Банкеръ Weekly

Briefs

NO CONFLICT OF INTERESTS, ONLY A PERSONAL CONFLICT IN BULGARTABAC

Almost 250 cigarette brands are sold on the Russian market. It takes a lot of time and efforts to establish and maintain a brand, considering the competition. That's why it's not good for Bulgartabac to lose the Russian market. What the holding needs to do is change its trade policy and pay more attention to the distributors, says Sergey Shelehov, President of the Russian Tobacco Distributors Association (Grandtabac). The association includes 38 big companies that cover almost the whole market. Grandtabac declared its willingness to help for settling the conflict between Bulgartabac and Soyuzcontract Tabac.Mr. Shelehov, you are defending the Russian cigarette distributors and this is quite logical. But why do you worry so much that Bulgaria may lose the market of its cigarettes in Russia?- There is overproduction in Russia that exceeds 35 per cent. We have been informed that Bulgartabac controls between 3% and 7% of our market. This is one of the most dynamically growing markets and ranks fourth in terms of turnover in the world. In the past ten years big transnational tobacco companies have been gradually increasing both the amount and the range of the cigarettes they produce. Meanwhile, Russian tobacco plants increased their production too. At the same time there were fewer Bulgarian cigarettes produced and sold. Because of the policy led by Bulgartabac's former management three of the four plants producing Bulgarian cigarettes in Russia stopped operations. The plant in Belgorod is now run by foreign managers. The plant in Tver does not work any longer. The Sochi-based plant is facing bankruptcy proceedings. The only plant that is still operating is that of Soyuzcontract Tabac and it was threatened to lose its license. It has stocks sufficient for two and a half months. If the situation does not change, Bulgarian cigarettes will lose their market forever. And there are lots of candidates for that niche.What needs to be done for the Russian market of Bulgarian cigarettes to be saved?- First of all, there should be negotiations with the distributors who sell Bulgarian cigarettes here. I think the manager of Bulgartabac was changed at a right moment. I do not know the new director in person, but he is a professional and his name is well-known in this branch. He knows the situation from inside and knows how to change it. Georgi Popov turned down any single proposal that he received. He even said that he wouldn't regret if Bulgarian cigarettes were no longer sold in Russia. He gave one reason for that. Bulgartabac suffered losses amounting to USD5MN because of the operations of the plants last year. If they stopped operations, at least they wouldn't report losses.It sounds logical. If the production does not make profit, there are two alternatives - either it should be stopped or the property should be sold. There may also be a third option. What did you propose to Bulgartabac?- You are absolutely right. There is a third option. In principle, business should be closed if only there are no other ways to save it. Grandtabac offered several alternatives. If Bulgartabac did not have an export programme, it would not be attractive to investors. We proposed that Bulgartabac become member of Grandtabac and profit by our analytical service. The largest transnational distributors and national companies are members of the association. It would be an honour for Bulgartabac. There are established schemes that help for the solution of general problems. Despite the competition, we coordinate everything that we do. We offered to choose an exclusive distributor. We offered to mediate in the dispute with Soyuzcontract Tabac. We also wanted to organize some other meetings. We received no answer. If Soyuzcontract Tabac is really so bad, then Grandtabac represents the elite of the Russian distributors. Professionals do not ignore Grandtabac. This series of mistakes led to the situation that we now see.On what matters did Bulgartabac and Soyuzcontract Tabac fail to reach an agreement?- The problems were personal - between Georgi Popov and Gevondyan. Unfortunately, the personal conflict prevailed over the market relations. Soyuzcontract Tabac has 85 regional companies. Bulgartabac may be able to establish them by itself in the future. But now it has to minimize the expenses.Could the problems come to a rational and cold-blooded solution?- I think that the conflict between Soyuzcontract Tabac and Bulgartabac is a fiction. There is no real conflict, neither a political nor an economic one. There is only a personal conflict between two men. Grandtabac has declared frequently that it is ready to help - both in Bulgaria and Russia. We are ready to lend a hand if it is really needed. We want to keep the position of the Bulgarian cigarettes in Russia, if this is what Bulgartabac wants too. Grandtabac is ready to stand in judgement without interfering in the problem. We helped everyone - for the licensing, for the adoption of the Law on Smoking. We should do business, not politics.

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