Privatization of alcohol industry
Ukraine is privatizing and demonopolizing its alcohol industry. Throughout the country’s history, this industry was a state monopoly, and until recently, only two countries worldwide (also Belarus) did not hand over this production sphere into private hands. As a result, currently the plants produce less and earn less than they could have.
The state puts up for sale operating locations (OPs) of “UKRSPYRT” state-owned enterprise and plants (distilleries) of “UKRSPYRT” Concern (group of companies) and other assets.
Operating Locations (OPs, МПД) are places of production activities and storage of alcohol of SOE “UKRSPYRT”. Because each such object (plant) is not a legal entity per se, an OP is, in fact, a group of separate property, including buildings, equipment, movable property, etc., that is capable of providing a full production cycle.
What products are manufactured in Ukraine
Alcohol production industry is one of the key ones in the economy. Over 150 different production areas depend on it. We are talking not just about spirit and alcohol for nutritional and medical use. This industry is an important component of the fuel and energy sector: it produces bioethanol and its derivative additives.
Ukrainian distilling plants produce rectified ethyl and denatured alcohol,raw material for sanitizer and antiseptic production, bioethanol, raw ethyl alcohol, main fraction of ethyl alcohol, fusel alcohol and carbon dioxide.
Also, Ukrainian plants are equipped with facilities for production of spirits and liquor beverages, so, as contractors, they are able to produce the most high-quality alcohol beverages.
What are the advantages of Ukrainian alcohol industry
- Production capacities and professionals
OPs of SOE “UKRSPYRT” (41 production sites nationwide) are capable of producing over 36 million decaliters annually. Their employees are professionals, including the best experts of the area.
- Outlet markets
Ukrainian products enjoy high demand in Central Asia, Turkmenistan, Georgia, Azerbaijan, Turkey, Austria, Poland, Vietnam, Hungary, Slovakia and other countries. The plans for the nearest future include rapid expansion of geographical coverage.
At SOE “UKRSPYRT”, there is a quality management, safety and environmental control system, implemented and certified: ISO 9001, ISO 14001, ISO 22000, Hazard Analysis and Critical Control Points.
The alcohol industry has a specific particular feature: alcohol can be produced from many types of raw materials. For instance, from the grain that is unusable for consumption and forage purposes, and from sugar production waste – molasses.
Since 2016, “UKRSPYRT” has switched to a digital procurement system, which guarantees a transparent and high-quality cooperation procedure.
“UKRSPYRT” cooperates with the largest Ukrainian and international transporting companies.
Some of the distilling plants that have communications facilities (and at some plants, even railways) connected to them, might be used as production sites that are conveniently located in agricultural regions, or as grain elevators.
Meanwhile, the objects that need to be disestablished, can seem interesting to the investors, because based on their infrastructure, it is possible to create the logistics centers, trade objects, and various production facilities.
Bonuses from the state
Ukraine has significantly liberalized the activity in the sphere of alcohol production and market circulation. The new rules entered into force on July 1st, 2020.
In particular, companies can already receive a license for the production and export of alcohol. Complete opening of the market will take place in several stages:
- In order to start producing alcohol before July 1st, 2021, the investor will have to buy a state-owned plant at a transparent bidding auction.
- Construction permits and permits for commissioning of alcohol distilling plants will be issued only from July 1st, 2021.
- In its turn, the state will protect the investors’ businesses, by limiting the import of alcohol until 2024.
Regulatory documents on the alcohol industry reform:
Alcohol objects privatization map
Terms of privatization
Initially, until 01.07.2021, the conditions of privatization, in accordance with the Government program, included: preservation of the type of activity until 01.07.2021, preservation of at least 70% of production personnel until 01.07.2021, and maintenance and/or access to civil defense facilities (if present).
Currently, in accordance with Law No. 1914-IX dated 30.11.2021 “On Amendments to the Tax Code of Ukraine and other legislative acts of Ukraine on ensuring the balance of budget revenues”, buyers must pay off debts from salaries, to budgets, social taxes, overdue payables of SOE “Ukrspyrt” in the amount of 100% of the balance sheet value of the acquired property as of the last reporting date by transferring the amount to the account of SOE “Ukrspyrt”. That is, the only condition is repayment of debts, the amount of which will be equal to the starting price of the object of privatization. This amount is indicated in the conditions of privatization, in the information notice document on the sale of the object of privatization.
How to invest in alcohol industry
Answers to frequently asked questions:
- How to participate in an auction?
- Who can be a buyer?
- How does the sale work? How auctions are held?
- How to find complete information about alcohol industry objects?
- In what format are distilling plants privatized, what is an Operating Location?
- What can be produced at a distilling plant?
- How is the starting price of the object determined?
