Demonopolization of the Spirits sector: What’s Next?

The President of Ukraine has signed the Law No. 2300 on cancelling from 1 January 2020 the government monopoly for spirits production.

Oleksandr Aleksyeyenko, Partner, Head of Antitrust & Competition Practice, shares with The Ukrainian Journal of Business Law  his thoughts about changes which the Law may bring to the industry.

Read the whole comment below.

Draft Law No.2300 on demonopolization of the spirits sector is expected to be adopted by the end of 2019. The Draft provides for cancellation of the state monopoly for production of spirits from 1 January 2020; establishing licensing terms for the production and wholesale of spirits; complete liberalization of the export of spirits by spirits producers; allowing import of certain spirits only by state companies until 1 January 2022. The Draft predominantly aims to deshadow the spirits sector of the Ukrainian economy.

Ukrspyrt, the state-owned company subordinated to the Ministry for Development of Economy, Trade and Agriculture, is currently a major producer of spirits in Ukraine. However, the status quo may change quite soon due to arrival of private players to the sector. Ukrspyrt’s financial results have been continually falling and the overall activity of the sector has lacked transparency and integrity for many years. The recent fine imposed by the AMCU on Ukrspyrt in 2018 for abuse of dominance clearly demonstrated where the current state monopoly was in terms of its role on the spirits market. Its commercial policies have been recognized by the AMCU as sporadic, non-transparent and discriminatory.

Another declared parallel aim of the government is to privatize state-owned spirits companies. However, in such circumstances, rapid demonopolization of the spirits sector may make such state-owned spirits facilities less attractive for privatization.

Overall, one may only welcome another sector being open to competition and expect fairer competition and ethics rule to operate in the sector.

Generally, adoption of the law will not automatically eliminate all transparency problems with the spirits industry but will create a completely new environment for the sector with private companies playing significant roles. Greater private involvement in the industry frequently brings more competition with more efficient functioning of the economy.

Yet, one should expect to combine decent declarations with intricate approach to the spirits industry. Such approach shall provide for the license terms being clear and straightforward, practice of the license terms application being non-discriminatory, new players at the market treating their counterparties fairly and non-discriminatorily. The regulators should be quite thoughtful and attentive and not substituting the current state monopoly with a potentially abusive dominance of a couple of private market players.