Iranian Tobacco Company Works Out Expansion Plan

EghtesadOnline: Iranian Tobacco Company produced 2.4 billion cigarettes over the first quarter of the current year (March 20-June 20), which puts its monthly average output at 800 million.

News ID: ۷۵۰۸۶۰

02 September 2020

ITC is planning to increase its monthly production during months ending August 21 and Sept. 21 to one billion, ISNA reported.

Over the four-month period leading to July 21, ITC’s sales increased by 37% and 40% in terms of number and value, respectively.

One of the main goals the company has set for the current Iranian year (March 2020-21) is to reclaim its lost market by increasing its output and sales by 200%. To that end, it plans to restart one of its abandoned production lines in Tehran after three years.

Two of the company’s production lines in Isfahan’s Khomeyni Shahr, with a capacity ofe close to four million mini-sized cigarettes a day, were already put in operation during the month ending July 21 after a two-year hiatus.

The Iranian Tobacco Company was launched in 1937 as a state-run monopoly to develop the tobacco industry in Iran.

One of the oldest tobacco companies in the Middle East, ITC is engaged in the cultivation of tobacco and production of cigarette, pipe and hookah tobacco. It owns factories in Tehran, Kurdestan, West Azarbaijan, Isfahan, Gilan, Mazandaran and Golestan provinces and produces different brands of cigarettes, including Bahman, Zika, Caspian and Farvardin.

The law gives ITC a strong hold over Iran’s entire tobacco industry, making it the only domestic player in tobacco in Iran and confers upon the company complete control over all tobacco-related commercial activities throughout the country, including imports, exports, production and distribution.

For years, ITC was the only customer of tobacco grown by Iranian farmers and always stated that increasing tobacco production was one of the main objectives of the company.

Repeatedly removing and replacing ITC’s top officials, employing unqualified executives, objections raised by authorities in health sector against the development of tobacco industry and lack of scientific and practical plans are among the reasons holding back the progress of tobacco industry in Iran.

Botched Privatization

ITC’s predicaments are not limited to the above-mentioned problems. Many experts believe the privatization of the company during the second term of former president Mahmoud Ahmadinejad, when 55% of the shares of the company were transferred to Steel Industries Pension Fund in 2010 as part of the government’s debt to the organization, marked the onset of a major crisis for the company.

The privatization process saw a series of proponents and opponents from the very beginning. Many believed it was only a change of ownership between two government agencies and some believed it was a significant move toward streamlining the tobacco industry.

There were more problems to come.

Soon muscle-flexing by shareholders of Steel Industries Pension Fund, when it came to selecting executives, provoked the discontent of ITC’s seasoned managers and professionals. They saw new executives of the company, who barely had any knowledge of tobacco industry, acting as destabilizing elements. Critics believe the pension fund’s shareholders view ITC as a piggy bank to solve the problems of the fund.

Under the circumstances, the decline in ITC’s revenues gave rise to further problems, including complications in providing raw materials for production lines, substantial cuts in the payments of employees or poor insurance service to workers.

All these problems robbed the company of the chance to pursue bigger goals like increasing domestic production of tobacco by lending support to farmers. The one-two punches of these crises, together with the activities of foreign rivals and smugglers, further reduced the share of ITC from the Iranian cigarette market.

In fact, these problems directly affected tobacco farmers, as they only had ITC as their customer. The company’s less-than-expected buying prices or its delayed payments to farmers disheartened tobacco farmers. Consequently, they shifted to growing other agricultural products.

Around eight months ago, Iran Court of Administrative Justice announced that Steel Industries Pension Fund is owned by the state and therefore its affiliates including ITC, to which government allocates budgets, are state properties.

In early July, the government approved a proposal to repay its debt worth 320 trillion rials ($1.3 billion) to the Social Security Organization by transferring to the organization a portion of its shares in nine state-owned companies including ITC. The Iranian Tobacco Company has 5,000 on its payroll and works with 6,000 farmers.

Surge in Smuggling

Latest available data show a total of 6.24 billion cigarettes were smuggled into Iran during the first quarter of the current year (March 20-June 20), indicating 78.3% increase compared with the corresponding period of last year.

An estimate of 16.2 billion cigarettes was smoked during the period, registering no significant year-on-year change.

Cigarette exports stood at 60 million during the period, Fars News Agency reported.

Import of cigarettes to Iran has been banned for a long time now.

A total of 54.8 billion cigarettes were produced in the last fiscal year (March 2019-20), indicating 13.7% growth compared with the year before.

Cigarette exports saw a 2.7% increase to stand at 154 million while the ban on imports remained in effect.

Notably, Jordan and Austria made to the list of Iran’s export destinations for cigarettes for the first time in the year ending March 2020, according to Ataollah Maroufkhani, the head of Ministry of Industries, Mining and Trade affiliate, the Iranian Tobacco Planning and Supervision Center.

The Ministry of Industries, Mining and Trade estimates that 10.03 billion cigarettes were smuggled into Iran in the last fiscal year, given the 65 billion cigarettes that were smoked in the country during the period, which registered a year-on-year decline of 39.2%.

Meanwhile, tobacco exports stood at 2,374 tons, posting a surge of 161.3% while 21 cigarette and 39 tobacco factories were active last year compared with 20 cigarette and 33 operational tobacco factories in the year before, ISNA reported.

The government earned 17,023 billion rials (more than $70 million) from tax on cigarette consumption in the year ending March 2020.

The figure indicates a 50% rise compared with last year.

Meanwhile, tax on cigarettes sales increased by 22.8% to reach 7,868 billion rials (about $33 million) last year compared with 6,406 billion rials (over $26 million) in fiscal 2018-19.