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Concern Ukrspirt prohibited to produce spirits to the distilleries which had negative profits as of the end of 2008. In the future they have several variants – sell their plants for scrap, change the speciality for the production of biofuels or lobby for the abolition of the state monopoly on spirits and look for a profitable buyer. Meanwhile, the employees of these enterprises will join the army of the unemployed...

Ukraine will not drink so much

Ukraine inherited from the USSR a well-developed food industry, including the spirits and alcohol branch. Traditionally, the capacities of the enterprise of that time were calculated on the basis of the needs of the "immense" and with pleasure "drinking" Union. In Ukraine the level of consumption was much lower. And such a low consumption leads to the problems the food industry branches face with in their turn. Dozens of sugar mills are cut for scrap under the slogan "Ukraine does not need so many factories". Now it is turn of spirits distilleries.

The state concern of the alcohol and alcoholic beverage industry Ukrspirt consists of 76 spirits distilleries, four alcoholic beverage factories, four trading houses, food factory, juice and fresh drink factory and seven regional associations. The total capacity of the concern's distilleries is 62.6 mln dal of spirits per year. However, last year our domestic market consumed only about 20 mln dal. It was managed to export a little more than 5 mln dal of spirits. Thus, only one third of all facilities are actually used, and two thirds hardly operate or don't operate at all.

The day came when the concern decided to get rid of the ballast. As of today, according to Ukrspirt, it gets the main profits (68%) from 10 plants. But the achievements of these and other enterprises are nothing compared with the indicators of other ten plants. The top 10 worst plants bring the concern 64% (40 mln 956 ths. UAH) of loss. In addition, another 10 factories produce nothing for several years, but people are run payroll calculations on the constant basis and thus arrears in salaries increase. "Today there are plants, the total debt of which exceeds the total cost of the plants, including possible profits in the case of their operation for several years in advance," they say in the concern. According to the results of the previous year, 49 plants made profit and 33 plants made no profit. Thus, the concern will be able to get rid of unprofitable enterprises which do not operate at all or operate inefficiently and accumulate debts, including salary arrears. A special commission will be established to find the possible ways-out on these issues.

Export to neighboring countries...

The production can be revived by stimulating consumption, but the domestic market is limited and will unlikely be able to "swallow" a few more million dal of spirits, say nothing about increase of demand threefold. There remains an export of products. This year concern Ukrspirt expects to export more than 10 mln dal of spirits and increase the volumes in future. As it was mentioned in the concern, currently the potential markets for Ukrainian spirits are the countries of Central and Eastern Europe, Asia and Africa. And to compete with the largest spirits exporters – Brazil, Pakistan, China – it is necessary to carry out a deep modernization of the production with a technical component, because the main indicator on the market is the price and regularity of supplies.

But experts doubt that Ukraine will be able to export more than 10 mln dal. The European market is rather tightly occupied by Brazil. It will be difficult for Ukraine to compete with it, because the Brazilians have reduced the energy component of the net cost almost to zero due to the use of wastes as a fuel. And on the contrary, year over year the new prices are imposed on energy resources in Ukraine and the energy-efficient technologies are introduced a bit at a time, due to this factors the product competitiveness falls rapidly. With such rates, Ukrainian spirits can lose its attractiveness in the eyes of foreign buyers very quickly.

Thus, it is hard to escape a conclusion that a half of the spirits distilleries will still remain out of work. They are the patients of the "hospital room" followed by complete rest or experienced doctor.

Ukrspirt decided to participate in the fate of lame-duck enterprises. The concern notes that of the three markets – potable alcohol, spirits as a raw materials for industrial processing and spirits as an energy carrier – only the first one is developed in Ukraine. So, as a first step, the concern will focus on the formation of new spirits markets in Ukraine and the expansion of export. In addition, it is planned to produce final alcohol-containing products at spirits distilleries – fuel components, non-freezing detergents, solvents, etc. "All these markets need to be developed and the presence at them should be defended by implementation of aggressive policy, in a positive sense of the word," the concern noted.

Spirits future in the automobile industry

According to Igor Shchutskiy, General Director and co-owner of Techinservice MG LLC, investments in the construction of a plant for biofuels production amount to about 1 euro per liter of produced spirit. It just may be imagined what amounts of funds are concerned. At the same time, according to Igor Shchutskiy, it is impossible to estimate the payback period of the project at the loan rate of more than 30%. Only drug and arms trade can be developed at such interest. The payback period of the European loan at the rate of 2% is 6-8 years. It is obvious that it is cheaper to re-equip the existing spirits distilleries for production of biofuels than to build new ones.

As of today, 5 spirits distilleries have already been switched to the production of biofuels, the investor was Techinservice. Annual production can reach 120 ths. tons. It is a serious statement. If 5% of bioethanol is added to gasoline, this will not disrupt the operation of the vehicle's engine and reduce the cost of fuel, the annual production volume will be enough for 2.4 mln liters of gasoline, which is almost half of the annual fuel consumption in Ukraine.

Meanwhile, now in Ukraine there is a state monopoly on the production of spirits, and the state, as it is known, has no money, so the re-equipment of spirits distilleries is doubtful.

And one more aspect of the issue. There are enough raw materials for biofuel production in the country – rapeseed will be used for the production of biodiesel, the areas for sowing of which increase rapidly, it is successfully exported to Europe and provides it with environmentally friendly fuel, and molasses (by-product of sugar production), low-quality grain and corn will be used for the production of bioethanol. For the development of this field of industry it is necessary to form the domestic market, and it is not easy to do it under the current conditions.

