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Ministry rejects unrequested tender for tobacco distribution

The National Development Ministry yesterday rejected an unsolicited bid by Imperial Tobacco Magyarország for a concession to supply retail tobacco shops explaining that the concession has already been granted to British American Tobacco and Tabán Trafik for a fee of HUF 600 mln and arguing that the unsolicited tender “did not comply with legal requirements”.

Imperial Tobacco Magyarország Kft., JTI Hungary Zrt. and Philip Morris Magyarország Kft. said in a press release Wednesday that they were jointly offering a concession of HUF 6 bln to operate a competition-free tobacco product distribution system, creating 500 jobs.

The three firms claim that the government was supposed to offer a public tender for tobacco companies to operate and supply the tobacco retail businesses, however, as such did not happen, the three tobacco wholesaler companies say they chose to offer their own tender to the government.

The ministryʼs statement from yesterday said that Imperial Tobacco Magyarország had placed an "illegal" cap on its concession fee, limiting it to 45% of net earnings, when the law stipulates that the fee will be determined by the budget act from the fifth year after the contract is signed. The offer contained no calculations or basic business plan, preventing the ministry from assessing whether Imperial Tobacco Magyarország could even pay the fee, it added.

The ministry also said the offer showed Imperial Tobacco Magyarország would outsource its activities under the concession to Spanish-owned Logista, even though the law does not allow the activities to be outsourced completely. It added that Philip Morris Magyarország and JTI Hungary had not undertaken any commitment, from a legal perspective, on the side of Imperial Tobacco Magyarország.

It was reported earlier that British American Tobacco (BAT) and Hungary’s Tabán Trafik will be awarded a concession to supply retail tobacco shops. The two companies will act together as middlemen between manufacturers and retailers for the next few years. BAT and Tabán are expected to pay HUF 600 mln to the state for the concession.

The bill approved by Hungarian Parliament mid-December on the establishment of a centralized distribution company for tobacco products is likely to cause the dismissal of 1,200 Hungarians who work in the business, Lajos Csizmadia, the spokesperson of the tobacco workers union (DDTSZ) told the Budapest Business Journal earlier.