[Intl-tobacco] Indonesia: WHO Concerned By Philip Morris Indonesia Deal

[Robert Weissman]

Thursday March 31, 8:45 PM


   INTERVIEW:WHO Concerned By Philip Morris Indonesia Deal

  By Phelim Kyne
  Of DOW JONES NEWSWIRES


JAKARTA (Dow Jones)--Philip Morris International Inc.'s takeover of a
leading Indonesian cigarette maker will likely spur a surge in "new
victims" of future cigarette-related public health problems, a World
Health Organization official said.

Philip Morris will use its acquisition of PT Hanjaya Mandal Sampoerna
(HMSP.JK), Indonesia's third largest cigarette-maker by sales, as a
platform for sophisticated marketing to boost the number of Indonesian
smokers, Dr. Khalil Rahman told Dow Jones Newswires in a recent interview.

That in turn will boost the risk of associated illnesses, including lung
cancer and emphysema, said Rahman, a regional adviser for the WHO's
Tobacco-Free Initiative in the organization's Southeast Asia regional
office in New Delhi.

Philip Morris, a unit of the world's biggest tobacco company, Altria
Group Inc. (MO), said this month it will pay $2 billion to buy a 40%
stake in Jakarta-listed Sampoerna from a group of major shareholders,
including the company's chairman, Putera Sampoerna.

Philip Morris will make a general offer for the rest of Sampoerna which,
if fully accepted, will lift the value of the total acquisition to $5.2
billion, including around $160 million in debt.

"Not only will (Philip Morris) take the (market) share of other local
(tobacco) companies, but they will also expand their base with new
smokers, a new generation...particularly the young," Rahman said.

Philip Morris Thursday said it doesn't comment on future business
strategies. But the company is guided by "the principle of responsible
behavior" wherever it does business, a spokesperson told Dow Jones in a
written response to questions. The statement didn't elaborate.

Rahman said new smokers are likely to opt for Sampoerna's line of
popular traditional kretek clove-scented cigarettes, which he said pose
a significantly greater health threat than international brands.

Kreteks constitute 92% of Indonesia's total cigarette production, while
Philip Morris brands constitute about half of the remaining 8%.

"Kreteks...contain tar levels that are very high and are more toxic,"
Rahman said, without elaborating.

Philip Morris rejected that contention.

"Based on our testing, we are satisfied (kreteks) are no more or less
dangerous than other cigarettes, (but) it's important to remember that
there is no safe cigarette," Philip Morris said.

However, a Sampoerna spokeswoman told the Asian Wall Street Journal this
month that its popular Dje Sam Soe brand contains 39 milligrams of tar
and 2.3 milligrams of nicotine in each cigarette, compared with 14
milligrams of tar and one milligram of nicotine in the average cigarette
of Philip Morris's flagship Marlboro brand.

Public Health Costs A Concern

Analysts have praised the Sampoerna deal as one of the largest foreign
acquisitions in Southeast Asia and a vote of investor confidence in
Indonesia and its president, Susilo Bambang Yudhoyono.

But Rahman said that potentially higher mortality rates and public
health costs from smoking-related illnesses indicate the acquisition may
amount to future burdens for Indonesia's public health system.

Indonesia's government devoted only 0.72% of total gross domestic
product to health-sector funding in 2002, and the bulk of those funds
are overwhelmingly devoted to combat diseases, including tuberculosis,
which kills an average of 400 Indonesians every day.

WHO statistics indicate that Indonesia is fertile ground for cigarette
sales.

An estimated 59% of Indonesian men smoke, lighting up around 213 billion
cigarettes every year. Indonesia's prevalence of male smokers outpace
their counterpart populations in nine other regional countries surveyed,
including Bangladesh, India and Thailand, the WHO says.

Indonesia's demand for cigarettes appears to be steadily increasing,
judging by a year-on-year increase in cigarette output by Sampoerna and
rival PT Gudang Garam (GGRM.JK) of 7.7 billion sticks and 1.44 billions
sticks, respectively, in 2004, Rahman said.

Rahman urged Indonesia's government to take action to mitigate the
potential negative impact of Philip Morris's purchase, but disavowed any
consideration of blocking the Sampoerna sale on public health
considerations.

"There's nothing wrong with acquisitions and mergers...(the government)
doesn't have to do anything that's noncompetitive in terms of
(commercial) regulations," he said.

Instead, the government should impose advertising restrictions that
would restrain Philip Morris's marketing muscle in a media sector
already rife with cigarette advertising, he said.

"Indonesia's tobacco companies are, without compunction, using
advertising to encourage younger people to smoke," the WHO charged in
its 2002 Tobacco Free Sports report.

Rahman also recommended that the government put an end to Indonesia's
low tobacco taxes, in order to hit the pocketbooks of "the young and the
poor," whose smoking habits he said are directly related to cigarette
affordability.

"If the price goes up, they consume less," he said.

Indonesia's cigarette-related tax revenues in 2002 constituted 5.5% of
the total, WHO data indicate. But that revenue proportion is
considerably lower than tobacco-tax revenue in Sri Lanka or Nepal, which
constituted 10.5% and 8.9%, respectively, of total state revenues in the
same year.

The World Bank has also urged developing companies to raise tobacco
taxes and curb advertising of tobacco products.

Web site: http://www.who.int


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