5.3. A case study: the Lviv tobacco factory - investment for closure

The tobacco factory located near Lviv has been in operation ever since the time when this territory was part of Austria. The joint venture "RJR Tobacco Lviv" was established on October 28, 1993. Being foreign investors, they were allowed a five-year privilege of not paying profit tax. The RJR executives promised to reconstruct the factory during these five years, and to start production of the brands "Camel" and "Winston". Instead, they started to re-orient the factory to foreign raw materials. They used USD 4.5 million of their investments to purchase second-hand equipment from another RJR factory abroad. A large amount of money was used to train some workers in Canada. They even used investment money to buy raw tobacco abroad. There was no democracy in relations with the employees. Working conditions were terrible and in 1996 workers went on strike, which is unusual for these types of enterprises. The terrible working conditions are described in a letter from the factory workers. As a result, RJR introduced a program of "voluntary discharge" with some allowances and the number of workers quickly decreased to 600 in 1998, while in January 1996 there were 952 workers. Earlier on in 1994, the chief executive of the raw tobacco workshop disappeared. Furthermore, RJR claimed that they were good taxpayers, but the regional tax inspection in January 1998 discovered that they had hidden 400 thousand UAH (100,000 USD) from taxes and the factory had to pay 1,393,517 UAH (including penalty fees). Later other tax violations were discovered. In May 1998, RJR purchased an additional 28% of the shares from the state and announced the so-called "renaissance" program. It meant that the Kremenchuk factory would produce mainly filter cigarettes, while the Lviv factory only non-filter cigarettes. The equipment for producing Magna filter cigarettes was removed within 3 days. Workers of that workshop tried to protest but other workers did not support them because RJR executives promised that the factory would work in full strength and produce half a million cigarettes a month. 

However, the executives (all top executives were foreigners) already knew that they were lying. On November 4, 1998, exactly five days after the promised five years period of "full reconstruction" expired, the factory owners announced that they had reconsidered their plans and decided to close the factory. Workers who agreed to a "voluntary" discharge were promised large allowances, and 617 of 620 workers signed such an agreement. The factory closure and unemployment is a result of the TTC investment. Other factories had other stories, but the general trend is that the reality differs from the TTC promises.