Tag: Ukraine

PMI Suspends Operations in Ukraine

Philip Morris International is suspending operations in Ukraine, including its factory in Kharkiv, following the invasion of Russian forces into the country, according to The Wall Street Journal.
“The safety and security of our colleagues and their families is our primary concern, and we have, therefore, temporarily suspended our operations in Ukraine,” said PMI CEO Jacek Olczak. “Our employees are advised to stay at home or in any safe place and follow instructions from local authorities.”
PMI has more than 1,300 employees in Ukraine. The country accounted for about 2 percent of PMI’s total cigarette and heated-tobacco shipment volume in 2021.
PMI has stated that it has contingency plans in place to restart operations once conditions are safe.
February 25, 2022
Ukraine Enacts Tobacco Control Law

Photo: Taco Tuinstra
Ukraine’s President Volodymyr Zelensky on Jan. 6 signed a sweeping new tobacco control law after nearly two years of deliberations.
The legislation prohibits smoking and e-cigarette in enclosed public spaces. Additionally, it bans the advertising, promotion and sponsorship of all tobacco products; increases the size of warning labels required on cigarettes, heated cigarettes and e-cigarettes; and bans flavored products.
More than 40 percent of Ukrainian men smoke and approximately 130,000 Ukrainians die from tobacco-related diseases each year, according to the U.S.-based Campaign for Tobacco-Free Kids (CTFK).
“Ukraine’s new law is a significant step in curbing this deadly toll and will also align the country’s tobacco control measures with member states of the European Union. These measures include regulations on nicotine content and emission levels from tobacco products,” said CTFK Regional Director for Eurasia Joshua Abrams in a statement.
“For decades, tobacco companies have used strategies like youth-oriented marketing and flavors to lure young people into a lifetime of addiction. Ukraine’s new measures send a strong message to Big Tobacco that Ukraine will not allow its youth to face this fate.”
January 7, 2022
Ukraine Urged to Delay Tax Rate Convergence

Photo: Ivan Semenovych
Ukraine’s leading cigarette manufacturers have called on the government to postpone the date by which the country’s tobacco excise tax must match those in the EU from 2025 to 2030, citing out-of-control growth of illicit tobacco sales, reports Ukraine Open for Business.
According to the Kantar Ukraine research institute, the black market jumped from 1 percent of all tobacco sales in 2016 to 18.1 percent in August 2021 as the country is increasing its tobacco excise taxes to the EU level of €90 per 1,000 cigarettes by 2025.
The current rate is €48.4 per 1,000 cigarettes.
Ukraine’s total legal cigarette market is now estimated at 32.7 billion units, which is 18 percent less than in 2020 and more than 40 percent less than its volume in 2018.
“We propose to expand the schedule for increasing excise taxes on tobacco products until 2030, providing for an annual increase in rates at the level of 10 percent [instead of the current 20 percent]. This will stabilize the situation in the tobacco market,” said Rastislav Cernak, CEO of Imperial Tobacco Ukraine.
He also proposed to “freeze” the increase in the excise tax on heated-tobacco products for three years, until 2024. “This approach will give the consumer more time to adjust to higher prices and deprive the illegal market of the potential for growth,” said Cernak.
Philip Morris International hinted it would consider manufacturing tobacco-heating products in Ukraine if the state creates the appropriate conditions.
Local manufacture of such products could generate more than UAH6 billion ($229.5 million) in investments and UAH4 billion in additional income, according to some estimates.
November 10, 2021
Tobacco-Heating Market Slumps After Tax Hike

Photo: Юрий Дьяконов
The market for heated-tobacco products in Ukraine has stopped growing in the wake of a significant tax hike at the start of 2021, reports the Interfax-Ukraine News Agency. According to Philip Morris International’s local director, Kostas Salvaras, sales will likely decline in 2021.
PMI estimates the market grew by 80 percent in 2020. On Jan. 1, 2021, Ukraine increased the excise tax on heated-tobacco products by 320 percent, causing retail prices to jump and sales to slacken. According to PMI data, retail prices on tobacco sticks have increased by an average of UAH13 ($0.49).
According to PMI, the state budget receipts from the sale of heated-tobacco products in the fourth quarter of 2021 will decrease by 60 percent to 70 percent compared to the same period in 2020. The company intends to reduce the purchase of excise duty stamps for heated-tobacco products by nearly 67 percent in the quarter.
Meanwhile, PMI has already observed an increase in heated-tobacco products smuggled from neighboring countries where prices are lower.
Salvaras estimates that illicit sales now account for 15.9 percent of the Ukrainian tobacco market compared with 2.3 percent in 2017. Given the current level of illegal trade, the state will receive less than UAH13.2 billion in tax receipts in 2021, he said.
PMI has urged the Ukrainian parliament to reconsider plans to further raise excise taxes and delay the next jump in prices for heated-tobacco products.
“This is a necessary step that will allow consumers and businesses to ‘digest’ the 320 percent increase and adapt to new conditions,” said Salvaras. “It will also stimulate the attraction of additional investments in this area, which is important both for the country’s economy and for public health—after all, the authorities should be interested in motivating smokers to look for a less harmful alternative to cigarettes.”
September 29, 2021
Messy Market