- How to get a license for the production of alcohol and alcohol beverages?
- What happens to the land after the sale?
Objects are sold at ProZorro.Sales electronic auction platform only. In order to participate in an auction and become an owner of privatization object, one needs to perform 7 steps:
- Get familiar with the list of objects on this website, on the ProZorro.Sales site or at the sites of authorized marketplaces.
- Select an object and study the information about it.
- Register on any of the dozens of marketplaces connected to ProZorro.Sales system.
- Apply for participation in an auction through a personal account on a marketplace site.
- Participate in an auction and win.
- Pass the qualification.
- Pay the value of an object, sign a purchase agreement.
More details: on “How to buy” webpage.
Anyone can be an investor – both individuals and legal entities, both residents and non-residents. There is a specific ban for investors related to the aggressor state or subjects to sanctions. There is also a ban on offshore investments without a transparent ownership structure.
The law provides for a model of four auctions, which automatically follow each other, only if the previous one did not take place, that is, there was not even 1 application for participation. The first auction is held 5-20 working days after the publication of the information notice. If the auction did not take place, the next auction is announced automatically within 1 working day and is held after 10-15 working days (3-6 days during martial law).
1. English auction to increase the price (Auction without conditions or auction with conditions). The starting price is 100% (initial price).
2. English auction to increase the price (Auction with a decrease in the starting price). The starting price is 50% (of the initial price).
3. Dutch auction for price reduction (Auction by the method of step-by-step reduction of the starting price and subsequent submission of price offers). The starting price is 50% (of the initial price).
4. Dutch auction for price reduction (Auction by the method of step-by-step reduction of the starting price and subsequent submission of price offers). The starting price is 50% (of the initial price).
In all types of auctions (English and Dutch), the winner is determined by the bidder who placed the highest bid during the auction.
An English auction is a typical auction for price increase. English auction consists of 3 rounds, where each participant has an opportunity to increase previous bid, and 3 minutes is given for the decision-making to each participant. The peculiarity of this auction is that the participant who set the highest price goes last and sees all competitors’ bids.
A Dutch auction is an auction where a starting price of an asset at first declines (usually this type of an auction is determined for assets which price is difficult to estimate) until one of the bidders is willing to buy an asset at that price. Then the price at which the decline was stopped is considered the starting price, and all participants have an opportunity to compete for the asset in 1 round.
Information about objects is posted on this website (see “Alcohol industry” catalogue), on ProZorro.Sales website, on the websites of authorized marketplaces.
For more information about the object, there are virtual data rooms. These are storage locations of all documents that are available concerning the object – from technical passports to ownership titles and photographs. Their main purpose is to simplify access to information, eliminate corruption during receipt of those documents and enhance the transparency of the privatization process.
If you still have questions after this, each object has a contact person responsible for privatization preparation, as well as a person responsible for physical access to the facility. Information about these people is available at the object’s webpage.
For more information on accessing data rooms, see “How to Buy” webpage.
Operating Locations (OPs, МПД) are places of production activities and storage of alcohol of SOE “UKRSPYRT” is provided. Because each such object (plant) is not a legal entity per se, an OP is, in fact, a group of separate property, including buildings, equipment, movable property, etc., that is capable of providing a full production cycle.
The plant can simultaneously produce one of the following types of alcohol:
- Non-denatured ethyl alcohol (simultaneously, a plant can produce any ethyl alcohol without the content of denaturing additives: rectified (food) alcohol, technical alcohol, raw alcohol) and products that contain it: alcohol spirit and liquor beverages, alcohol vinegar).
- Denatured ethyl alcohol and products based on it: detergents, dissolvents, antiseptics, perfumes and cosmetics products, etc.
- Bioethanol and its raw material (raw materials for bioethanol), biofuels.
By-products of alcohol production are biogas, protein forage products and carbon dioxide.
The starting price is formed at the book value level (for joint stock companies – at the level of the par value of shares). If there is no book value, such value is established on the basis of the value determined in accordance with the Valuation Methodology approved by the Cabinet of Ministers of Ukraine. But with the correct work on the disclosure of information and preparation for privatization, the competition at the auction always forms the market price of the object.
During the period of martial law, in the absence of book value, it is possible to put the object up for sale for 1 hryvnia and give the market the opportunity to determine its real price.
Licenses for the production of alcohol beverages (spirits and liquors) can be obtained by enterprises of any form of ownership.
Obtaining a license for the right to alcohol wholesale costs UAH 500,000 annually, and is issued within 10 days.
Obtaining a license for the production of alcohol takes no more than 30 days from the application date and requires an annual fee of UAH 780.
More details: on “How to get a license” webpage.
Privatization objects are sold without land. According to the legislation, an owner of an object on this land plot has the primary right to register this land plot.