The Russian Union of Nicotine Industry Enterprises (Spini) has called on the government to exclude food flavorings and nicotine salts from the list of active ingredients and additives that are expected to be banned by the Ministry of Health for issues of nicotine dependence, reports ECigIntelligence.
Representatives of Spini, which has more than 50 members, have sent a corresponding letter to the minister of finance asking for the exception to the ban.
Russian President Vladimir Putin has signed a new tobacco law, reports Interfax.
The legislation requires the licensing of production, tobacco imports, nicotine-containing products and raw materials. It also compels manufacturers to register their machinery and mothball any unused equipment.
While the law does not require retailers to obtain licenses, it bans the retail sale of tobacco products and nicotine-containing products not in consumer packaging and imposes restrictions on the movement of products.
Titled “On the State Regulation of Production and Turnover of Tobacco Products, Nicotine-Containing Products and Raw Materials for Their Production,” the law is modeled on Russia’s regulatory framework for the tobacco industry. Observers expect Russia to extend the Federal Service for Alcohol Market Regulation’s remit to include tobacco and nicotine-containing products.
Prepared by the Ministry of Finance, the legislation passed the State Duma on June 1 and the Federation Council on June 7. The law will come into force on Sept. 1, 2023, and the articles introducing licensing will take effect March 1, 2024.
The United States has sanctioned Igor Kesaev, co-owner of the Mercury group, which manages Megapolis, a major Russian tobacco distributor, reports Interfax.
Listed by Forbes as Russia’s 35th-richest person last year, Kesaev’s holdings have included a major stake in the V.A. Degtyarev factory, which makes machine guns, anti-tank and anti-aircraft weapons, some of which have been used in Ukraine, according to Metro.
Until April 2022, Kesaev was also chairman Megapolis.
Kesaev’s involvement in tobacco dates to the early 1990s. As the Soviet Union broke up into its constituent republics, he started an importing business that worked with international tobacco companies eager to get their products into the Russian market, according to a 2014 profile of the magnate published on Forbes’ Russian website.
Over time, Kesaev built the largest tobacco distributor in Russia through acquisitions of regional competitors, according to Forbes’ Russian website. By 2022, Megapolis delivers to 160,000 retailers across the country, according to the firm’s website.
Kesaev has also been involved with the tobacco business in Ukraine. Following the toppling of Ukraine’s pro-Russian president, Viktor Yanukovych, in 2014 and Russia’s subsequent annexation of Crimea, Ukrainian officials began scrutinizing the role of Russian companies in various sectors of its economy.
At the time, Trading Company Megapolis-Ukraine controlled 99 percent of Ukraine’s tobacco distribution market, according to research from the Anti-Monopoly Committee of Ukraine.
Kyiv sanctioned Kesaev in 2016 for unspecified actions that it said threatened Ukraine’s national security. A top Ukrainian prosecutor later accused Kesaev of supporting “terrorist organizations” by supplying arms to Russian-backed separatist groups that have been fighting for nearly a decade to carve out two independent states—Donetsk and Luhansk—in eastern Ukraine.
Kesaev has also been sanctioned by the EU and the U.K. for aiding Russia’s invasion of Ukraine.
Philip Morris International’s attempts to sell its Russian business have stalled due to the challenge of leaving the country on favorable terms, according to an article in the Financial Times.
Discussions with at least three “serious” potential buyers have gone nowhere in part because of the strict government requirements, according to PMI CEO Jacek Olczak.
Kremlin rules make it difficult for companies to exit Russia without taking a huge financial hit. Among other provisions, the government reserves the right to dictate the valuation of foreign companies’ Russian assets as well as the new owners’ dividend and access to cash flow.
Olczak told the Financial Times he had a duty to shareholders to recover value, adding he would “rather keep” the business in Russia than sell on stringent Kremlin terms. While the asking price was not disclosed, PMI has $2.5 billion worth of assets in the country, according to company filings.
Many western companies vowed to exit Russia immediately after last year’s invasion of Ukraine, but less than 9 percent of EU and G7 groups in the country had left by the end of December, according to research by the International Institute for Management Development.
Russia has historically been a huge market for the tobacco industry because of high smoking rates and consumer willingness to switch to vapes and heated-tobacco products. Together with Ukraine, it accounted for 8 percent of PMI’s $31.7 billion revenues last year.
Imperial Brands sold its Russian operations to a local partner soon after the invasion, taking a $463 million hit to annual profits.
Japan Tobacco does not plan to leave and BAT has struggled to get a sale over the line, although it said this month it was in “advanced talks.”
New rules are making leaving Russia more difficult, Philip Morris International CEO Jacek Olczak told Bloomberg.
Following Russia’s military invasion of Ukraine, PMI and other tobacco companies announced they would scale down their operations and eventually exit the country.
In anticipation of that move, PMI throughout 2022 provided financial figures that excluded its Russian business. Its full-year results, however, included Russia again.
Olczak told Bloomberg the decision does not signal a change in plans. Rather, it reflects the difficulty of exiting Russia. “As long as we are the owner, we will include the [Russian] number,” Olczak said.
According to Olczak, new regulations have made it more difficult for foreign investors to exit Russia. In any transaction, the government now has an important voice on asset valuations, access to cash flow and dividends, he said. This makes it hard for any party interested in taking over the business.
Meanwhile, Olczak said PMI was considering coming back on a more sustainable basis to Ukraine.
In related news, BAT expects to complete the sale of its Russian business to local partners in 2023, according to Reuters.
BAT said it was in advanced discussions with a “joint management distributor consortium” on the sale of its businesses in Russia and Belarus but did not reveal the identity of the party or divulge further details on the talks.
