Russia has introduced flexible export duties on tobacco products, alcohol products, live animals, fish, dairy products, vegetables, fruits and many other goods, reports Tass.
The temporary measure is set at 4 percent to 7 percent at an exchange rate above RUB80 ($0.83) per dollar. At RUB80 per dollar and below, the duty will be zero.
The measure is aimed at protecting the domestic market, and there are exceptions for some items.
BAT has completed the sale of its Russian and Belarusian businesses, the company announced its website. According to the multinational, the sale has been carried out in compliance with local and international laws and follows the receipt of all necessary approvals.
“BAT Group announced conclusion of an agreement on sale of business in Russia and Belarus today. All trademarks being used now will remain in the ownership of the Russian business. Consequently, consumers will continue receiving high-quality products they are used to under familiar brands,” the press service of the company’s Russian office said.
“Throughout the transfer process, same as after it, among the new owner’s key priorities are uninterrupted business processes, ensured employment of the staff and the implementation of the investment plan approved by the governmental subcommittee,” the company noted.
BAT has formally entered into an agreement to sell its Russian and Belarusian businesses.
The buyer is a consortium led by members of BAT Russia’s management team, which, upon completion, will wholly own both businesses. Post completion, these businesses will be known as the ITMS Group.
“Throughout the transfer process, one of BAT’s key priorities has been the interests of its colleagues in Russia and Belarus,” BAT wrote in a statement. “As part of the agreement, their employment terms will remain comparable to their existing BAT terms for at least two years post-completion.”
BAT anticipates that the transaction will complete within the next month once certain conditions have been satisfied. Upon completion, BAT will no longer have a presence in Russia or Belarus and will receive no financial gain from ongoing sales in these markets.
BAT remains confident of delivering its full-year guidance as set out at its half-year results on July 26, 2023.
BAT’s operations in Russia include a head office in Moscow, 75 regional offices and a manufacturing facility in St. Petersburg. BAT also has an office in Belarus.
On June 30, 2023, on a constant currency basis, Russia and Belarus accounted for approximately 2.7 percent of group revenue and approximately 2.5 percent of group adjusted profit from operations.
BAT’s decision to sell its Russian business is a response to Moscow’s military invasion of Ukraine.
The Russian government lost more than RUB46 billion ($481.33 million) in tax earnings in the first half of 2023 as a result of the illicit trade in cigarettes, reports Interfax.
“According to the latest study, which ended this month, the share of illicit cigarette trafficking was 13.3 percent in terms of smokers,” said Vladislav Zaslavsky, director of the Russian Industry and Trade Ministry’s department for the system of digital marking of goods and the legalization of the circulation of products.
“The minimum amount of losses, according to the NNCC [National Scientific Center for Combating Illicit Trafficking in Industrial Products], is estimated at RUB46.5 billion,” Zaslavsky said on Aug. 24 during a retail round table in the Volga region.
According to Zaslavsky, each percent of the share of illicit cigarette trafficking costs the federal budget about RUB7 billion in excise taxes alone.
The NNCC will conduct a study on “nicotine-containing products” in the second half of 2023. As of the end of 2022, the market share of illegal nicotine-containing products was 79 percent, including 93 percent in illegally sold nicotine-containing liquids.
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.