concluded with this formula?

- Yes, the deals will be concluded according to the formula. Alcohol producers, of course, are against it, they do not want it. It was easier for them to work with a fixed price. But we want to reverse this situation. As well as situation with purchases, which we have been transferring to Prozorro tenders since October. And it will also be done with purchases of gas and grain (which are needed to produce alcohol), so that everyone can understand why the price is at this rate, and not the other. Until now, there was a committee here (in Ukrspyrt, ed.). They examined the market and decided at what price to buy (raw materials - ed.).

- How much money do you need for modernization?

- We need a lot. And this is more than we can attract, and more than we can earn. After all, the production capacities of enterprises are old on average by 70%. Conditionally, we estimated that for each production site we need about 20-25 million USD to reduce the cost of production by 10-15%, which will enable us to export.

- In the past, in Ukrspyrt had some projects for the production of vodka, is this kind of activity, in your opinion, relevant to the state enterprise?

- Thank you for mentioning this topic. Indeed, the state lost its vodka industry. Despite the fact that this is an extremely profitable business. I think that state vodka should be on the shelves. It's a guarantee of quality. Currently, 100% of the products are supplied by private companies. In our company we have, and this will also be reflected in the Development Strategy, the idea to resume the production of state vodka. It's natural - if we have alcohol and there are production lines for it, then why we do not produce vodka?

- How could it be sold, under which brands?

- Trademarks are a matter of marketing. It is clear that private business has gone far ahead.

- But after all, Ukrspyrt in the past had a practice of producing vodka and had the trademarks...

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- Yes. But the brands were mostly regional. In Ivano-Frankivsk there was a beautiful TM Knyaginin. Lutsk produced luxury products. In Lutsk, by the way, we held talks last week, and the first vodka production will be made there. That party of product will go to Germany. In general, we plan to resume the production of vodka at 3-4 production sites of Ukrspyrt.

- Will you supply vodka for export or for the domestic market?

- We see great potential, first of all, in foreign markets. The fact is that now there is a demand for Ukrainian vodka. Our people, who are many in Europe, refuse to drink Russian vodka. And we are ready to make a quality product and send it there.

- In which countries are you planning to supply the state vodka?

- It's about countries where they consume strong alcohol: Germany, Italy, France, England.

- Do you have agreements with these countries?

- No, not yet.

- How do you assess the risks of production of "shadow alcohol" at the state enterprises capacities?

- It should be taken into account that Russia, Belarus represent a big risk in terms of supplies of "shadow alcohol" in Ukraine. In particular, the Republic of Moldova, there is an entire industry in this country that works for smuggling alcohol to Ukraine. We are talking about pipelines through rivers, large-scale pumping. And this is already a question for the law enforcers, how to prevent it. At the same time, Ukrspyrt by its nature should not exercise control over the sale of excisable products. This function is assigned to the State Fiscal Service. Therefore, enterprises have such points, and it controls excisable warehouses and alcohol stores. We perform only the technical function of manufacturing and selling products.

I note, in spite of this, we are now coming out with our initiatives to prevent the risks of the appearance of "shadow alcohol" in our enterprises. In the near future, at one of the enterprises, we are implementing a pilot project of electronic alcohol accounting, which will make it impossible to make unauthorized producing of alcohol. Now the method is applied, in which alcohol is re-measured, as in Soviet times.

- Will this be introduced at one enterprise?

- For now - yes. Well, you understand that the resistance will be terrible. If we start cutting this right now ... We need to gradually do this. We must prove the effectiveness of the electronic accounting and then, together with the State Fiscal Service, come out to introduce it at all enterprises.

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