Russia will submit a law banning smoking in public places to parliament by Nov. 1, defying opposition from leading cigarette makers Philip Morris International Inc. (PM) and British American Tobacco Plc. (BATS)
“Selling cigarettes is basically illegal if we look at it from the point of view of protecting consumer rights,” Deputy Health Minister Sergei Velmiaikin told reporters today in Moscow.
Russia, the world’s largest tobacco market after China, loses 1.5 trillion rubles ($46.3 billion) a year, or 2.5 percent of gross domestic product, because of premature deaths caused by smoking, Velmiaikin said. That doesn’t include the extra health costs of treating people who suffer from tobacco-related diseases, he said.
A draft law published Aug. 31 by the Health Ministry calls for outlawing all cigarette advertising immediately, ending retail sales at kiosks and banning smoking in public buildings such as bars and restaurants by Jan. 1, 2015. Eastern Europe, Africa and the Middle East generated about a third of sales volumes at BAT and Philip Morris, according to the companies.
“Russia is a big success story” for cigarette makers, Erik Bloomquist, an analyst at Berenberg Bank, said by phone from London. The proposed measures “have the potential to reduce the ability of the companies to compete for consumers.”
About 39 percent of Russia’s 143 million people are habitual smokers, compared with 28 percent in China and 27 percent in the U.S., the World Health Organization estimates.
Smoking-related diseases kill 23 percent of Russian men and cause economic damages equal to 6.3 percent of GDP, according to the Health Ministry, which says its proposed law could cut smoking by as much as half and save 200,000 lives a year.
Japan Tobacco, Asia’s largest listed cigarette producer by market value, has lobbied against the proposed legislation.
“I have doubts that these restrictive measures can achieve the set goals of reducing tobacco consumption given the mentality of Russian consumers,” Anatoly Vereshchagin, a spokesman for Japan Tobacco (2914) in Moscow, said by phone.
The Tokyo-based company, whose brands include Camel and Winston, relies on the region encompassing Russia, the other ex- Soviet states excluding the Baltic countries, the former Yugoslavia, Bulgaria, Romania, Croatia and Mongolia for 46 percent of global sales volumes, according to its website.
The tobacco companies, which don’t break out Russian sales data, say a total ban on smoking in public places and on advertising cigarettes is too draconian, while ending kiosk sales will only end up hurting small businesses.
They also argue that steep tax increases won’t impact demand as much as the Health Ministry envisages because it will lead to a flood of cheaper imports from neighboring countries such as Belarus, Kazakhstan and China.
“We understand that we limit someone’s economic interests with our actions,” Velmiaikin said. “But these interests are different from the interests of the country and society.”
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