TI JanFeb2016 • TPI Q1

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TPI 8 Q1 2016 Health Ministry Opposition At the same time, the implementation of the project in January seemed controversial in that it faced strong opposition from the Russian Health Ministry. The head of the Health Ministry spoke against any forms of tobacco products, as their use is connected with the psychological addiction to tobacco. "We know that an addiction to smoking begins from the innocent psychological addiction," Skvortsova said. "When a person gets used to a certain position, and he needs it to relax, in that case he already has a certain form of psychological installation–and it may play a serious role [in the development of an addiction complex]." Skvortsova said that in terms of psychological addiction there are no differences between various types of tobacco production. Skvortsova's position has also been supported by one of the chief experts of the Health Ministry, Oleg Salagaev, who already conducted a study of the initiative. Commenting on the issue, he cited Article 11 of the WHO Framework Convention on Tobacco Control, which declared that any suggestions "that one tobacco product could be less harmful than another, by definition, are false." "Among consumers of the tools of electronic delivery of nicotine, according to our researches, there is a large enough percentage of those who had not consumed tobacco products previously [such that we] cannot consider these products only within the framework of harm reduction for smokers," Salagaev said. "As the result, any further development of the tobacco industry in the Russian Federation, including in the form of harm reduction strategies, can cause an increase in morbidity and mortality from non-communicable diseases associated with tobacco use." Salagaev then added that the Health Ministry will never support the initiative. In additional, there is a problem with the lack of legislative regulation of 'heat sticks' in Russia. Russian law is based on "protection of citizens' health from tobacco smoke and consequences of tobacco consumption," but there is no mention about electronic cigarettes, although the law prohibits any "imitation of tobacco product in the production of other goods that are not tobacco products." Industry experts say this point should be reformed because as it currently reads, it prohibits any sale of 'heat sticks,' not to mention their production. High Investment Potential On the other hand, the project received the support of Russia's Ministry of Industry where representatives of the ministry explained that within the current negotiations with the representatives of PMI it has been said that the company targets for the future production of 30B pieces of 'heat sticks' per year and that Russia could be a very important production base, as the recent devaluation of the Russian ruble has made the production of tobacco products in the country rather cheap. "PMI expects strong demand for the 'heat sticks' based on the constant decrease of tobacco consumption in the main markets, the increased tax burden and the actions of many national governments on protecting citizens from cigarettes," said a source in the Russian Ministry of Industry. "During our negotiations [with PMI in particular] the opinion has been expressed that the 'heat sticks' at the Russian plant can be produced domestically for the Russian market and also for export purposes." According to official information for 2015, PMI occupied second place after JTI in the Russian tobacco market with a share of 28.83 percent. In 2014, the Russian tobacco market declined by 10.4 percent, sliding to 315B cigarettes, according to data from the Federal Tax Service. The estimates from PMI and JTI say that in 2015 the market was further reduced by about seven percent. An additional reduction is also forecast for 2016. At the same time, the management of PMI previously expressed an opinion that the share of 'heat sticks' in the total structure of sales at the main markets, including Russia, can grow to between 10 and 15 percent within the coming decade. TPI { Sticking Together } PMI's R&D has been focused on IQOS, its heat-not-burn technology. A traditional PMI manfacturing line. An IQOS manufacturing facility in Russia would represent a major investment by the company.

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