Japan Tobacco starts Serbia production, eyes more

BELGRADE, April 24 Tue Apr 24, 2007 1:12pm BST

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BELGRADE, April 24 (Reuters) - Japan Tobacco International (JTI) will officially start production at its Serbian plant on Wednesday, and has plans to invest another $100 million in the country, a company spokesman told Reuters on Tuesday.

JTI, owned by the world's third-biggest tobacco maker, Japan Tobacco Inc (2914.T), paid $35 million euros for 98.5 percent of Senta Tobacco Industry in May 2006, with a further $10 million invested since then.

The plant in the northern town of Senta has a production capacity of some five billion cigarettes a year.

"Over the next two to three years we will invest $100 million in Serbia," said JTI spokesman Andre Benoit. "The investment will include business operations and production."

The tobacco industry has been one of Serbia's most attractive sectors to foreign investors, with a total $1 billion earned in privatisations of state owned factories since 2001.

The main players are Philip Morris, one of the world's top tobacco producers, owned by the Altria Group (MO.N), with its production facility in the southern town of Nis, and British American Tobacco (BATS.L) with a factory in Vranje.

As part of the deals, investors in the tobacco sector were promised protection and preferential treatment until 2009 through Serbia's high excise taxes on cigarette imports.

They were alarmed when Serbia decided to join the Central European Free Trade Agreement last year, meaning its high excise burden would have to be scrapped and local cigarettes would lose their competitive price advantage over imports.

Belgrade has tried to reassure tobacco producers that it will find a way to implement CEFTA without hurting their interests, but has revealed no concrete strategy yet.