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. Last Updated: 07/27/2016

Reynolds Boosts Share in Russian Plant

The U.S. manufacturer RJ Reynolds Tobacco International has increased its interest in the Yelets tobacco factory in central Russia to 49 percent and plans to invest over $10 million over the next two years, Sergei Akulov, vice-president for Reynolds' office in the Commonwealth of Independent States, said in an interview Wednesday. Akulov said the company, which had purchased a 29 percent stake in the factory at a voucher auction in February, boosted its share by 20 percent at an investment tender last week. He declined to disclose the price for the shares, which had been retained by the state after the company was privatized. Akulov said that Reynolds outbid a Bulgarian firm and a French company at the tender, in which bidders were required to offer investments of at least $10 million. He said the Reynolds investment, which would exceed the minimum investment bid, will quickly allow the Yelets factory, which employs 700 workers, to cut production costs by 20 percent. The Reynolds deal is latest in a series of purchases by major Western cigarette manufacturers trying establish themselves on the lucrative markets of the former Soviet Union. In Russia alone, 254 billion cigarettes were manufactured in 1992, according to the state statistics committee. In June 1992, Reynolds acquired a controlling stake in St.Petersburg's largest cigarette plant, AS Petro -- now renamed RJR-Petro. The company also holds controlling interest in two tobacco factories in Ukraine -- in Lvov and Kremenchug. Akulov said the Reynolds strategy in the CIS was to position its products between Russian and Western brands by teaming up with domestic manufacturers and introducing modern technology. "We want to take a niche, once occupied by Bulgarian producers, and make good-quality but relatively inexpensive local brands," he said. Akulov said that less than 10 percent of Russians smoked expensive Western brands such as Marlboro, Camel or Winston, while there was a huge market for inexpensive, locally made cigarettes. The Yelets factory, based in the small city of Yelets, 350 kilometers southwest of Moscow, is Russia's only producer of tobacco additives, which, according to Akulov, lower the harmful effects of tobacco and improve the taste of cigarettes. Igor Shvedov, deputy head of the local state property fund in Lipetsk region, where the factory is located, said the factory was built in the early 1970s using French equipment. But the equipment has worn out and the company lacked money to replace it, Shvedov said