The Regie’s President and Director General Mr. Nassif Seklaoui announced on Wednesday that the Regie took the initiative to raise cigarette prices "within the scope of its authority and the approval of the Minister of Finance”, in order to "control the market and avoid loss in revenue caused by wasted profits". He pointed that "the Lebanese market got agitated when tax rate was increased". "Some merchants randomly increased cigarette prices" and "took advantage of the event to make illegal gains at the expense of citizens and government."
Seklaoui held a press conference at Hadath headquarter in which participated members of the Administration Committee Mr. George Hobeika, Mr. Mazen Abboud, and Dr. Isam Salman, in the presence of some of the Regie’s officials and Heads of Sales. Seklaoui clarified the Regie’s position in light of the "latest events on tobacco market before and after increasing tax rates. The market got agitated when some merchants randomly increased prices once news of increasing tax rate was spread within the talks about budget and public wage scale."
Seklaoui discussed the event and the measures adopted by the Regie in coordination with the Ministry of Finance to put an end to and contain the chaos, preventing the waste of public money in favor of some merchants, who exploit the event to achieve illegal gains at the expense of citizens and government.”
"Undoubtedly, raising prices is the best way in fighting smoking and protecting public health, as well as in maintaining government and Regie revenues. However, this measure loses its effectiveness under current regional security and political conditions while borders are uncontrolled, allowing smuggling networks to move freely. Hence, the only loser is the government."
He expressed surprise at "what several officials, academics, and representatives of civil society lately said; that increasing tobacco prices guarantees hundreds of billions" while reality has proven the opposite.
Increasing smuggling
Seklaoui mentioned that "1999 was a catastrophic year. Then, some were expecting the Regie’s revenues to increase on the light of Paris 1, Paris 2, and the conference of Friends of Lebanon. They proposed raising the fees on tobacco products from 54% to 138%. The result was a drop in sales from 600 million to 350 million boxes in one year, since smuggling increased. The Regie fall into a financial deficit, and therefore the government’s revenues decreased rather than increasing. "We suffered for years before restoring the effects of the ill-considered decisions and the loss of USD 1,600,000,000 that national treasury had suffered."
Seklaoui showed statistics that indicate a decline in sales during recent years. In 2012, the Regie sold 775 million boxes at $ 1 billion. In 2013, sales fell to 600 million boxes, at $ 791 million. In 2014, 590 million boxes, at $770 million. In 2015, 400 million boxes at $600 million.
"During recent years the Regie’s main purpose was to fight smuggling. From the very first moment, we realized that we were facing a dangerous situation that could have destroyed the establishment and all of the government’s revenues in favor of smuggling networks, especially as the situation in Syria worsened and borders remained open. We rose our concerns at the press conference that was held on 29/12/2014 at Hadath headquarter in order to discuss the aggravation of smuggling. Aiming to prevent further loss and maintain both sector and government’s revenues, we have developed a strategy to stand against smuggling and maintain the revenues on two levels. First, the implementation of comprehensive campaign that enables us to fight smuggling within our capabilities; and second, the execution of an integrated plan that aims to develop national industry and to offer products worthy to compete smuggled goods."
Anti smuggling procedures
Seklaoui referred to the measures carried out by the Regie to fight smuggling. He pointed out that "the anti-smuggling campaign started in 2014 and is still ongoing as follows: the amendment of importing policy upon the approval of the Minister of Finance on 22 September 2014, according to which companies shall be liable to smuggled products’ price. Making contact with involved companies in order to warn them about smuggling their goods into our markets. Deducing amounts from such companies’ account, amounting to USD 3,226,000. Submitting importing policy to a second amendment upon the approval of the Minister of Finance on 30/12/2014, thus companies would be liable to the price of smuggled goods, customs duties, and lost profits. The amendment of Head of Sale regulations upon the approval of the Minister of Finance on 30/12/2014, according to which license would be canceled whenever smuggled products are seized, along with confiscating such goods and imposing a penalty. Not to mention the public campaign that we have carried in order to motivate informants to report on smugglers. In result, 15 licenses were canceled, LBP 1,600,000,000 were paid as prizes, whereas fines amounted up to LBP 16,770,000,000.
Seklaoui pointed out that “the Regie was faced by smuggled products that have no agents in Lebanon." Thus, “on 2/1/2015, we appointed an Emirati law firm in order to obtain information about these brands, and we get the response from Dubai authorities on 19/03/2015”. He added: "On 27/05/2015 I personally informed the financial Public Prosecution, and then we reactivated the case on 26/10/2016.
Seklaoui mentioned that the Regie “had required increasing the anti smuggling bureau’s personnel, currently consisting of 15 members with an age average of 55. Considering that the Regie had previously made such claim to the previous government on September 20th, 2016 and once again before the current government on March 6th, 2017.”
As per the Regie’s efforts to boost national industry, Seklaoui said: "within the approval of different ministers of Finance, till the current Minister Ali Hassan Khalil, we were able to make a significant difference on the level of national industry, which has had an important role in reducing smuggling." Consequently, the Regie installed over the last five years, five cigarette production lines. Today, it manufactures seven national brands in Hadath plant, which were launched in the market at competitive prices, in order to fight smuggling. "Currently, we manufacture 5 out of 9 Imperial Tobacco’s brands (Gauloises and Royal)”, he added. "The Regie is few steps away of becoming a regional tobacco manufacturer, approved by major international companies. Right now, we are studying offers from several companies."