According to Igor Shchutskiy, in the current situation there is a big difference between the Ukrainians and Europeans – the Europeans want to pay more and use the environmentally friendly fuel which does not pollute the environment. And for the Ukrainians, the price factor is decisive. It should be reminded that recently oil prices have dropped sharply, respectively, if there was a difference in the cost of these energy sources, today it is kept to a minimum, this factor also does not stimulate the development of this market in Ukraine.

According to Igor Shchutskiy, the situation can be changed at the legislative level. Thus, the law On Encouragement of the Use of Biofuels adopted by the Verkhovna Rada in the first reading (No. 1114) promises a positive result. The gasoline producer will be interested in purchasing bioethanol because it will be tempted by excise duty benefits. "Now the excise duty per ton of gasoline is 110 EUR and for each added percentage of ethanol it will be reduced by 5 EUR. This will be the catalyst. We expect that this will increase the interest in biofuels," Igor Shchutskiy stressed.

But, the expert notes that, in addition, it is necessary to liberalize the mechanism for transferring alcohol to the refinery. As of today, spirit is an excise product. It is necessary to exempt bioethanol denatured, for example, by gasoline, from the excise duty. And at the same time, it is necessary to set a zero rate of excise duty on biofuels as well as to simplify the procedure with tax anticipation bills, because it washes out the working assets of oil refineries, thereby reducing their interest in production of bioethanol.

The expert makes an emphasis that immediately after the adoption of this law, the Ukrainian oil refineries will not get in line for biofuels. "The distance between the understanding of business and the actual purchase of Ukrainian bioethanol by the Ukrainian oil refinery will take at least half a year," Igor Shchutskiy noted.

There is one more option. The products can be exported to Europe, where the income level of the population allows them to take care of the environment. And the quality of Ukrainian biofuels is better than the Brazilian ones Europe is flooded with. However, the question is in the price and scale of production – Brazil can supply products with tankers, Ukraine can supply with tanks. At the same time, the cost of Brazilian fuel is lower, because spirits distilleries provide themselves with energy by burning their own waste. However, while the global market has not been formed yet, Ukraine has a chance to show oneself to be a serious and high-quality partner. The necessary things are the government's desire to develop this field of industry and the corresponding legislative framework.

To develop the domestic market, the state should resort to a move, i.e. transfer, for example, municipal transport and transport of the Ministry of Internal Affairs, to biofules, as many countries did, and also develop the appropriate infrastructure – the specialized fuel stations are required. Such approach should be thought well before making a decision and in no case command-and-control measures should be applied.

Down with the monopoly

It will be the thing of the future. As of today, the abolition of the state monopoly on the production of spirits can give the spirits distilleries a chance to survive, this is that the alcohol producers have been dreaming of for a long time..

"As of today, the state has absolutely no money for the development of spirits distilleries, so, it is necessary to make a decision on demonopolization of spirits production," Viacheslav Sokerchak, Vice President of the Ukrainian Trade and Industry Confederation, said.

Andrei Okhlopkov, General Director of Group of Companies Soyuz-Victan, agrees with him: "If a law on demonopolization is not adopted, the Ukrainian alcohol industry will become uncompetitive and cease to exist. Spirits producers from Turkey, Brazil, Russia will come to the market and offer a good quality at an affordable price. The industry can still be saved. Having passed a therapeutic course in the form of privatization, the alcohol industry can be saved."

"In any case, without investment, the industry will not be able to re-equip its facilities and make products competitive at the foreign and domestic markets. And the investments can be obtained only in the case of demonopolization or if the conditions are provided, as in China, where the state is a reliable partner and iron rules are established. There, foreign companies invest significant funds in state-owned enterprises without any doubt," Viacheslav Sokerchak says.

Alcohol producers state that in the case of the private property business the level of responsibility is higher. "The privatization of spirits distilleries is a healthy and necessary measure which fully complies with the principles of the market economy. Only privatization can be a guarantee that the alcohol industry of Ukraine will continue to grow rapidly," Andrei Okhlopkov notes.

The alcohol producers are ready to participate in the privatization of spirits distilleries if a decision on demonopolization is taken. They will choose between the ratio of price and quality, considering how much funds must be invested in a particular enterprise. At the same time, the companies do not exclude that they will be able to use sites of the spirits distilleries for the construction of new modern enterprises. According to Viacheslav Sokerchak, first of all the alcohol companies may be interested in the infrastructure of existing enterprises. "As of today, any spirits distillery requires serious investments, and we will make a decision depending on the specific proposal whether to build a plant from scratch or modernize the existing one," Andrei Okhlopkov said.

According to the company Soyuz Victan, in Ukraine about 20-30% of spirits distilleries can be modernized. And if this is done, they will satisfy the country's basic need for spirits. With the current annual need of the alcohol industry for 20 mln dal of spirits per year, six modern medium-sized spirits distilleries with a capacity of 10 ths. dal per day will be enough to provide the entire alcohol industry with spirits.

According to experts, the construction of a spirits distillery at a new site costs about 25 mln EUR, while dismantling of the old equipment and installation of the new equipment at the existing sites will cost half-price.

It seems to be that the spirits producers have a desire to develop the industry, and the government undertakes the first, though timid, steps in this direction, but there are fears – until everyone overthinks what to start with, several thousands people will become unemployed and without any prospects to find a new work, taking into account the specialization and the state of the industry.

According to Ukrspirt, the average number of employees at the spirits distillery is 100-150 people. If 33 unprofitable plants are stopped, at least 5 ths. people will become unemployed. But there are related industries which directly depend on spirits producers, and this aspect should be taken into account. As well as the fact that it is not hard to find a way out of this situation. You should just be a professional, or as they say to be in a right place. Is not it the time to leave an undeservedly occupied chair?..

Source: http://economics.unian.net/