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Three tobacco firms threaten legal action over Hungary sales reforms

Three tobacco companies have threatened legal action against Hungary’s government unless it revises what they say is a “discriminatory” decision to award a 20-year retail tobacco supplier contract to two rival companies.

Earlier this month British American Tobacco and Taban Trafik were awarded a concession to supply retail tobacco shops from November for an initial annual fee of 10 million forints ($36,500) this year, rising to 600 million by 2021.

The two companies will act as intermediaries between manufacturers and retailers, supplying all tobacco shops in the central European country of 10 million people in the next years.

Rival firms Imperial Tobacco, JTI Hungary and Philip Morris say the selection process for the winners was “untransparent and discriminatory” and the step amounts to a nationalisation of the tobacco wholesale business.

“We firmly believe that this latest step is also in breach of Hungary’s fundamental obligations stemming from its European Union membership,” the three companies said in a statement.

Prime Minister Viktor Orban’s government, which has clashed with the European Commission on reforms affecting the media, the judiciary and the central bank over the past years, said the changes would create a neutral and non-discriminatory system.

By lifting applicable margins for smaller tobacco shops, the government says it will boost income for small players at the expense of the profits of multinational companies.

The tobacco firms criticising the reforms say the new system “clearly and openly discriminates against foreign-owned firms and was against Europe-based firms that do not manufacture their products in Hungary.”

They say the Hungarian government was providing unlawful state support to BAT and Taban Trafik and giving them a permanent, unfair competitive advantage.

In particular, Imperial Tobacco, JTI Hungary and Philip Morris have taken issue with their rivals gaining access to sensitive information such as pricing formulas, stock sizes and new market activities.

“This situation is unacceptable for us,” the firms said, calling on the government to launch a new tender involving all local tobacco companies or face a legal challenge. ($1 = 274.12 forints) (Reporting by Gergely Szakacs, editing by David Evans)

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