Considering the results of the strategy adopted since 2014: "within the scope of our responsibilities, authority, and capabilities, we undertook the implementation of this strategy in cooperation with the Ministry of Finance and relevant security forces. According to a study conducted by Nielsen Media Research during 2016, smuggling was decreased by 25.7%. In result, during that year, 475 million boxes were sold at the cost of $ 625 million, thus an increase of 75 million boxes compared to the previous year.”
Price increase
Seklaoui did not avoid discussing price increasing: "In consequence, the Regie’s view was, and still, that any increase that may raise the margin between legal and smuggled products, will certainly lead to stepping up smuggling". He continued: "When talks about excessive duties spread among parliamentary committees over tobacco products, including raw materials for national industry, in accordance with customs duty clause No. 240319, which raises tax from 35% to 135%, we stood against the proposal since it could halt any opportunity we have to fight smuggling”.
He added: "Accordingly, the Parliament’s General Assembly took the decision of imposing additional 250 L.L. on cigarettes and Moassal, and 500 L.L. on cigars". “Thus, we were faced with the following possibilities:
1. Suspend market supply awaiting approval over new fees. Such step would have caused confusion in the market since traders would have refrained from selling their supply under the pretext of not receiving goods from the Regie in hope of achieving further profits.
2. Keep supplying the market at old prices. Such would have lead to the withdrawal of the entire inventory within days, bearing the government with millions of dollars in loss.
3. Raise prices within our authority, following a proposal from the Regie that was approval upon by the Minister of Finance in order to control the market and to save the government from wasting the income available in our inventory."
Seklaoui stressed: "some questions were arose; what is the purpose behind increasing prices; why this step is coinciding with the government’s duties increase; why the Regie is applying additional duties before being approved by the Parliament. Even, some are demanding us to set prices in coordination with the Ministry of Economy. Out of our policy of transparency, I would like to ask; how are we supposed to control the prices set by 30 thousand retailers across Lebanon? Let us be reasonable and realistic."
He continued: "Therefore, in the interest of public money and in order to ensure the continuity of our work, we raised our view to the Minister of Finance Ali Hassan Khalil, who, thankfully, accepted it. Accordingly, on 16/3/2017 we raised prices within our authority and the approval of the Minister of Finance in order to prevent loss; a provision that had been followed without any objection."
“Actually, it us who should be wondering; should we have offered our supply to some merchants, bearing the government with loss? Should we allow some merchant to monopolize the market?"
Supporting the economy
About the Regie’s revenues, Seklaoui said: "We are pleased that some people call the Regie a gold mine, or a silent bank, etc… We want everyone to know that we were able to transform the Regie from a coal mine into a gold mine that is preserving its revenues exclusively to the government. Figures are the best proof of our support to national economy and Treasury. In 2012 our revenues amounted to USD 579 million; in 2013 USD 464 million; in 2014 USD 429 million; in 2015 USD 327 million; in 2016 USD 330 million.
The Regie’s Director General pursued: "in such way, the national reserve would have gained during the last five years more than USD 2,100,000,000”. “The Regie was among the first public administrations to introduce financial auditing in 1996. Our accounts are available to the government, controllers and successive ministers of finance”. “It is the first public facilities to gain ISO9001: 2015 quality certificate and adopt a sustainable development plan, while its priority remains fighting smuggling". "A leading facility that benefits our national economy but some are still refusing to recognize it."
Seklaoui concluded by saying that "if tobacco seedlings were to speak they would have talked the language of farmers and Regie staff about endless support and a keen cordiality between this family and President Berri, back since farmers planted their seedlings along the border, challenging Israeli warplanes. When the Regie was about to be privatized, President Berri sought to enable this public facility, so we stood by his side. Thus, our answer is that President Berri’s support is a blessing not a shame. It seems as if standards had been doubled; success is being seen as corruption and some are committed to manipulating others."
Conversation with journalists
Listening to journalists’ questions; Seklaoui was asked about allegations that the Regie recruits people from President Berri’s entourage. He replied: "I came into office in 1993 when we had 2,700 employees. Today, they are less than 900, almost equally divided between Muslims and Christians. How could it then be at the service of President Berri? Moreover, we no longer have contractual employees, since we had signed permanent contracts with all the staff during the mandate of Ministers Mohammed Safadi then Ali Hassan Khalil. I would like to point that the Regie’s hierarchy had about 4000 employees, dropped to 1700. Under Minister Safadi I suggested to reduce the number to 680”. “Today, public sector is trying to expend, however the Regie is going in the opposite direction.”
About accusations of contracting with companies close to President Berri, Seklaoui said: "main Heads of Sale, who provide 80% of the Regie’s bill are Christians and have nothing to do with President Berri. Agents of foreign companies are Christians, except for one, and they do not have any relation with Berri. Their companies existed even before the latter came into office".
He added: "President Berri’s only concern are farmers, who are not Shiite only. They come from different sects in Akkar, Ramesh, Deir al-Ahmar, Shleifa, Dabal and Qoza. What matters to President Berri are the 25,000 families, each of an average of 6persons; thus 150,000 citizens making their living from this establishment. They are the only to be affected in case it was shut down."
Asked about smuggling, the Regie’s President answered: "The situation in Syria and Iraq is facilitating smuggling, because borders are open and authorities are unable to control the situation". He stressed that "the government could easily raise tobacco prices on condition of fully controlling the borders."