5.2. A short story of tobacco investments in Ukraine

In the past few years, Ukraine has experienced an expansion of transnational tobacco companies (TTC). Foreign investors established joint ventures with six of the eleven cigarette factories operating in Ukraine. Five multinational tobacco manufacturers are investing in the Ukraine tobacco industry. The Priluky factory was bought by its employees prior to the collapse of the Soviet Union, and after the collapse began negotiations with BAT. In March 1993, BAT bought a 65 % share in the Priluky factory, which required a USD 25 million investment over a period of 5 years. In 1992, RJ Reynolds took the first steps by negotiating the purchase of a 70% share in both the Lviv and Kremenchuk tobacco factories. In 1993, it initially invested USD9.6 million in Lviv and USD7.3 million in Kremenchuk. Currently this firm, which is now called Japan Tobacco International, owns 92% of the stakes in the Kremenchuk factory. Near the end of 1993, the German firm Reemtsma came to Ukraine and bought 65% of the stakes in the Cherkassy and Kiev factories (later its shares increased). The Reemtsma-Ukraine firm with 100% foreign capital was also established. In the spring of 1996, Reemtsma began constructing a new manufacturing site just outside Kiev to replace the existing factory. The new factory near Kiev, with a project capacity of 30 billion cigarettes, was built in 1998. In 1994, Philip Morris purchased a 51% share in the Kharkiv factory, investing USD 6 million. In 1995 it invested USD 10 million more and obtained a 75% share. Presently, Philip Morris owns a 99.9% share. 

In November 2001, the British cigarette manufacturer Gallaher Group PLC acquired a controlling interest (99,23%) in the Reemtsma-Cherkassy factory. Gallaher, which had bought tobacco factory in Moscow from the American Liggett Company for 390 million US dollars (Commercant newspaper, 16.06.2000) a few years ago, didn't disclose any financial details. The company said that completion is expected to occur in early December, and at that time the operation will be integrated into its Russian operations. The company will be renamed Liggett-Ducat Ukraine. 

Besides the amount of investments, tobacco multinationals have made many other promises. They claimed they would:

For the time being, the economic reality differs greatly from these promises.