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Sri Lanka's leading tobacco company remains Undeterred amidst relentless hostilities.

THE TOBACCO industry in Sri Lanka is facing tough times. With increasingly hostile anti-tobacco regulations and a burgeoning illicit market, a public promise was made last summer by the now re-elected and powerful Sri Lankan President Mahinda Rajapaksa to eradicate tobacco consumption from his island nation by 2015.

Despite this, the country's leading cigarette manufacturer, the 78-year-old Ceylon Tobacco Company (CTC) remains bullish about its future. Part of the reason is that, despite the recession, the CTC showed impressive income, year with the company's gross revenue growing to Sri Lankan Rupees LKR 58.1 billion (US Dollar USD 509 million) last year. With Sri Lanka's high excise rates, this generated a total of LKR 52.4 billion (USD 456 million) in tax to the government's revenue in 2009, which represents 7.6% of the south Asian island's total tax revenue and an increase of LKR 3.9 billion compared with 2008, (fuelled largely by excise tax increases).

This impressive contribution came as Sri Lanka's Rajapaksa announced his ambitious anti-smoking plan. He has however acknowledged that this is not an easy task but has vowed not to back down until smoking is completely eradicated from the country. Of course, Rajapaksa is used to tough tasks--given he last years led a successful fight against Tamil Tiger separatist guerillas. "Terrorism which plagued Sri Lanka for over a quarter century and which was portrayed as an invincible menace has been totally erased from this country today. So defeating 'tobacco smoke' may not be so difficult provided we adopt correct measures," the president said.

He has already tasked the National Authority on Tobacco and Alcohol (NATA) with working towards this goal.

However, CTC's corporate & regulatory affairs director Dinesh Dharmadasa does not view the president's plan as viable. CTC is an owned subsidiary of British American Tobacco (BAT) and the sole manufacturer, distributor and marketer of cigarettes in Sri Lanka currently dominating more than 95% of the country's cigarette market share.

Also, it has an important role to play regarding farming. The company sources its entire leaf requirement domestically for all its tobacco products, with leaf currently grown in the country's North Central Province.

Since late 2006, the Rajapaksa administration has brought in tough laws to combat the increasing use of tobacco products.

Sri Lanka's National Tobacco and Alcohol Regulations, which were approved in late 2006, impose wide smoking restrictions. They ban the burning of tobacco in any enclosed public place except: hotels, guest houses or lodges with 30 rooms or more; restaurants or clubs with a seating capacity of 30 or more people; and airports, albeit in separate areas for smoking with adequate ventilation ensuring prescribed air quality standards are met.

Also, direct and indirect advertising, promoting and sponsorship of all tobacco products is banned in Sri Lanka. The country was also among the first in the Asian region to ratify the World Health Organisation's (WHO) Framework Convention on Tobacco Control (FCTC), tobacco control policies have wide support in governing circles, especially compared to many other Asian countries.

Indeed, in February this year, in a bid to ensure non-smoking spectators do not inhale ambient cigarette smoke, the chairman of the National Authority on Tobacco and Alcohol (NATA) Professor Carlo Fonseka, wrote to the president of the Sri Lanka Schools Cricket Association appealing him to make cricket grounds across the country smoke and alcohol-free during matches.

Meanwhile, selling cigarettes to anyone under 21-years-old in Sri Lanka is a punishable offence. The Sri Lankan government has also imposed a ban on showing alcohol and cigarette consumption in broadcast media, including films. Several local privately owned television channels, which had failed to comply with the government order were threatened with legal action this February.

According to Dinesh Dharmadasa, the government is also looking at enforcing graphic warnings on cigarette packets to discourage smokers from their habit. "This is on the cards, it may be implemented soon," Dharmadasa told Tobacco Journal International from his office in Colombo.

