Generous business: Why privatisation has to be continued
And how much the budget has already received from selling enterprises of the Ukrspyrt State Company
Privatisation auctions in Ukraine are being held notwithstanding the war. Thus, recently the Ministry of Economy reported they raised more than UAH 924 million for the state within a month. This outcome confirms the demand for Ukraine's state-owned enterprises, which thus can get new opportunities. One of such positive cases was the privatisation of the Ukrspyrt State Enterprise. Namely, the sale of the Kobylovoloky Distillery brought UAH 70 million to the state budget. Earlier auctions generated another UAH 150 million for the property of this state owner. What was the overall result of the recent privatisation auctions and why they should be held, Mind was told by Vitaliy Zhadobin, Acting Director of the Ukrspyrt State-Owned Enterprise.
Autumn started successfully for the SOE Ukrspyrt (Ukrainian Spirits): we have already held five privatisation auctions – business sites (MPDs) in Kobylovoloky (UAH 70.2 million) and Marylivka (UAH 150 million) were sold, then there were auctions for the sale of Borshchiv (UAH 13 million), Vuzliv (UAH 130.5 million) and Zaliztsi (UAH 120.1 million) MPDs, and now an auction for the sale of property of Stadnytsia MPD has been announced. Moreover, most of the assets were sold at a price much higher than the opening price.
Thus, as of today, UAH 220 million of real money (that has already been transferred to the budget) can be directed to our defence and social needs.
Each of the auctions attracts many participants, which creates competition and directly affects the increase of the price of the privatisation lot.
What are the benefits of participating in privatisation auctions?
The point is that before the war, the state did not plan to allocate resources to maintain alcohol production that was not in operation, to "conserve" it properly or invest anything in its development. At the same time, each distillery is not just premises, machinery and equipment, but also a team, human beings, to whom the state has commitment. This, in fact, is the most valuable asset of any company.
Five subsequent privatisation auctions were planned to be held in February and March 2022. We expected the receipt the amount fund more than UAH 142 million (carrying value of assets), which should have been used to pay off the company's wage arrears, to budgets and creditors of the company in accordance with the requirements of the Law of Ukraine No. 1914-IX dated 30 November 2021.
However, due to the large-scale russian offensive, privatisation auctions became impossible and were temporarily suspended by the State Property Fund (SPFU). This means that employees, creditors, and the state budget in such a difficult time have only to hope for the resumption of sales and getting money due to them.
The hope for the resumption of privatisation processes was fulfilled in July, as the Law of Ukraine No. 2468-IX was adopted, accelerating privatisation processes for the period of martial law.
After that, the SPFU announced privatisation auctions for certain property of Maryliv, Borshchiv, Kobylovoloky, Vuzliv MPDs of the SOE Ukrspyrt and others (which have already been successfully completed).
As of January 2022, 22 successful privatisation auctions were held, amounting to more than UAH 1.5 billion in total – these were all the funds that were actually received by the budget. This is twice the initial value of the sold property (UAH 760 million).
Why is privatisation on time?
The country is at war, which means that any assets we are used to, even an "apartment in Kyiv", have gone down in price, and we need to wait until the victory and recovery of the market.
Basically, if you have resources for maintainting the "apartment", your need for money is not urgent, and you accept and understand the risks that real estate may be destroyed at any time (in russia they will call it a "bombed biolaboratory with dirty windows"), then why not? But all this is not the case when it comes to distilleries.
So, why I think privatisation of distilleries is possible and necessary:
- There is no money. The state budget does not provide for investment in the development of production at the premises of Ukrspyrt. What production can be there without investment? If the money for the production of alcohol is now found somewhere in the budget and allocated, the initiator’s head will simply be "bitten off" by the public and they will have the right to do this.
- There is no monopoly. The alcohol market is currently competitive without any monopoly. We already have 18 market players (with the appropriate licences) who have much lower production costs than Ukrspyrt has, and therefore lower prices for products. We cannot compete with them now and, again, we do not have the resources for this.
- There is no profit in keeping. The company's assets are not "diamonds in a safe" or "an apartment in Kyiv", which can be sold later, after the war, at a higher price than now. Debts are increasing every month: wages, taxes, current creditors on critical needs. Inactivity means inevitable bankruptcy.
Therefore, the only practical solutions in such a situation can be privatisation and/or lease of property, i.e. options that will provide money to the budget, money to the property holder and employees.
It is important to understand that it is for creating and launching the production process that new investors acquire ethanol plants . Each plant means taxes and jobs. What could be more important in times of war? Victory, taxes and jobs. We are doing everything within our capacity.
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