Photo: Taco Tuinstra
Ukraine’s anti-monopoly committee tries to break up a cartel it helped create.
By Stefanie Rossel
June 1, 2021, marked another step toward the end of a multimillion-dollar anti-competition lawsuit brought against four tobacco manufacturers and a distributor in Ukraine. On that day, the country’s Supreme Court ruled that a UAH460 million ($16.87 million) fine imposed by the Antimonopoly Committee of Ukraine (AMCU) against Imperial Tobacco Ukraine (ITU) and Imperial Tobacco Productions Ukraine for alleged violation of antitrust legislation was groundless.
The Supreme Court found that Imperial’s Ukrainian subsidiaries had not been involved in the events that had unlawfully left the country with only one cigarette distributor. In a press release, Imperial Tobacco Ukraine’s CEO, Ratislav Cernak, welcomed the decision, saying it was an encouraging sign for all foreign investors in Ukraine. The ruling followed the overturning of similar fines for British American Tobacco and Tedis in February and for Philip Morris International in April 2021. At the time of writing, Japan Tobacco’s case was still pending before the Supreme Court.
In October 2019, the AMCU imposed a record fine of UAH6.5 billion—one of the biggest in the country’s history—on the local affiliates of PMI, BAT and Imperial Brands, along with Tedis Ukraine, the country’s largest tobacco distributor, for conspiring to eliminate competition in cigarette distribution. The committee claimed that the tobacco companies and Tedis had conspired to keep new businesses from entering the market. The companies appealed but lost their cases in the first instance court. Both manufacturers and the American Chamber of Commerce (ACC) in Ukraine expressed concern about the anti-competition trial, arguing the defendants had not been given full access to the evidence on which the AMCU based its allegations and that insufficient attention was paid to the companies’ arguments during the trial.
The AMCU then asked the court to collect fines from all accused companies and freeze funds on their bank accounts, which could potentially have led to a manufacturing halt. In the face of such pressure, some of the companies paid up. However, some defendants also made clear their intention to defend their rights as foreign investors in arbitration.
On Dec. 21, 2020, PMI filed a lawsuit for bilateral investment arbitration at the International Center for Settlement of Investment Disputes in Washington, D.C., claiming their fine violated bilateral agreements on mutual protection of investments with the United States and Switzerland. Previously, the ACC had cautioned that such high-profile disputes, which involve consideration by international bodies and make Ukraine, not the AMCU, a party to the dispute, usually gain international publicity and could have a negative impact on Ukraine’s image among foreign investors. The organization had called for a quick, transparent and fair solution.

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Self-Made Problem
The story behind the AMCU’s antimonopoly accusation is long and contradictory. Tedis and its predecessor company, Metropolis Ukraine, have repeatedly been the subject of legal challenges for antitrust behavior. Metropolis was founded in 2010 as a subsidiary of Megapolis, a Russian firm. At that time, it held 50 percent of the Ukrainian tobacco market, in which more than 50 cigarette distributors were operating. After a scandal that allegedly involved supplying weapons to the separatists in the war in Donbas in 2016, the company changed its name to Tedis Ukraine.
Gradually, the company took over most of its competitors, with the AMCU approving the acquisitions. As of 2020, Tedis ranked eighth in the Forbes’ “Top 100 largest private Ukrainian companies” rating, generating an annual turnover of UAH49.7 billion. In 2019, Tedis aimed to generate a turnover of UAH60 billion, the company’s CEO Taras Korniachenko said in an interview with liga.net. According to Wikipedia, the company is one of the country’s largest taxpayers, employing 2,500 people spread over 35 regional branches in 2020.
According to openforbusiness.com.ua, which quoted AMCU spokesperson Olha Pischanska, Tedis’ share of the Ukrainian market rose to 99 percent between 2013 and 2015 but decreased to less than 75 percent by 2019. She pointed out that in addition to Tedis, other companies were buying cigarettes from manufacturers.
Soon after Tedis had been cleared of the October 2019 charge, it was fined UAH274 million by the AMCU, which in March 2021 said that the company had not complied with an earlier ruling. In December 2016, the antitrust committee claimed that Tedis had abused its monopoly position between 2013 and 2015 and imposed a UAH431 million fine on the firm. The AMCU had also ordered the company to restore competition in the tobacco market. Tedis said it planned to appeal the most recent ruling, calling the decision “completely unfounded.” In an official statement on its website, it announced that it had fully paid the original fine in 2020 and fully fulfilled other obligations imposed by the AMCU.

