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. Last Updated: 07/27/2016

Western Firms Buy Into 3 Breweries

Western brewers are rushing to buy into at least three privatized breweries in St. Petersburg, which offer modern but underused brewing equipment and access to Russia's thirsty beer-drinking market.

The investments are a rare example of large-scale foreign investment in Russia's privatization program. In St. Petersburg unlike many other centers, Western brewers have been aided by local authoritie's eagerness to bring in foreign investment.

"It's natural that foreign investors are choosing St. Petersburg breweries - together, they're destined for success", said Pyotr Lonskov, assistant director at the local State Property Fund, the vendor of state property.

Local officials want to see beer develop as an export industry but they are insisting that investors make their main priority increasing production for domestic demand.

Russian annual consumption of 33 liters per head lags 5 to 6 times behind Europe, leaving plenty of room for expansion according to Yury Pavlov, general director at Stepan Razin, St. Petersburg's largest brewery.

The factories are expected to continue to produce well-known local brands including Baltika, Razin and Yachmenny Kolos. The beers sell for under 200 rubles, a quarter the price of the cheapest imported brands.

The first major opportunity for Western investors came when Baltic Beverages Holdings, a consortium comprising Sweden's largest brewer Pripps and Finnish brewer Hartwell, took a majority 43. 5 percent stake in last May's voucher auction for Baltika, St. Petersburg's most modern and second largest brewery.

"This is the city's most attractive beer factory", said Fyodor Mokrantsyov, assistant director for the State Property Committee. Baltika general director Timur Balloyev said the foreign partners will contribute $25-30 million over two years and bring in Finnish equipment to upgrade existing Czech equipment. Annual output will double to 10 million decaliters by 1995.

Western beverage makers in June announced rival plans to buy into St. Petersburg's largest beer and beverage factory, Stepan Razin which will be sold as part of an investment tender to be held in late August. German brewers Holsten are competing with American non-alcoholic beverage maker Nord to take a 49 percent share.

Investment tenders differ from the more common voucher auction in that a large slice of shares is sold in one package. The bidders in an investment tender do not compete on price. Instead, they compete by promising to undertake a program of investments and improvements.

Pavlov said $15 million was needed to upgrade Stepan Razin's beer production from 8 to 10 million decaliters annually. Production of non-alcoholic beverages would remain at 3 million decaliters.

A third local brewery, Vena, has attracted interest from Finnish brewer Sinebryuchoff, who last month announced a plan to take a controlling 37. 5 percent stake in September when the factory will also be sold via an investment tender.

Vena assistant director Vasily Miloserdov said the Finns planned an $80-million investment to double existing capacity to 10 million decaliters per year by 1995.

Sinebryuchoff has promised to bring in pasteurization equipment from one of its Finnish factories to produce its Koff brand as well as Russian brands. "Of course we are planning export for the long term, but we must wait and see how value-added and export taxes will change", said Miloserdov. Property officials said St. Petersburg's fourth and oldest brewery, Krasnaya Bavaria, has not attracted foreign investors because of its outdated equipment and disastrous physical condition.