Supplies to the shadow market by state-run enterprise Ukrspyrt cost the state UAH 10 billion annually, according to British financier Neil Smith, the co-owner of Medoff brand.
"This is an established system, which annually incurs UAH 10 billion losses to the Ukrainian economy in unearned income, excise duties and VAT," he wrote on his Facebook page.
He said that legal tax stamps are provided by state representatives, since only government agencies are authorized to issue tax stamps.
Smith said that in Ukraine every year about 35 million decaliters of vodka are consumed. However, in 2015, around 18.6 million decaliters were sold officially.
"Does that mean that 16.4 million decaliters were produced at home as Samogon? Of course it does not. 16.4 million deciliters constitutes the black market of vodka and such volumes can only be produced on an industrial scale. State Enterprise Ukrspyrt supplies the black market producers with spirit as there is no other spirit manufacturer in Ukraine," he added.
Smith said that and the new head of Ukrspyrt will most likely be a political appointee chosen to channel state funds into the pockets of a few individuals.
"However, I have not lost hope entirely. This time the selection process is taking place as Ukraine’s western sponsors are looking closely at the government’s decisions to ensure that the money being pumped into Ukraine will be paid back. If the new head of Ukrspyrt is not credible it will be another nail in the coffin of the West’s financial support package for Ukraine," he wrote.
Head of the law department at Ukrspyrt Dmytro Bondarchuk said that there is no oversight over the operations the country's distilleries.
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"Under Cabinet resolution No. 672 on the creation of the state-run enterprise of spirit and vodka industry of 2010, 78 distilleries operating in Ukraine were to be reorganized and transferred to Ukrspyrt. The liquidation panel of Ukrspyrt created by the Natural Resources Ministry was responsible for the reorganization of the sector. Ukrspyrt received 40 distilleries and 41 production sites were created there over the last five years.
The remaining 38 distilleries are separate legal entities and Ukrspyrt does not supervise their operations. There are also distilleries that are under the control of the Health Ministry and the Public Affairs Management Department," Bondarchuk said.
Ukrspyrt said that today the enterprise has 40 distilleries and they are supervised.
Since March 2016, the enterprise has used the electronic public procurement system in order to effectively manage working capital and to making the procurement process as transparent as possible.