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Declining Legal Market
About one-third of Ukraine’s 45.4 million people smoke, according to worldpopulationreview.com. With a joint share of more than 90 percent, PMI, BAT, JTI and Imperial Brands dominate Ukraine’s tobacco market. They also rank among the country’s 10 largest taxpayers. In 2020, the country exported €227 million ($268 million) worth of cigars and cigarettes to the European Union.
Despite high domestic demand, cigarette sales in Ukraine have declined over the past few years. In 2019, the country produced 51 billion cigarettes, 15 percent less than in the previous year, a greater decrease than in the years 2011 to 2017 together, Imperial Brand’s country general manager said in an interview. His counterpart at PMI Ukraine expected a similarly steep drop for 2020.
Tax revenues from tobacco account for about eight percent of Ukraine’s total state budget. In the past years, the country has repeatedly raised the excise duty for cigarettes, most recently by 20 percent in January. Presently, the specific rate of excise duty is UAH1,088.64 per 1,000 cigarettes, and the minimum rate is UAH1,456.33 per 1,000 cigarettes. Taxation accounts for around 70 percent of the pack price in Ukraine.
The former Soviet republic is one of the poorest countries in Europe, with an average nominal salary of €300 ($354) in 2019. Amid rising prices of legal smokes, the illegal cigarette market in Ukraine has flourished: According to PMI Ukraine’s CEO, the share of illegal cigarettes—including smuggling, counterfeiting and cigarettes with counterfeit excise stamps—has grown from 1 percent in 2016 to 9 percent in 2020.
Ukraine is also the No. 1 country of origin for illicit cigarettes trafficked into the EU. In 2018 alone, inflows from Ukraine accounted for more than 4 billion cigarettes, according to the European Commission. Until recently, smuggling tobacco to other countries was not illegal in Ukraine. In April 2021, after years of pressure from the EU, Ukrainian President Volodymyr Zelensky introduced a bill that would make trafficking a crime punishable by up to 12 years in prison and a significant fine.
Important Matter
Solving the tobacco cartel dispute is essential for Ukraine as this is part of the Association Agreement between with EU that entered into force in September 2017. The contract establishes a comprehensive free-trade area between the parties and commits Ukraine to economic, judicial and financial reforms to converge its policies and legislation to those of the EU. Among other things, it requires the parties to “recognize the importance of free and undistorted competition in their trade relations.” The EU is Ukraine’s largest trading partner, accounting for more than 40 percent of its trade in 2019. Ukraine is preparing to formally apply for EU membership in 2024.
To break up the monopoly, the country’s cabinet published a resolution in September 2020, which foresees the establishment of a national operator in the tobacco market by the end of 2021. Starting out as a pilot project, the operator’s task will be to combat tax evasion, smuggling and counterfeiting by introducing a track-and-trace system. The move is supposed to attract investment and is expected to add more than $535 million to the state budget.
Critics, however, fear it would cement Tedis’ leading role and boost the illicit tobacco market. Legal challenges to the plan have been filed already. Ukraine’s road to EU membership is likely to be a long one.
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.

August 1, 2021
Imperial Cleared of Anti-competition Charges

Photo: Taco Tuinstra
The Supreme Court of Ukraine has thrown out a UAH460 million ($16.83 million) fine imposed by the Antimonopoly Committee of Ukraine (AMCU) on Imperial Tobacco Ukraine and Imperial Tobacco Production Ukraine for alleged anticompetitive behavior, reports the Kyiv Post.
In October 2019, the Antimonopoly Committee fined the local affiliates of Philip Morris International, British American Tobacco, Japan Tobacco and Imperial Brands along with Tedis Ukraine. Concerted actions by the tobacco companies had unlawfully left Ukraine with only one cigarette distributor, Tedis, the AMCU maintained.
Imperial appealed to the Commercial Court of Kyiv, which ruled in favor of the AMCU. On July 21, 2020, the company paid the full fine to prevent the imposition of additional penalties and to avoid further pressure on the company’s operations by the AMCU.
After an appeal to the Northern Commercial Court of Appeal was also rebuffed, Imperial turned to the Supreme Court, which has now found in its favor.
In a Ukrainian-language press release, Imperial Tobacco Ukraine CEO Rastislav Cernak said the ruling was an encouraging sign for all foreign investors in Ukraine.
“Our company has always acted completely transparently and decently, advocating fair and honest competition, observing all antimonopoly laws not only in Ukrainian legislation but also the principles of protecting economic competition laid down in EU legislation,” he was quoted as saying.
Earlier, Ukrainian courts threw out the AMCU fines against British American Tobacco and Tedis.
Imperial Tobacco Ukraine manufactures cigarettes in Kyiv. About 50 percent of its products are exported to 20 markets, including Armenia, the United Arab Emirates and the United States.
June 3, 2021
Anti-Competition Fines Rejected in Ukraine

