Slogans about reforming and reorganizing one of the most corrupt sectors of the Ukrainian agricultural industry—the alcohol industry—have been actively exploited by the authorities throughout history. With a change in the political elite, the issue of bringing the state monopoly Ukrspirt out of the shadows usually immediately becomes pressing.
Those at the helm are concerned with halting illegal trafficking, increasing ethanol exports, and restarting years-idle ethanol production facilities. The activities of the state-owned enterprise Ukrspirt (formerly the state-owned concern) have been linked at various times to several oligarchic groups. The media have actively discussed the extent of influence on the industry of former Minister of Ecology and Environmental Protection and prominent businessman Mykola Zlochevsky, as well as that of the equally odious Party of Regions member Yuriy Ivanyushchenko (Yenakievsky), to whom, according to vodka market players, Ukrspirt was farmed out by Viktor Yanukovych during the latter's presidency.
The new pro-government coalition, formed in February after the revolution, also set itself and the country the task of combating organized crime in the alcohol industry. However, the Svoboda All-Ukrainian Union (Svoboda) (which was the political force that received the quota for appointing leaders in the agro-industrial sector) began its lustration process in a peculiar way. Thus, Minister of Agrarian Policy and Industry Ihor Shvaika appointed Mykhailo Labutin as head of the state-owned enterprise Ukrspirt. Considering that Mr. Labutin had served as deputy general director of the state-owned enterprise Ukrspirt since 2010, the appointment is somewhat controversial. In addition to serving on Viktor Yanukovych's team of protégés, as deputy general director of the state-owned enterprise Ukrspirt, Labutin was responsible for the development of bioethanol. Mykhailo Labutin has a personal interest in this promising sector: he owns Energy Strategies and Biotechnologies (Chernivtsi), a company specializing in the sale of biofuels. It's also noteworthy that during his tenure at Ukrspirt, Mr. Labutin pursued his business interests by destroying the industry's best enterprises. For example, after he successfully installed his protégé as director of the Lokhvitsa Distillery (Poltava Oblast, repurposed for bioethanol production), the plant began producing illegal or "black" alcohol, as documented by inspection reports from the then State Control and Audit Office. The plant was subsequently shut down and has remained inactive for several years. The same fate befell the Karapchev Distillery (Chernivtsi Oblast), also managed by a manager controlled by Mr. Labutin. An audit by regulatory authorities uncovered the theft of 40 decaliters of alcohol, worth over 4 million hryvnias, which was confirmed by relevant reports. However, to this day, Labutin and Company have not been held accountable for the theft of alcohol at the Lokhvitsa and Karpachevsky distilleries.
At Shvaika's instigation, a manager not new to Ukrspirt was also appointed deputy head of the state-owned enterprise Ukrspirt. Viktor Pankov headed Ukrspirt for several months in 2012, then former Minister of Agriculture Mykola Prysyazhnyuk replaced him with Oleksandr Hart. However, since 2009, Mr. Pankov had served as deputy general director for legal affairs at Ukrspirt. The Antimonopoly Committee conducted an investigation into his management activities, which revealed that the price of food-grade ethanol had been inflated by 1,5 times. However, even taking into account the unjustified price hike, this had no impact on the state-owned enterprise's revenue.
Accordingly, the questions of why Svoboda hasn't purged Labutin and Pankov—Yura Yenakivesky and Yanukovych's managers at Ukrspirt—and whose pockets the proceeds from alcohol sales ended up in, and continue to end up in, remain unanswered.
Disappointing figures
The financial and economic indicators of the alcohol industry, and specifically Ukrspirt, have been declining since the mid-90s. However, they began to deteriorate sharply in 2010 with the reorganization of the concern into a state-owned enterprise. Today, the gap in production volumes and, more importantly, sales volumes is significant. In 1996, the concern comprised 78 distilleries and 27 distilleries, with a production volume of 61 million decaliters and sales of almost 52 million decaliters. By 2014, the production and sales volume of food-grade alcohol for alcoholic beverage production had declined by almost 40%.
The industry restructuring, initiated four years ago, has resulted in only 36 distilleries operating today. These have been transformed into 38 structural units of the state-owned enterprise Ukrspirt, and all their assets have been transferred to its balance sheet. Meanwhile, the Ministry of Agriculture reports that 29 distilleries remain unreorganized, meaning they have not been transferred to the state-owned enterprise. According to the ministry, bankruptcy proceedings initiated at these enterprises have hampered the restructuring process. Consequently, arbitration managers are not giving the go-ahead for the transfer of assets to the state-owned enterprise due to their accounts payable amounting to almost a billion hryvnias. This amount is almost eight times greater than the value of their assets, estimated at 120 million hryvnias. However, this has not prevented the ministry from initiating the liquidation of the legal entities of 13 of these enterprises this year. The directors of the distilleries declined to comment on the situation. However, in an informal conversation, representatives of four of them told a correspondent that over the past few months, under the guise of liquidation and reorganization, the management of the state-owned enterprise Ukrspirt has begun selling off the plants' assets. "Some people come in and, using the CEO's orders as cover, simply cut up and cart away equipment, thereby ensuring that the plant never resumes production. This equipment is worth millions of hryvnias," laments one of the sources. "They're deliberately bankrupting us. They forced me to start producing counterfeit vodka on the remaining production lines. After I refused, I was fired," recounted one of the former directors.
