19 May 2023 12:24

Philip Morris plans to launch alternative production in Ukraine

MOSCOW. May 19 (Interfax) - Philip Morris International (PMI), one of the leaders of the tobacco market in Ukraine and worldwide, considers it unsafe at this point to reopen its factory near Kharkov (in Dokuchayevskoye village, Kharkov region) and plans to launch alternative production in Ukraine, PMI President for Europe Region Massimo Andolina said.

"We consider it our duty to launch our own alternative production, where we could resume the production of our goods in Ukraine," Andolina said in an interview with Ukrainian media.

One of the reasons is the company's desire to manufacture its products in Ukraine on its own, he said. PMI stands ready to continue to invest in Ukraine even during the crisis, and is actively looking for alternatives now, he added.

"I hope that we can soon announce investments in the launch of alternative production facilities until we have the opportunity to return to the Kharkov region," Andolina said.

When the crisis started in February 2022, the first thing the company did then was to halt the operations of its factory in the Kharkov region, he said.

After the shutdown of the factory, PMI continued to supply its products to Ukraine from eight factories abroad for a certain period of time, he said. However, later, as PMI searched for a solution that would enable it to have its production in Ukraine, an agreement was signed on manufacturing the company's products at the facilities of the Imperial Tobacco company in Kiev, where they are still being produced.

When commenting on a 30% drop in the deliveries of PMI products to the Ukrainian market in 2022 and a 26.7% decline in the first quarter of this year, Andolina said that there are two reasons behind that. The first reason is that some consumers have left Ukraine or are now in territories that are not controlled by Kiev, thus accounting for nearly half of the losses. The second reason is the chronic problem of the shadow market for tobacco products.

"This problem has taken on a considerable scale once again. We have also had quite productive discussions on that with the government. I know that the government is taking very active steps to resolve this problem. But it will take time," Andolina said.

Bootleg cigarettes account for about 20% of the Ukrainian market, causing the state to lose more than 20 billion hryvni as a result of illegal tobacco trade, a figure which is almost equivalent to the taxes that the company annually pays to the country's budget.

When commenting on Ukraine's excise tax policy, Andolina expressed hope for a review of the Ukrainian parliament's decision to remove differential taxation for goods such as cigarettes and heated tobacco products from tax legislation. As many as 1.1 million Ukrainians use heated tobacco products presently, he said.

"This move allowed a large number of Ukrainians to actually quit smoking and switch to non-combustible alternatives. And this is a fantastic result. Why not admit the fact that these products are not the same but are different. That is why, they should be taxed differently," Andolina said.