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. Last Updated: 07/27/2016

Amcor to Sink $25M Into Packaging Plant

Australian paper and packaging group Amcor said Friday that it will build a cigarette-packaging factory in Novgorod, a plan that will pump an additional $25 million into a growing industry already plump with foreign investment.

Production is scheduled to start in the first half of 2000 and the plant's main clients will be tobacco giants Philip Morris and British American Tobacco, Amcor general director Louis Lachal said.

"We see it as a good opportunity to expand our business in Russia," Lachal said by telephone from company headquarters in Melbourne, Australia.

The factory in Novgorod, about 400 kilometers northwest of Moscow, is part of a $1.5 billion, three-year expansion plan announced by Amcor earlier this week.

Amcor's annual export of packaging materials to Russia stands at $10 million to $15 million, Lachal said.

Annual imports of those materials total $1 billion, U.S. & Foreign Commercial Service Moscow said, Reuters reported. In total, Russia imports about a third of all domestically consumed packaging materials.

Amcor's packaging division reported a profit of $398 million for the financial year ending June 30.

The Australian company's expansion announcement comes as foreign giants plow millions of dollars into the Russian tobacco industry despite a financial crisis that has crippled many other sectors. The Russian economy suffered a body blow last August when the government devalued the ruble, and many foreign companies drastically cut back on investments, or just pulled out of the market.

But foreign funds are slowly beginning to trickle back. By the end of the first quarter of 1999, accumulated direct foreign investments amounted to $9.96 billion, the Economics Ministry said. The tobacco industry accounted for more than $600 million of those investments.

However, foreign tobacco companies estimate that they have sunk more than $1 billion into Russia since 1992.

Philip Morris alone invested $500 million in the Russian tobacco industry, company Moscow spokesman Pyotr Lidov said.

Investments from rival British American Tobacco amounted to about $250 million.

Although Amcor said it planned to produce packaging for Philip Morris and British American Tobacco, Moscow officials at both companies said they were not aware of any such deals.

Lachal said negotiations had been held with the tobacco companies at their European headquarters.

Russia consumes about 250 billion cigarettes a year. Domestic production soared from 142 billion cigarettes in 1996 to 205 billion in 1998, while the share of imports decreased in the same proportion.

Low-quality cigarettes without filters make up for more than half of the sales, Lidov said.

Packages of cigarettes retail for 10 cents to $1.20 in Moscow.

A large number of the cigarettes on sale are fake brands, which flooded the market in the wake of the financial collapse, Lidov said.

"This is a general problem for all consumer goods, including soft drinks, coffee and cigarettes," he added.

Sales of foreign brands have dropped significantly in the past year.