Liquor Licensing

The government has decided to allow establishment of new distilleries and breweries.

The decade-long ban on issuing licenses to new distilleries and breweries is finally lifted by the government. It has now decided to allow establishment of new distilleries and breweries if they comply with a new 10-point standard set by the government. Ram Sharan Chimoria, Spokesperson at the Department of Industry (DoI), said that the Ministry of Industry (MoI) took the decision on October 7. Around 150 applications for registering new liquor industries are already received.

 “The government had stopped issuing licenses to new liquor manufacturers for more than a decade,” Chimoria said, “Licenses will now be issued but only to those who comply with the new standards.” He added that the move will help regularise the liquor industry. The government had stopped the registration of new liquor industries in 2001, citing environmental and health reasons. The Maoist campaign against liquor drinking habits during the decade-long armed movement was the major but undeclared reason for the ban.

 Although the ban was imposed, the liquor market and the trend of drinking had not slowed down until the traffic police began a campaign against drunk driving. According to experts, the increasing trend of alcohol import had a hand in the resumption of issuing licenses for producing liquor within the country.

 Rabi KC, President of Nepal Liquor Manufacturers’ Association (NLMA), said, “The government’s move is positive.” However, he suggested that the benchmark should have been set even higher. “The new requirement of Rs 500,000 as deposit is low. Even a small liquor industry has a huge annual turnover, so the deposit amount should have been higher,” he adds. He further said that it would be appropriate to ask for a bank guarantee of Rs 5 million to Rs 10 million while issuing excise duty license by the Inland Revenue Department.

 KC depicts a very bad picture existing in the industry and says that out of the 52 registered factories, only 42 are in operation. Most of the liquor producers have not used even 25 per cent of their installed capacity, he adds. “They are struggling for their existence. In such a situation, what would be the future of the existing ones if 40 to 50 new industries are added?” he asks.

 With home-made liquor enjoying a strong presence, the market to be shared by all the companies is small. “So, there is a possibility of the entire industry going through a slump when new industries come in,” he predicted. However, he conceded that issuing new licenses to liquor producers cannot be denied in an open economy.

As per the new standards, industrialists have to deposit Rs 500,000 along with an application at the DoI to get the license. The investors’ deposits will be refunded if they either fail to get the license or present evidence of starting production. There is also a provision of seizing the deposit if an industry fails to comply with the new standards. On the other hand, the existing industries need to deposit Rs 300,000 to increase their production capacity.

 According to the new standards, if the license is issued in the name of an individual, s/he should register the company within 30 days of getting the license. Such individuals must hold at least 20 per cent shares of the liquor company to be registered. Similarly, investors are not allowed to sell these shares before the deposit is refunded. If any investor is found selling the shares before getting the deposit refund, the government can either seize the deposit or mete out other punishments as per the Industrial Enterprises Act (IEA) 1992.

 For breweries and distilleries, including the bottling plants, there is the provision of concluding the construction and starting production within three years of getting the license. The time limit for starting a blending and bottling plant is two years. However, the DoI can extend the period by six months after evaluating the progress made by a company. Such six-month extension can be made twice.

 If an industry is unable to start its operation within the given period, there is a provision to dissolve the industry according to Section 25 of the IEA 1992. It is also necessary to establish an appropriate lab for quality control as stated by the new standards.

 Distilleries using local grains as raw material can use a maximum of 10 per cent local grains for their production. If they need more, they have to import. Likewise, foreign direct investment (FDI) will not be allowed in industries producing liquor of lower quality than 30 degree UP, according to the new provision. This means FDI is not allowed in 40 degree UP or 60 degree UP.

 Similarly, such industries must be at least 500 metres away from cultural heritages of national importance, hospitals, schools and national parks. The breweries and distilleries must have a minimum area of three hectares. The area should be at least one hectare for bottling-only plants.

 KC said, “In Nepal, 80 per cent market share is held by Nepali products.” However, 50 per cent liquor consumed in Nepal is supplied from household production.