BAT to invest $12.5 mln in Cambodia (fwd)

[Robert Weissman <rob@essential.org>]

INTERVIEW-BAT to invest $12.5 mln in Cambodia
03:29 a.m. Jul 07, 1999 Eastern

PHNOM PENH, July 7 (Reuters) - The Cambodian unit of British American
Tobacco plans to invest $12.5 million to quadruple its leaf processing
capacity, a company official said on Wednesday.

The new machinery will enable the company to process 4,000 kg of leaf per
hour from 1,000 kg currently, strengthening prospects for sales to both
local and overseas firms, said BAT Cambodia's corporate affairs manager
Carrick Graham.

The new investment is being made despite problems with what the company
sees as an unfair tax burden and persistent copyright infringement in
Cambodia, Graham told Reuters in an interview.

``The $12.5 million investment is going to increase our capacity in the
primary manufacturing department,'' Graham said.

Tobacco leaf is processed in the primary stage of manufacturing, and
cigarettes made in a secondary stage.

BAT Cambodia is the country's largest cigarette producer and produces 2.4
billion cigarettes a year. Total annual consumption in Cambodia is 7
billion cigarettes, Graham said.

``(The new investment) ensures more consistency, and higher quality,
better control of the manufacturing process,'' he said.

``It also means we can look at the possibility of processing tobacco for
other companies and there's great potential for exports as well with this
new machinery,'' he said.

BAT UK Ltd holds a 51 percent stake in BAT Cambodia, established in 1996,
as a joint venture with Cambodian businessman Kong Triv and
Singapore-based SUTL Investments, the investment arm of privately owned
SUTL Corporation Pte Ltd.

Graham said the company had seen encouraging results from its efforts to
help Cambodian farmers produce tobacco.

``We're reducing reliance on imported tobacco by investing and building up
the quality and expertise of the farmers here in Cambodia. The benefit for
them is substantial,'' he said.

``We brought international tobacco buyers to Cambodia to look at the crop
and they're really interested in developing it further.''

BAT has contracted some 350 farmers, most of them in Kompong Cham province
northeast of Phnom Penh, to grow tobacco with new seed varieties. Their
yield per hectare has increased to 1.7 tonnes from 750 kg in 1996.
Contracted farmers' annual income per hectare was $1,000 in 1998 from only
$200 in 1996, BAT said.

More farmers were hoping to grow tobacco for BAT but Graham said that
would depend on levels of demand, which have recently been hit by the
economic downturn, higher prices due to the introduction in January of a
10 percent value added tax (VAT) and illegal copying of brands.

BAT, like other foreign firms in Cambodia, says it is being unfairly
singled out for VAT while local firms evade the tax.

``We're facing difficulties in the Cambodian market with the introduction
of VAT,'' Graham said. ``We've had to increase our prices and as one of
the few companies that actually pays VAT in the tobacco industry, it hits
us the hardest.''

``We face other added pressures with trademark infringements, a lot of our
products are copied.

``We talk with the government and raise our concerns. We do get positive
feedback, they are genuinely trying to do something about it but they do
recognise that in this part of the world especially, trademark
infringement and copyright is a tricky one to tackle.''