Feb. 26 (Bloomberg) -- The plunging values of some Eastern European currencies probably will lead to more cigarette smuggling as tobacco becomes cheaper in those countries, British American Tobacco Plc Chief Executive Officer Paul Adams said.

“There is a real danger that illicit trade will increase,” Adams said on a conference call today. He added that cross-border shopping has increased between Germany, Poland and Ukraine. “There is a fear that depending what happens to exchange rates, there will be an increase in contraband, in central Europe particularly.”

Smuggled and counterfeit cigarettes cost governments worldwide about $20 billion in lost tobacco tax, according to the London-based maker of Kent and Pall Mall cigarettes. Ukraine’s currency has lost 40 percent of its value against the dollar in the past year and the Polish zloty has declined 35 percent.

About 335 billion counterfeit and smuggled cigarettes were consumed in 2008, according to BAT. That’s 6 percent of the total market and more than a third of the cigarettes shipped each year by Philip Morris International Inc., the world’s biggest publicly traded tobacco company.

Smugglers can make 1 million pounds ($1.4 million) by smuggling a shipping container of duty-paid cigarettes from Ukraine to the U.K., because the tax in the U.K. is higher, BAT said in April 2007.

BAT is trying to use price increases to keep profit growing in Eastern European countries such as Poland and Ukraine, Adams also indicated.

“We would look to recover that in pricing,” Adams said. “The issue, of course, is, can you take consumers with you and will the competition also do the same thing?”

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.

Last Updated: February 26, 2009 08:15 EST