Cigarette Maker Philip Morris Shuts Bucharest Factory For 2 Weeks, Puts 450 Employees On Furlough

The company said it decided to halt activity because of a continued decline in legal cigarette sales on the local market following a sharp hike in excise duties as of January 1, coupled with an increase in cigarette smuggling.

The trend has picked up over the past ten months, following a 48% increase in excise duties, to EUR50 per 1,000 cigarettes in April 2009 and to EUR74 per 1,000 cigarettes in January 2010.

"Despite our efforts to avoid this measure, market realities have offered us no other choice. Our estimates show one of four packs of cigarettes is being sold illegally, so no taxes are paid to the state budget," said Andrei Vasilescu, Corporate Affairs Director with Philip Morris for Romania and Bulgaria.

"Our employees are not the only one who suffer because of contraband. The black market causes a drop in sales, which also leads to job loss among distributors and retailers. Consumers end up buying cigarettes that are often of doubtful content and quality. On a larger scale, this translates into major loss for the state budget," Vasilescu explained.

The temporary shutdown will affect the company's 450 employees, who will be put on furlough and receive 75% of their wages during the halt.

According to union leader Cornel Serbanescu, the cigarette maker's sales dropped 30% last year compared to the company's projected sales.

"We've lost market share constantly to the black market and to the competition, because police aren't doing anything about this," Serbanescu said.

Philip Morris is one of the three large cigarette makers in Romania, along Japan Tobacco International and British American Tobacco.

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