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Tuesday, 7 December 2021

Tobacco tender is back on

Bringing a new tobacco competitor into the market, take three: The Industrial Development Authority (IDA) has relaunched a tender for a license to manufacture cigarettes, potentially ending the historical monopoly by state-owned Eastern Company, Masrawy reports. The license would allow for the establishment of Egypt’s second major tobacco company, entering a space that is currently occupied entirely by Eastern.

Who’s biting? As of yesterday, none of the four tobacco companies with local operations — Philip Morris, JTI-Nakhla Tobacco, British American Tobacco Egypt, and Al Mansour International Distribution Company — had purchased the booklet, Federation of Egyptian Industries’ (FEI) cigarettes division Head Ibrahim Embaby told Enterprise. British Tobacco intends to take out the booklet within the next couple of days, a company representative told us. The IDA has set this coming Thursday as the deadline for companies interested in the license to purchase the conditions booklet for the tender, which outlines the revised terms for the license. The IDA will review offers on 23 January.

What’s different this time around? Nobody really knows. JTI-Nakhla, British American Tobacco, and Al Mansour had previously requested, among other things, that the tender should only cover traditional tobacco products (rather than also including e-cigarettes and heated tobacco). The companies had also complained about tender terms that would protect Eastern’s market share, suggesting that any new market entrant wouldn’t be given a fighting chance. It’s currently unclear whether, or how, the new tender addressed these concerns. The tender may have been re-issued without any changes at all, Embaby suggested in comments to Masrawy. It’s also unclear why the IDA decided to issue a fresh tender, rather than opting to amend the terms of the original tender booklet, the British Tobacco representative told us.

So what changed? Good lobbying, we suspect, including a visit to Egypt in early November by a senior delegation from BAT to discuss with government officials “the company's ambitious strategy and plan to achieve an impactful change in tobacco and nicotine products.” The company issued a statement (pdf) that was heavy on the praise for the government’s management of the economy and investment environment — and called on the government to “issue multiple new manufacturing licenses for traditional cigarettes and new products separately.” BAT played up its GBP 20 mn investment in heated tobacco here this year and noted that it has “provided more than 1k jobs.”

Background: First introduced in March, the tender has been the subject of much drama, receiving strong backlash from several tobacco players who argued that the terms of the license would create an e-cigarette monopoly and provide preferential treatment to Eastern Company. Under the first tender, the new market entrant would have had to price its products 50% higher than Eastern, and allow the state company to own a 24% stake.

The government then conceded and redrafted the license terms, but companies were still unhappy with what they said were unfair conditions. Tobacco giant Philip Morris was the only company to take part in the bidding round for the new license in August, while the three other tobacco companies filed grievance letters to the Madbouly cabinet and requested a deadline extension until 1 December.

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