However, Dharmadasa noted that the country's anti tobacco laws have been grossly misinterpreted by even the police. In a statement published in the CTC's annual report, company chairman Jayampathi Bandaranayake (NOTE--SPELLING IS CORRECT) said: "For instance, with the initial introduction of the NATA, it was reported that 10,000 arrests resulted in the year 2008. In instances where the arrests were contested and challenged in courts, over 98 percent of cases were dismissed on the basis of wrongful arrests." And government restrictions do seem to be having an affect. In 2009, the CTC saw a 5% drop in sales, and if the government does tighten the regulatory screw further, this decline could of course continue.

"The company's sales volumes in 2009 declined by five percent relative to 2008, as a result of higher excise-led price increases and diminished consumer affordability. There was one price increase early in the year, which averaged 12 percent," stated CTC finance director, Bruce Jalleh. But there was some good news: "The share of the company's three main brands, Dunhill, John Player Gold Leaf and Pall Mall improved, however at the expense of counterfeit and smuggled cigarette," added Jalleh.

In this sense, government actions have actually been helping the CTC. In 2009, 1,890 seizures were made resulting in the confiscation of 79 million sticks of counterfeit and smuggled cigarettes valued at over one billion Sri Lankan Rupees (USD 8.7 million). This was more than double that of 2008, the CTC said in its 2009 annual report.

And this matters, because in Sri Lanka's high tax environment, tax makes up a large proportion of licit tobacco prices. According to Dharmadasa, each cigarette is sold at 18 Sri Lankan rupees (USD 0.16 cents), 80% of which is tax. "Over the past three years, the price of cigarettes has gone up by 100 per cent, which has also impacted sales to a certain extent," he noted.

He however expressed confidence that the company would in 2010 be successful in surpassing last year's high tax payment.

In March this year, Sri Lanka unveiled its first anti-tobacco graphic hoarding which depicted the ills of smoking cigarettes. Set on a white background, it showed an unidentified man with severely damaged lungs and various other internal injuries supposedly caused by his smoking habit--at the bottom of the hoarding, a warning in capital letters: SMOKING KILLS. Meanwhile, research on smoking shows that the country does not have a high level of smokers: according to the WHO Report on the Global Tobacco Epidemic 2008, in Sri Lanka 29.9% of male and 2.5% of female adults are currently smokers.

Meanwhile, an investigation carried out by the faculty of medicine of the University of Colombo, revealed that the prevalence of drinking and smoking is significantly higher in Sri Lanka's urban areas than in rural zones. The investigation found out that about 30% of urban adult males are current smokers whereas only 24% of rural males indulge in smoking.

According to NATA, poor smokers and their families suffer financial hardship when money is spent on tobacco. "In many poor families, children go hungry because their fathers are tobacco addicts," NATA claimed in a recent report. However, when the Tobacco Journal International contacted the coordinator of NATA Dr Prasanna Cooray requesting an interview, he declined to explain further. Meanwhile, the CTC is countering such bad publicity with a corporate social responsibility initiative, one of the largest in Sri Lanka.

The CTC's Chief Executive Officer, Mustanser Ali Khan noted that its Sustainable Agriculture Development Programme (SADP) has reached out to 7,045 families across Sri Lanka, assisting them in overcome poverty.

"The SADP project remains one of the largest corporate social responsibility initiatives in Sri Lanka. Aligned with the government's national priority to alleviate poverty in keeping with the United Nations Millennium Development goals, CTC is resolved to extend the project to benefit a total of 14,000 families by the year 2011," Khan stated.

Also under the SADP, CTC hopes to assist 4,000 families in the country's north and east provinces by the end of 2010. This is important, because much of this area was until last May under the control of the Liberation Tigers of Tamil Eelam (LTTE), who were defeated in a bloody military offensive. The CTC has pledged its support to the government of Sri Lanka to actively participate in the reconstruction of the infrastructure in these formally Tamil Tiger-controlled northern and eastern provinces, which were devastated over a period of three decades through war and civil strife.
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Author:Mushtaq, Munza
Publication:International News
Date:May 1, 2010
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