Kings of the bottle: How Kolomoisky, Servants of the People, and clone companies split the alcohol market

Author

Natalia Myronova

special project

In mid-September 2020, the privatization of the property of the state-owned enterprise Ukrspyrt property began. The first wave privatization will include 41 out of 78 plants. As of December 21, 2020, 16 plants have already been sold.

Among the buyers there are a deputy from Servant of the People, people linked to the oligarch Ihor Kolomoisky, and little-known companies that emerged out of nowhere in 2020. Unknown companies suggest that clones or third parties were attempted to enter the auction.

This is the first article from the "Kings of the bottle" series where examines how the demonopolization of the alcohol industry in Ukraine proceeds, who becomes the new "alcohol kings", and how product prices will change.

Who and how is demonopolizing the alcohol industry in Ukraine

The first plant—Nemyriv alcohol distillery—was sold at an auction for 55 million UAH to LVN Limited (TM Nemiroff) that was the only one who applied for participation in the auction. Bella Finkelstein owns 26.68% of the shares of Nemiroff Vodka Limited (British Virgin Islands) through Alverstone Trade and Invest (British Virgin Islands), another 26.68% of the shares of the same company are owned by Yakov Gribov (through Luxon Management Limited in Cyprus), 46,64% of shares are owned by Anatoly Kipish through Afaith Investments Limited (British Virgin Islands). Nemiroff Vodka Limited owns Nemiroff Intellectual Property Establishment (Liechtenstein) that owns LLC LVN Limited.

In simple words, Nemiroff bought out its own factory. And there are no problems with this purchase.

The same cannot be said about the second plant that went under the hammer for 50 million UAH. Artwinery was bought by the company AES Solar. The owner of the company, that was created for an industrial ground-based solar power plant construction and further operation, since 2019 is an associate professor of the Department of Management and Public Administration O.M. Beketov National University of Urban Economy in Kharkiv Militsa Volkova. Earlier, AES Solar was owned by DLC International Insurance Company. It belongs to Deputy Chairman of the Kharkiv Regional State Administration Mykhailo Dobkin and businessman Vasyl Khoma.

The third lot—Ovechatsky distillery—was sold for 53 million UAH. At first, the winner was the company "Ameland" that increased the offer during the auction by as much as 100 UAH. According to Youcontrol, the company was registered in July 2020, with an authorized capital of 450,000 UAH. Founder and ultimate beneficiary is Volodymyr Zinoviyovych Holovko. A person with the same name ran for the district council of the Kyiv region from the "Radical Party of Oleh Lyashko." Also, according to CHESNO, Holovko has founded and runs the security services company Alliance Security.

However, now on the site ProZorro. Sale the decision on the victory of "Ameland" is canceled, and the winner of the auction is the company's closest competitor at the auction—the private company Ukrhimresurs founded in 2003. The ultimate beneficiary is Yaroslava Pozdnyakova. Two weeks ago, a few days prior to the granting of ownership, there was an attempt to take out the plant equipment for scrapping. In response, Ukrhimresurs blocked the exit gates and hired a security company.

The next distillery—Lopatinsky—was sold for 50 million UAH, and that is 165% more than the starting price. The buyer was the company Office of the Investments company, registered on December 16, 2019. Founder and CEO—Vitalii Tolok. He is also listed as the owner of Ozon Investment and Zavod-Invest. Another person with the same name is the CEO of the Nadraprostor and Yunolit Oil companies.

Maria Martynenko was the CEO in the last two companies prior to Tolok. She is linked to East Europe Petroleum (formerly Golden Derrick). The businessman Pavlo Fuks was called its controller. During the presidency of Viktor Yanukovych, this company was close to former minister Eduard Stavytskyi.

The fifth one—Bershad distillery—was sold to the only bidder—the Odessa company Aqua Solar Invest for a starting price of 19.8 million UAH.

The company was registered on December 11, 2019 with an authorized capital of 10 thousand UAH. Its ultimate beneficiary is Felix Lutskiy who previously managed non-residential construction and the sale of building materials. Since 2007, he is the founder and CEO of the enterprise BAF that is engaged in non-specialized wholesale trade in food, beverages and tobacco products.

The next distillery—Sukhodolskiy—was sold for 60.3 million UAH to Finance-Service Plus that was recently renamed to Sukhodoly Distillery. The company was registered in 2017. The main activity has recently been distillation, rectification and mixing of alcoholic beverages. The company is also engaged in the manufacture of bread and bakery, flour and confectionery products, the production of soap, cleaning supplies, detergents and polishes.

Previously, the company was engaged in accounting and auditing activities, as well as tax consulting.

Its ultimate beneficiary is Oksana Serhiivna Osterenyuk, a Kyiv resident.

The seventh distillery—Marylivsky (Ternopil region)—was bought for 120 million UAH by a foreign investor—the Moldovan-Romanian company Zernoff. It was founded in 2001 and positions itself as one of the largest alcohol and spirits producers in Eastern Europe. The founder is the Romanian company Viteza Optim, and the ultimate beneficiaries are Georgy Kozovyakin and Denis Chibizov. According to the company's website, after modernizing the plant in 2015, Zernoff reached a production capacity of 3 million liters of alcohol, 2.4 thousand tons of DDGS and 450 tons of CO2 per month. According to media reports, the company recently found itself at the center of a brandy counterfeiting scandal.