Photo: Taco Tuinstra
A Ukrainian court has upheld British American Tobacco’s (BAT) appeal of a UAH450 million ($16.1 million) fine imposed by the Antimonopoly Committee of Ukraine (AMCU), reports Ukraine Open for Business.
BAT welcomed the decision, saying it sent a strong positive signal to investors from around the world.
In October 2019, the AMCU imposed a UAH6.5 billion fine on four international tobacco companies and Tedis Ukraine for alleged anti-competitive behavior. With 45,000 retail points and 2,300 employees, Tedis Ukraine is one of the largest distribution companies in Ukraine.
The agency said the tobacco companies and Tedis had conspired to keep new businesses from entering the market. However, critics said the AMCU helped bring about the situation by permitting Tedis Ukraine to acquire several key distribution companies.
In August 2020, the American Chamber of Commerce (ACC) in Ukraine expressed concern about the fairness of the trial, saying the defendants had not been given full access to the evidence on which the AMCU based its allegations.
On Feb. 2, the Supreme Court of Ukraine threw out the fine against Tedis Ukraine.
February 26, 2021
PMI Pays Fine in Anti-Competition Case

Photo: Taco Tuinstra
Philip Morris International (PMI) has paid a UAH1.18 billion ($66.07 million) fine imposed by the Antimonopoly Committee of Ukraine (AMCU), reports Interfax-Ukraine.
In October 2019, the AMCU imposed a UAH6.5 billion fine on four international tobacco companies and their local distributor, Tedis Ukraine, for alleged anti-competitive behavior. The agency said the country’s leading tobacco companies and their common distributor, TEDIS, had conspired to keep new businesses from entering the market. However, critics said the AMCU helped bring about the current situation by permitting Tedis Ukraine to acquire several key distribution companies.
The companies appealed the decision at the Economic Court in Kiev but lost. Last week, the American Chamber of Commerce (ACC) in Ukraine expressed concern about the fairness of the trial, saying the defendants had not been given full access to the evidence on which the AMCU based its allegations.
The ACC cautioned that the international publicity associated with the case could negatively impact Ukraine’s image among foreign investors.
Since 1994, PMI has invested more than $370 million in the production and distribution of cigarettes and commercialization of reduced-risk products in Ukraine.
In 2016, Ukraine became the seventh market where PMI launched sales of IQOS tobacco-heating systems. The company employs more than 1,300 people in Ukraine.
August 18, 2020
U.S. Speaks up for Tobacco Investors

Photo: Taco Tuinstra
The American Chamber of Commerce (ACC) in Ukraine is concerned about the treatment of foreign investors in Ukraine in a dispute involving tobacco companies.
Recently, the Antimonopoly Committee of Ukraine (AMCU) fined British American Tobacco Ukraine, JTI Ukraine, Imperial Tobacco Ukraine, Philip Morris Ukraine and their distributors for alleged anticompetitive behavior.
The tobacco firms are currently appealing the decision in court but have expressed concern about the trial because they did not have full access to the evidence on which the AMCU based its allegations.
Two international tobacco companies have already submitted notifications to Ukraine to defend their rights as foreign investors in arbitration. Another two companies are considering submitting such notifications soon.
In the absence of a prompt solution to this issue through negotiations with Ukraine’s state authorities, these disputes will be considered by international bodies for resolving investment disputes, and the party to the dispute will no longer be the AMCU, but Ukraine, according to the ACC.
The ACC has cautioned that such disputes usually gain international publicity and can have a negative impact on Ukraine’s image among foreign investors.
“The American Chamber of Commerce in Ukraine urges Ukraine’s government to respond appropriately to the notice of the investment dispute with the state of Ukraine initiated by international investors from the USA, Great Britain, Switzerland and the Netherlands regarding the AMCU decision and to impartially consider the issue in compliance with Ukrainian legislation and international agreements,” the ACC wrote in a statement.
“A quick, transparent, and fair resolution of the situation will help to maintain business relations between strategic investors and the state, not to damage Ukraine’s image and investment climate, and avoid losses to the state budget.”
August 14, 2020
If it's called a cigarette…
Five bills that have been put before Ukraine’s Verkhovna Rada, or parliament, equate electronic cigarettes with conventional cigarettes, according to an Interfax Ukraine story.
Under the bills, e-cigarettes will be included in the list of tobacco products, and e-liquids will be included in the list of excisable cigarettes.
The bills ban the sponsorship, advertising and promotion of e-cigarettes and non-combusted cigarettes, as is the case with conventional tobacco products.
The bills also propose banning the production and sale of tobacco products ‘containing ammonia, ammonium and urea or a combination of them’.
September 11, 2018