ZAGREB, 8 April (2022) - BAT Group is continuing its investment cycle in the Kanfanar factory with an additional HRK 400 million (€53 million) to be invested in new categories of tobacco products, which confirms its status of a leading private foreign investor in Croatia, company officials said on Friday.

BAT Adria director-general Zvonko Kolobara said the new investment built on last year's HRK 200 million (€27 million) investment in new production lines for heated tobacco products.

Kolobara said the new investment would require new hiring but he could not specify how many new workers would be employed.

Speaking of the black market, he said it was still rather big but that it had been on the decline in the past two years owing to the efforts by the customs service and border police.

Kolobara said that BAT executives had met with Prime Minister Andrej Plenković on Thursday to inform him and the government of the company's investment plans.

Asked about the issue of increasing excise taxes, of which the company had warned, Kolobara said that excise taxes were within the remit of the government but that they would prefer if there existed an excise tax calendar to enable better business predictability and sustainability.

Speaking of inflation, he said that it would definitely have a negative impact on the company's results.

BAT South Europe Director Roberta Palazzetti said that the total investment of HRK 600 million in new production lines had additionally strengthened Croatia's position on BAT's global production map, with the Kanfanar factory being one of the few in the world to produce, apart from cigarettes, heated tobacco products, which have the potential of significant risk reduction for adult smokers.

BAT acquired the cigarette factory Kanfanar, Istria, in 2015 when it took over local tobacco producer Tvornica Duhana Rovinj (TDR).

In the coming years BAT plans to increase the production of heated tobacco products in Croatia in light of growing demand.

BAT said that since the 2015 acquisition it had invested nearly HRK 1.1 billion (€135 million) and continued to increase production, employment and exports.

BAT pays HRK 3.5 billion in taxes and contributions annually and employs 1,500 workers in Croatia. Every year the company contributes more than HRK 1.4 billion in added value to GDP, and the biggest increase in contributions to GDP has been generated by the Kanfanar factory, which has continually increased production and exports, BAT said.

For more, check out our business section.

ZAGREB, 12 May, 2021 - During a visit on Wednesday by Prime Minister Andrej Plenković to the British American Tobacco (BAT) factory in Kanfanar, BAT revealed an investment of HRK 200 million in the production of a new category of heated tobacco products (HTP), underlining the importance of the new logistics centre in Rijeka.

"By expanding production in Kanfanar and opening a hub in Rijeka, we are continuing with BAT's significant investments in Croatia. With the introduction of production lines for new product categories, Croatia is additionally strengthening its position on the global map of production sites in the tobacco industry. We are continuing to expand our selection for consumers in Croatia," BAT Adria director Zvonko Kolobara said in a statement to the press.

He added that the increased capacity in Kanfanar would help BAT meet growing demands for HTP in Europe and northern Africa.

Kolobara thanked the government and Prime Minister Plenković for their efforts in creating an investment climate that stimulates further investments.

Plenković expressed satisfaction that BAT is continuing with its investments in Kanfanar and ensuring jobs. BAT's announcement of the investment comes after its announcement that it could leave Croatia due to unfavourable business conditions.

Plenković underlined that the new investment was an example of a good business climate and that BAT did not exert any pressure on the government to meet its demands to continue doing business in Croatia.

"The new, HRK 200 million investment in new products means a new impetus, enthusiasm and a new generator of business and with that, a contribution to Croatia's economy. The company employs 1,600 people and another 800 cooperate closely with BAT and make a living that way. The investment plans have been coordinated with their headquarters in London and all the employees at the factory will be satisfied while the entire economy of Istria County will benefit from BAT's operations," said Plenković.

He noted that the government was open to large global investors.

"It is excellent that BAT has established a hub in Rijeka for products from China that are distributed throughout Europe. That is additional confirmation of Rijeka's attractiveness as an exceptionally important transport and commercial port in the country. As far as BAT's staying is concerned, the government took account of the Croatian economy and creating conditions for all foreign companies doing business in Croatia and investors to have the same treatment. It is obvious that BAT has decided that the Kanfanar factory is important and that it wants to invest and that Croatia is important to it. There was never any pressure," said Plenković.

For more about business in Croatia, follow TCN's dedicated page.

As Dnevnik/Ivan Forjan writes on the 29th of October, 2020, although they threatened to leave Croatia, British American Tobacco (BAT) hasn't yet made a final decision. They don't want to confirm whether they're leaving or not, but they're complaining to the state about the level of excise duties placed on tobacco products. Negotiations are underway with the Croatian Government, and Dnevnik checked what lies behind the whole story.

British American Tobacco threatened to shut down their machines at their Kanfanar tobacco factory/plant rather openly about a month ago. At the end of September, the five-year period expired in which they undertook the obligation not to relocate production from Croatia after buying the factory.

BAT didn't respond to Dnevnik's question about the negotiations with the Croatian Government and whether they're now any closer to reaching a solution. In addition, they don't want to answer whether they're being bothered by the unequal tax treatment of tobacco products, ie classic cigarettes and heated tobacco products.

"The government is conducting a dialogue not only with BAT but also with other market players, and I'm sure that we'll reach a solution that will enable the survival and retention of jobs at that factory in Istria," said Prime Minister Plenkovic. BAT in Istria employs 1,600 workers, and their union warns that the departure of BAT would be a big blow to the economy and would mean a wave of layoffs.

On the other hand, the subcontractors of BAT's factory see the situation somewhat differently. They've warned that BAT imports about 90 percent of its raw materials from abroad, and also sells more than 80 percent of its products abroad.

"Excise duty is paid in the importing country, not in Croatia"

"Practically speaking, tobacco excise duties in Croatia for BAT and their business are in some way neutral, if you export 80 percent of your tobacco products abroad, then you pay excise duty in the importing country, not in Croatia," explained Zeljko Aragovic from the Krupan List Tobacco Producers Association.

In the five years since BAT has been operating in Croatia, Aragovic says that tobacco production in the country has fallen by 36 percent.

"The fact is that not only are they blackmailing the government, they're blackmailing tobacco producers in some way or another, blackmailing the local community, blackmailing, so to speak, some of their business partners, because if they announces their departure and if they've made some agreements regarding that, then then it's blackmail,'' believes Aragovic.

In addition to BAT, Philip Morris, Japan Tobacco International and Imperial Tobacco also operate here on the Croatian tobacco market. The second largest market player being Philip Morris.

"There is no European country in which these products aren't taxed differently than cigarettes are, or significantly lower. However, we don't see cigarette factories closing across Europe because of this.

The level of excise duties placed on heated tobacco products can't be the real reason for the potential closure of this cigarette factory in Croatia. It would be truly incredible if a company in Croatia succeeded in shifting the responsibility for its own failure to the state,'' they said from Philip Morris.

Japan Tobacco stated that they welcome the state's announcements about the introduction of an excise calendar, which would greatly facilitate their business planning. The final word on everything will, of course, be had by the Government, which, judging by the Prime Minister's statement, isn't going tp give in so easily to this pressure.

"It's the government that pursues the excise policy, to be quite precise," the Prime Minister said. The producers' association also says that the departure of BAT wouldn't mean the end of tobacco production in Croatia. As an alternative, they primarily see turning to a much wider and larger European market.

For more on this story, watch the Dnevnik news report which aired on Croatian national television.