Another plant in the Ternopil region—Kozlovsky—was sold for 59 million UAH to the Kyiv company Business-Initiatives.

The beneficial owner is Oksana Palytsya, the wife of the people's deputy from the group For the Future, Ihor Palytsya. Ihor Palytsya is a longtime partner of the oligarch Ihor Kolomoisky.

In October 2020, analysts at the Anticorruption Action Center discovered that Oksana Palytsya has an apartment in a luxury villa in a Geneva suburb—Chêne-Bougeries. The villa is surrounded by a landscaped plaza with a swimming pool and tennis court. Ihor Paltsya claims that he has been divorced from his wife since 2002, but there are serious grounds to believe that the divorce is fictitious and was made in order to avoid declaring all of Oksana Palytsya's assets.

Luzhansk distillery in the Chernivtsi region was sold to the company Agro Business Vip for 21 million UAH. The ultimate beneficiary of the company is Iryna Marchuk, a deputy of the Gaysinsky District Council from Servant of the People, and the company Quality M&D, registered in the United States. Agro Business Vip specializes in non-specialized wholesale trade.

Another plant in the Ternopil region was sold for 55 million UAH. Khorostkiv distillery was acquired by the construction company West Way registered in Lviv. During the auction, the company offered only 1 UAH more than its competitor — the company Trans-N.

West Way was registered in September 2016, its main activity is the construction of residential and non-residential buildings. The owner of the company is a businessman Volodymyr Kainsky from the Lviv region. In 2012, he was looking for a job as an economist-analyst with the desired salary of 4 thousand UAH. According to his CV, he previously worked in the company Galychyna, at a furniture plant and a furniture factory.

Six companies competed for the Zalozetsky distillery in the Ternopil region. It was sold for 80 million UAH to the Kyiv company Glermond Trade that paid 10 thousand UAH more than its closest competitor at the auction. The ultimate beneficiary of Gllermond Trade is Natalia Shlapak who is the head of the judiciary at the Korostyshivsky District Court of the Zhytomyr Region. Prior to her, the beneficiary was Oleksandr Sakhnyuk who worked in the state enforcement service of the Znamensky district of the Kirovohrad region.

The Dolzhotsky distillery in the Khmelnytsky region was bought by the company "Suchasna Komertsiyna Nerukhomist" for 61 million UAH. It was registered in February 2020, and its ultimate beneficiary is Dmytro Berezovenko. Previously, the company was called "Zalizobud Group" with the beneficiary Khetsuriani Virgilia.

The thirteenth distillery was sold for 84 million UAH to a company from the Donetsk region "Ukrkeramresurs". It won the Martynivsky distillery in the Vinnytsa region against its main competitor—the company "Suchasna Komertsiyna Nerukhomist"—with a difference of 677 UAH.

Ukrkeramresurs was previously registered in Donetsk, but changed its address to Kostiantynivka in Donetsk region. It belongs to Vardukhi and Magak Magakyan through LLC Keramresurs. They now live in Kyiv on Pechersk.

Voyutitsky distillery was sold to the company "Suchasna Komertsiyna Nerukhomist" for 48 million UAH. The company has already bought the Dolzhotsky distillery. It beated off the closest competitor at the auction—HIMTAYM—by only 100 UAH. The latter was registered in February 2019.

The fifteenth distillery—Vishnyakovsky (Vishnyaki, Poltava region)—was sold for a record 234 million UAH. 8 companies at once competed for it at the auction. The winner is ResursPromZahid that has overtaken its closest competitor by 13 UAH. ResursPromZakhid extracts minerals. The company was registered only 4 months ago by Serhii Polishchuk from Kagarlyk.

The sixteenth distillery—(also Vishnyakovsky, but already from Kremenchuk)—was bought by the notorious company "Suchasna Komertsiyna Nerukhomist" for 23.1 million UAH. The company has already spent 132.1 million UAH on distilleries.

Ukrspyrt privatization: how product prices will change

According to the deputy head of the State Property Fund (SPFU) Taras Eleiko, Ukraine was one of two countries in Europe where there was a monopoly on the alcohol production. The second was and remains Belarus.

More than 1 billion UAH was received for the sale of 16 distilleries. SPFU expects about 2-2.5 billion UAH for the sale of 42 factories. Figures in billions of UAH are also assumed from the Ukrspyrt concern assets sale.

"The monopoly did not have the best influence on the alcohol industry because out of 80 places where alcohol was produced no more than 20 were regularly working, while all the rest were idle. And these are taxes, investments and jobs. Jobs in less developed cities where the distillery is the main place of work. And when it stopped, it became a big problem for such towns, it increased the state expenses and did not give the best indicators of the alcohol industry as a whole. This will really be an impetus for the development of many villages where these factories stood idle and did not work. This is the creation of many jobs, and thanks to decentralization, it is filling the budgets of communities," he said.

At the same time, there was no export of alcohol in large volumes in Ukraine. Because of the monopoly, it was difficult to develop this market: the operating distilleries had to bear the costs not only for themselves, but also for others included in the concern.

The launch of distilleries will undoubtedly affect prices. Most likely, product prices can decrease due to competition. The monopoly included the maintenance of all distilleries that were idle to the product cost. This high cost has been a huge problem for exports.

Recall that from July 1, 2020, the state lost its monopoly on alcohol production. But until July 1, 2021, alcohol production will take place only at state-owned factories. Then it will be possible to put into operation new capacities and build new enterprises for the alcohol production.