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. Last Updated: 07/27/2016

Ochakovo to Spend $140M to Up Beer Production

The Moscow-based brewery Ochakovo last week said it would invest $140 million in two projects in Central Russia to expand production.

The company said it would build a malt factory in Lipetsk region and a brewery in Penza to meet predicted growing demand.

Construction of the malt factory in the city of Terbun will begin this summer and will cost about $40 million, said Ochakovo president Alexei Kochetov, adding that the factory will be able to produce 100 million tons of malt a day when it is up and running in 2003.

The brewery in Penza, which the company will start building in May, will cost around $100 million and be the company's third largest, with a capacity of 2.3 billion liters of beer a year and 7.5 million liters of low- or non-alcohol beverages. Part of the financing, about 20 percent, will come from Ochakovo's working capital. The company is negotiating with Sberbank, Alfa Bank and Vneshtorgbank to provide additional financing, Kochetov said.

When the new brewery comes online, also expected in 2003, Ochakovo's capacity will be 14 billion liters of beer a year, according to the company's projections.

Ochakovo, at the end of 2000, controlled around 12 percent of the national beer market, behind Baltic Beverages Holding, or Baltika, with 24 percent and Sun-Interbrew with 16 percent, according to marketing agency Business Analytica.

Building new enterprises in Central Russia, Ochakovo is anticipating strong growth in the market. "Given the average level of consumption of beer, 36 liters a year per person, Russia could grow even more, to 60 or 70 liters. There should be space for everyone," said Kochetov.

But some experts do not agree with Ochakovo's predictions.

"The beer market is not elastic. I have strong doubts that over the next two to three years the level of consumption will rise to 50 to 60 liters per person," said Andrei Sterlin, general director of Business Analytica.

Alexei Krivoshapko, an analyst of United Financial Group, also questioned the financing: "The volume of investments seems to be somewhat inflated. The question is from where will Ochakovo get this money and how will they make agreements with investors?"

The output of the Penza brewery will compete with beer from Tula's Taopin brewery, part of the Baltic Beverages Holding and the Saransk brewery of the Interbrew group. But those companies are not yet afraid of Ochakovo.

"There is space for everyone in our market," said Vladimir Tebelev, director of the Saransk brewery.