When the public was once again reminded of the scale of corruption in the alcohol industry, this allowed the topic of privatization of distilleries to be revived.
Igor Shvaika
The privatization of Ukrspirt, which the vodka lobby, with the support of then-Finance Minister Oleksandr Shlapak, actively promoted throughout last year, may resurface soon. At the time, there were plans to remove the concern from the Ministry of Agrarian Policy's control, with subsequent privatization of its distilleries, but this attempt proved unsuccessful. The renewed talk of privatizing the distilleries was prompted by Ukrspirt's attempt to sharply increase the prices of its products. In late February, vodka companies received notice that the price of premium spirits would increase from UAH 17,5 to UAH 26,5 per liter on March 1. The concern's management attributed this to the rise in the price of the main raw material—wheat (almost doubled since the start of the season)—as well as the upcoming increase in gas tariffs. Vodka producers, of course, were not happy with this: with annual alcohol sales in Ukraine at 150 million liters, this meant an increase in their costs by more than UAH 1,3 billion, to almost UAH 4 billion.
To lower the price of raw materials, vodka producers plan to pressure Ukrspirt with incriminating evidence they have about illegal raw materials being supplied to underground vodka distilleries. Ukrspirt, however, doesn't need any scandals right now. Agrarian Policy Minister Oleksiy Pavlenko is already trying his best to sanitize the concern's reputation.
Volodymyr Ostapyuk, head of the Ukrvodka Association, was the first to launch a public attack. He accused Ukrspirt of ineffective management: allegedly, of the alcohol monopoly's more than 40 plants, only five are operational, resulting in high production costs and very mediocre quality. Ostapyuk predicted that ordinary consumers would pay the price for this, for whom the price of a bottle of vodka would rise to 55 hryvnias. In response, Ukrspirt announced that it was prepared to reduce the price to 24,4 hryvnias per liter of alcohol and peg it to market prices for raw materials.
As DS has learned, the alcohol producers managed to secure the discount during the first round of negotiations with the concern's management. "Initially, vodka companies wanted to intimidate officials with a mass refusal to purchase the more expensive alcohol, but then decided to abandon this idea," a representative of one of the alcohol producers told DS. The exact arguments ultimately used are unknown, but it appears that the bargaining has only just begun, as the vodka producers are dissatisfied with the 8% price reduction after a more than 50% increase. Ukrspirt agreed to revisit the issue on March 13: a new meeting with industry representatives is already scheduled for that date. According to DS, the vodka companies' ultimate goal is to reduce alcohol prices to the original level of 17,5 UAH/liter.
According to unofficial reports, vodka producers are planning to pressure Ukrspirt with incriminating evidence they have about illegal raw materials being supplied to underground vodka distilleries. Official producers have always closely monitored the gray market and tracked illegal alcohol production schemes, so they'll likely have something to counter with. Ukrspirt, however, doesn't need scandals right now. Agrarian Policy Minister Oleksiy Pavlenko is already struggling to sanitize the concern's reputation. He recently declared victory over corruption schemes at Ukrspirt, promised a large-scale modernization of its plants, and announced an open competition for the company's CEO (the current acting head of the spirits monopoly is Roman Ivanyuk, a former employee of the investment company Concord Capital).
However, rumor has it that the illegal alcohol trade schemes are still active. According to former Agrarian Policy Minister Ihor Shvaika, who unexpectedly "came into the spotlight" in February, Andriy Ivanchuk, deputy head of the People's Front parliamentary faction, and Oleksiy Chebotarev, a Kyiv "reputable businessman" (wanted by the Ministry of Internal Affairs since last summer), are involved in illegal alcohol schemes. In response, the People's Front accused Shvaika of slander, naming him as one of the organizers of corruption schemes at Ukrspirt. What's surprising about this whole story isn't so much Shvaika's unexpected candor as the timing of his scandalous revelations. After all, when the former minister gave his interview, Ukrspirt was discussing price increases. And now, with the public once again reminded of the scale of corruption in the alcohol industry, talk may resume about the need to privatize distilleries as an effective means of combating it. This argument is a favorite among vodka producers, who have long sought to strip the state of its monopoly on alcohol production.
Published in the weekly newspaper "Business Capital" on March 9, 2015 (No. 10/720)
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