Uganda: Tobacco Companies Fight

Source from:  The Independent (ug)  05/27/2013

A Kenyan firm, Mastermind Tobacco Kenya (MTK Ltd) through its subsidiary Continental Tobacco Uganda (CTU Ltd), is accusing Uganda of using the Uganda Revenue Authority (URA) to block it from using Uganda as a transit for its 'Supermatch' branded cigarettes to South Sudan, DR Congo, Sudan, Rwanda, Burundi and Chad through Uganda.  It wants Kenya to take retaliatory action by blocking Ugandan goods.

Mastermind says the grounds being cited by the Ugandan authorities to bar CTU from its operations were merely a "smokescreen" as the underlying reason for the blockade is to lock out the Kenyan firm from Uganda in favour of the Ugandan tobacco companies.

In statement published in the local press, MTK implored the Kenya government to show that it can protect Kenyan business interests in the region by taking retaliatory action against Uganda, an action that some observers have described as trying to politicize a trade dispute with Ugandan tobacco farmers.

Mastermind accuses URA of using a dispute with one of its competitors to ban the transit of its popular brand in favour of Leaf Tobacco Commodities, one of the five key players in the Uganda tobacco sub-sector.

MTK said that as a result of the blockading of its most popular brand, production at CTU—its subsidiary—dropped to 2.2 million kilogrammes last year from 14.5m kilogrammes in 2009.

However, sources familiar with the Uganda tobacco industry told The Independent that Mastermind and its subsidiary CTU have a number of regulatory, contractual and trade issues that they did not fully explain in their statement. One of the disagreements stems from a trademark dispute between Mastermind and Leaf Tobacco Commodities of Uganda both of which claim to be the owners of the brand.

Leaf Tobacco & Commodities (U) Ltd published a rebuttal in the Kenyan newspaper, The Standard of May 17, saying there are several court orders in favour of them against Mastermind Kenya Tobacco (MTK) in Uganda and South Sudan, which restrain MTK from continuing to use the trademark 'Supermatch' and exporting to South Sudan through Uganda any products under the Supermatch trademark pending the completion of suits in courts in the two countries.

The company says the court orders were issued following the blatant infringement of the Supermatch trademark in both Uganda and South Sudan by MTK.

The High Court of South Sudan subsequently revoked the registration of MTK's trademark 'Supermatch King.' The Court also restrained MTK from continuing to use the trademark name 'Supermatch' in South Sudan until the appeal it lodged in the Court of Appeal is disposed of.

For the same reason, the Kenyan Revenue Authority blocked MTK from using the alternative Lokichoggio border point to export its brands to South Sudan. In Uganda, Leaf Tobacco & Commodities also succeeded in the High Court of Uganda in obtaining an injunction restraining MTK from importing into and/or through Uganda into South Sudan the Supermatch brand.

MTK incorporated CTU in 2004 and the company says it has over 30,000 contracted tobacco farmers in Uganda who produce over 10,000 tonnes of tobacco annually.

Counter-accusations

This "unparalleled success" the company says, is the reason that its competitors in Uganda have ganged up to edge CTU off the Uganda tobacco industry by influencing the Trade Ministry to withdraw the licenses citing late payment to farmers in the 2011 season.

However, MTK and its Ugandan subsidiary CTU have been facing a number of hurdles including a parliamentary investigation for non-payment of farmers.

In September last year, CTU activities were the subject of a Parliamentary inquiry following a petition by tobacco farmers from Bugangaizi in Kibaale District, who accused CTU of failure to pay for the tobacco leaf collected from them during the July-Nov. 2011 season.

Subsequent investigations by the Parliamentary Committee on Agriculture, Animal Industry and Fisheries noted that CTU had "caused a lot of apprehension among tobacco subsector stakeholders."

These allegations were corroborated by the Trade, Industry and Cooperatives ministry.

In an interview, Amelia Kyambadde, the Minister of Trade, Industry and Cooperatives told The Independent that Mastermind has had issues with Ugandan tobacco farmers over the last four years.

"They get into agreement with farmers to grow and supply tobacco to them (CTU) promising to pay them and they don't pay," Kyambadde said.

When asked to explain why they had reneged on paying their contracted farmers, CTU cited the 2008 global economic meltdown and the anti-tobacco campaign by the UN's World Health Organization, yet other companies have also faced similar problems.

In a meeting between the Committee and the Ministry of Trade, Industry and Cooperatives the company agreed that it would pay a sum of $ 6.2m, the outstanding amounts to all tobacco growers in the country with interest before March 15, 2012.

But by the time the Committee presented their report in September 2012, the company had only made partial payments but it refused to pay any interest as agreed.

Following their failure to honour the agreement, Parliament recommended that CTU should not sponsor farmers to grow tobacco for marketing in the 2012/2013 season unless it pays with interest for all the tobacco it took on credit in all the districts it operated in.

The Independent has seen a letter from the Trade ministry dated Oct. 30, 2012 revoking CTU's buying certificates and suspending the company's sponsorship arrangements with the farmers.

Industry sources said the blockade will be a welcome reprieve to Ugandan tobacco companies, which have always complained of illicit tobacco products that are dumped onto the Uganda market under the guise of being transported to neighboring countries. Enditem