BAT Will Go Ahead With Uzbekistan Plant

TASHKENT, Uzbekistan -- BAT Industries plc will start work on a $200 million cigarette production project in Uzbekistan on July 22, the company's chairman, Sir Patrick Sheehy, said Wednesday. BAT will invest $100 million in the first year of the project in the Central Asian republic, to be followed by another $100 million in investments in the following two years, Sheehy told a news conference in the Uzbek capital Tashkent. "I am confident that we will be able to meet the July 22 deadline," Sheehy said.BAT will provide financing for the project, which is the first major equity purchase by a foreign company in this nation of 22 million people. Under the project, BAT will purchase a 51 percent stake in Uzbekistan's state-run Uz tobacco factory shortly after July 22. BAT's stake in the new joint venture, Uzbat, will go up to 97 percent in the next five years, Sheehy said.The initial 51 percent stake will cost about $60 million, industry sources said. BAT is expected to invest a further $48 million to upgrade a tobacco factory in Tashkent. Uzbat's eventual production capacity is projected at 25 billion cigarettes a year. The joint venture will be able to reach about half this capacity, or 12 billion cigarettes, after the second year if demand is buoyant, Sheehy said. In addition to the existing factory in Tashkent, which employs 1,400 workers, Uzbat also plans to build a new facility near the southern city of Samarkand and upgrade a fermentation line in the town of Urgut. A BAT official said it would be about five years before the joint venture starts to repatriate profits. The Uzbek government has an option to buy back 24.9 percent of the Uzbat shares after five years, Sheehy said. Western cigarette makers have been muscling into the vast former Soviet tobacco market, with its estimated consumption of some 430 billion cigarettes annually. With an eye to the Central Asian market, Philip Morris has agreed to invest $300 million in neighboring Kazakhstan, where annual demand is put at 30 billion cigarettes a year. The Philip Morris project involves the purchase of a 97 percent stake in the republic's sole tobacco producer. Industry sources estimate demand for cigarettes in Kazakhstan and the Central Asian republics of Uzbekistan, Kyrgyzstan, Turkmenistan and Tajikistan at some 80 billion cigarettes annually. Annual demand in Uzbekistan is put at 30 billion cigarettes, far above current production of about seven billion low-quality cigarettes a year.