The company said in March 2022 that it was in talks to transfer its Russian business to its Russian distributor, SNS Group of Companies.
Estonia banned imports of cigars, cigarillos and cigarettes from Russia on Jan. 9 in compliance with EU sanctions relating to the war in Ukraine, reports Interfax.
“On 9 January, the transitional period for sanctions imposed by the European Union on a number of consumer goods originating in the Russian Federation will end, and their import into the European Union will be prohibited from Monday,” the Estonian Tax and Customs Board said in a statement.
“As from 9 January, the transitional period will also end for those sanctioned goods for which supply contracts were concluded before 7 October.”
The import ban covers a broad selection of consumer goods, including cosmetics, washing and cleaning products, clothes and footwear.
The prohibited items must be abandoned by the traveler on the border or risk confiscation, the board said.
Russian authorities are developing technology for digital excise tax on tobacco, reports Interfax, citing comments made by State Secretary and Deputy Finance Minister Alexei Sazanov during a meeting with foreign businesses at the American Chamber of Commerce in Russia.
“It is assumed that the tax service will automatically calculate tax liabilities when products are released into circulation as based on data that is in the information systems for labeling tobacco and beer,” said Sazanov. “This should further reduce the number of disputes between taxpayers and the tax service.”
Further digitalizing and transferring tax calculation functions to the tax authorities are part of a drive to simplify administration, according to Sazanov. “This has already been implemented for the majority of property taxes,” he added.
Russian businessman Sergei Katsiev has acquired a 15 percent stake in International Tobacco Group, the former Russian subsidiary of Imperial Brands, reports Interfax, citing data from the Unified State Register of Legal Entities (USRLE).
In March, Imperial Brands announced that it was suspending operations in Russia, including production at its factory in Volgograd, sales and marketing, in response to Russia’s military assault on Ukraine. In April, the company said it had transferred its business in Russia to local investors.
Earlier this year, Imperial Tobacco Sales and Marketing and Imperial Tobacco Volga were renamed International Tobacco Group and International Tobacco Group Volga, respectively.
According to the USRLE, Nikolai Tyaka owns 75 percent of International Tobacco Group and International Tobacco Group Volga.
Following the Feb. 24 invasion, international cigarette manufacturers announced they would end their operations in Russia, but retreating from such a major market is easier said than done. Tobacco companies have had to carefully navigate shifting regulations and avoid missteps that could prompt the government to seize the business, for example—all the while trying to protect employees from becoming targets for arrest.
Tax payments by the leading international cigarette manufacturers have provided the Russian government with at least $7.25 billion in additional income since President Vladimir Putin ordered his army to attack Ukraine, according to an analysis of Russian Treasury figures conducted by The Telegraph.
Because Russia and Ukraine were relatively small markets for Imperial Brands, representing around 2 percent of net revenues and 0.5 percent of adjusted operating profit in 2021, the company may have found it easier to extract itself from Russia than some of its larger competitors.
The smoking prevalence in Russia nearly halved between 2009 and 2021, reports Interfax, citing Health Minister Mikhail Murashko.
“Tobacco consumption among adults went down from 39.5 percent in 2009 to 20 percent in 2021,” Murashko told participants in a recent public health forum.
The news comes as multinationals are retreating from the Russian cigarette market in response to Moscow’s military assault on Ukraine.
Following the Feb. 24 invasion, international cigarette manufacturers announced they would end their operations in Russia, but retreating from such a major market is easier said than done. Tobacco companies have had to carefully navigate shifting regulations and avoid missteps that could prompt the government to seize the business, for example—all the while trying to protect employees from becoming targets for arrest.
Earlier this year, Philip Morris International CEO Jacek Olczak described the process as “bloody complex.” In a July interview, he said the company was unlikely to be able to leave Russia before the end of 2022.
An analysis of Russian Treasury figures conducted by The Telegraph revealed that the leading international cigarette manufacturers have provided the Russian government with at least $7.25 billion in additional income through tax payments since Feb. 24.
Russia is the world’s fourth-largest cigarette market. Prior to the war, Japan Tobacco International led the market with a 36.7 percent share, followed by PMI (31.7 percent) and BAT (23.5 percent), according to Cowen & Co.
Tax payments by the leading international cigarette manufacturers have provided the Russian government with at least $7.25 billion in additional income since President Vladimir Putin ordered his army to attack Ukraine, according to an analysis of Russian Treasury figures conducted by The Telegraph.
Center-Life, an anti-smoking lobbying group in Ukraine, told The Telegraph that 2020 taxes from PMI and JTI alone would fund 700 Mil Mi-24 helicopters, 1,970 T-72 tanks and 382 Sukhoi Su-25 fighter jets for the Russian army.
“It’s clearly completely wrong that these western firms continue to pay significant taxes into Russian coffers because so much of Russian state expenditure now is to fund the war in Ukraine, which is killing people in large numbers,” Bob Seely, a Member of Parliament on the Foreign Affairs Committee, was quoted as saying by The Telegraph.
Following the Feb. 24 invasion, international cigarette manufacturers announced they would end their operations in Russia, but retreating from such a major market is easier said than done. Tobacco companies have had to carefully navigate shifting regulations and avoid missteps that could prompt the government to seize the business, for example—all the while trying to protect employees from becoming targets for arrest.
Earlier this year, Philip Morris International CEO Jacek Olczak described the process as “bloody complex.” In a July interview, he said the company was unlikely to be able to leave Russia before the end of 2022.
Russia is the world’s fourth-largest cigarette market. Prior to the war, Japan Tobacco International led the market with a 36.7 percent share, followed by PMI (31.7 percent) and BAT (23.5 percent), according to Cowen & Co.