Disastrous results
Perhaps the privatization of Ukrspirt's assets, announced by Prime Minister Arseniy Yatsenyuk, could be a way out of the situation. The Ministry of Agriculture, represented by Ihor Shvaika, opposes this, having submitted an analytical memo to the Cabinet of Ministers. The memo notes that the privatization of distilleries is possible only after the reorganization of the state-owned concern into a state-owned enterprise is completed. Mikhail Labutin has also publicly opposed privatization. In an interview with Interfax-Ukraine in early September, he stated that if the distillery industry is optimized, the state-owned enterprise's assets could be worth $10 billion within a year. However, these statements reflect not a desire to fully deregulate and modernize Ukrspirt's facilities, but rather Mr. Labutin's fear of losing the excess profits they generate. The fact is that the transfer of distillery enterprises to private hands will entail equipment modernization, or more precisely, the replacement of energy-intensive technologies with energy-saving ones. All this will naturally lead to a reduction in the price of ethanol, since the costs of its production will be significantly reduced.
Thus, as a result of the "balanced" actions of the Ministry of Agriculture and the management of the state-owned enterprise Ukrspirt, out of 36 plants, only 17 remained operational by the end of the first half of the year. Moreover, most of them were at full capacity for only 2-3 months. From January to June, they produced 6,5 million decaliters of ethanol, which is almost 25% less than the same period last year. Sales volumes, meanwhile, decreased by 12,5% to 6,3 million decaliters. It is noteworthy that the Ministry of Agriculture, in its reports to the government, demonstrates an increase in revenue for the state-owned enterprise Ukrspirt: UAH 26,4 million at the end of 2013, compared to UAH 24 million in 2012. And in the first half of this year, the alcohol industry has already managed to earn approximately UAH 12 million. However, the reasons for this deficit are unclear, as the market for food-grade alcohol has significantly contracted. According to the State Statistics Service, vodka production volumes fell by 77% in the first five months of this year (including the annexation of Crimea) compared to January-May of last year. In July, vodka production fell by 46,5% compared to June.
How is the state alcohol monopoly being stolen?
In whose pockets does the stolen money from the State Enterprise "Ukrspirt" end up?
Who are the patrons of the current management of Ukrspirt in the fiscal and regulatory agencies?
Why doesn't Svoboda lustrate Labutin and Pankov, Yura Yenakivesky's and Yanukovych's managers at Ukrspirt?
Who benefits from blocking the development program for bioethanol and alternative fuel production at Ukrspirt and from failing to take measures to reduce energy dependence (gas, oil) on Russia?
These and other issues deserve separate detailed consideration in subsequent articles.
The fact that the scale of theft is increasing exponentially every month is evidenced by the fact that more than 100 million hryvnias in income tax has not been collected by the state budget, as Deputy Chairman of the State Fiscal Service Volodymyr Khomenko publicly stated at the end of August.
The Ministry of Internal Affairs and others have proposed reforming Ukrspirt. As early as 2012, Censor.NET editor-in-chief Yuriy Butusov emphasized the need to privatize the enterprise.
"Is privatization of the state-owned enterprise Ukrspirt necessary? Certainly, after the lawlessness and tyranny that plagued Ukrspirt not only over the past two years but throughout all the preceding years of independence, the state-owned enterprise's production base has been completely destroyed. Individual enterprises, modernized with funds from vodka companies that lease their facilities, have not improved the situation. Ukrspirt has been reduced to a state where privatization of the monopoly seems the only reasonable solution. This would prevent the state from paying for the losses of ruined factories, but would instead collect taxes from private producers. If Ukrspirt is not reformed, not only will the bankrupt state-owned distilleries be auctioned off for pennies, but one of the most profitable sectors of the national economy will be destroyed," Butusov wrote.
Apparently, no conclusions were drawn, and the new management of Ukrspirt, under the patronage of the Minister of Agrarian Policy, Igor Shvaika, continues the work of Yura Yenakievsky.
Alina Petrovskikh, Censor.net
Subscribe to our channels in Telegram, Facebook, Twitter, VC — Only new faces from the section CRYPT!