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DNP (duty not paid) clarification extracts
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ASH/ Tax & smuggling/ Duty Not Paid clarification extracts
Quote No
147
DNP
"VENEZUELAN MARKET DEFINITIONS AND ASSUMPTIONS
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DUTY PAID MARKET (DP)
Comprises the cigarettes produced and consumed in Venezuela by both companies (Bigott
and Catana). This volume pays the government legal excise of 50% of retail price. Please
note the margarita Island Duty free volume is also included in this market although it does
not pay excise.
...DUTY NOT PAID MARKET (DNP)
This is the volume of cigarettes produced in Venezuela, exported (mainly to Aruba [free
trade zone island off coast of Venezuela]) and re-entering Venezuela as transit plus transit
cigarettes produced elsewhere (mainly Ecuador and Brazil).
The assumptions to estimate the DNP market are:
5% of Belmont HL exports re-enter Venezuela
100% of Belmont SC and Consul exports re-enter
90% of Astor SC (Catana) re-enter Venezuela
100% of Fortuna SC (Catana) re-enter Venezuela
50% of the dispatches of other brands (Belmont from Ecuador, Minister etc) from Aruba
to Maicao enter Venezuela as transit.
TOTAL MARKET
Is the total volume of cigarettes consumed in Venezuela and includes the Duty Paid Market
plus the Duty Not Paid market."
178
LETTER: DUNT To GRANT [NOBLEZA PICCARO] 24/6/92
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"Thanks for your notes of 15th June on the DNP market...
1 DNP Market/Other Matters
We will be consulting here on the ethical side of whether we should encourage or ignore the
DNP segment. You know my view is that it is part of your market and to have it exploited by
others is just not acceptable..."
180
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"TRIP NOTES -- COLOMBIA
9 February 1994
BACKGROUND/KEY ISSUES:
* The import segment (DP and DNP) has shown significant growth from 33.9% of the total
market in 1991 to an estimated 37.1% in 1994 (annex 1). BAT's total volume has grown
very rapidly from 1560 mns in 1988 to 4015 mns in 1993.
...
* The majority of BAT sales are DNP. Small quantities of HOLLYWOOD, LSF, KENT and
KOOL are currently being imported and supported with advertising. The ownership of the
BELMONT trademark in Colombia is under dispute. Obtaining the rights to this trademark
so as to be able to overtly market this product is the key issue facing BAT in Colombia.
Because the majority of sales are DNP, overall profitability of the market is good..."
48
BATCo Global Five-year Plan 1994-1998
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"1.1.1 Market trends:
1.1.1.4 (iii) Continued pressures on domestic market performance and profitability rising
from border business and in some markets, from excise/ tax evasion.
In 1993, it is estimated that nearly 6% of the total world cigarette sales of 5.4 trillion were
DNP sales. Eastern Europe and the Asia-Pacific region (c85blln each) accounted for the
majority of this volume. Though Western Europe (c50blln) was also significant. In relation to
total market sales, DNP volumes are largest in Eastern Europe (c13%) and Africa/ M. East
(c12%), but are also significant in Latin America (c9%) and Western Europe (c7%). A key
issue for BAT is to ensure that the Group's system-wide objectives and performance are
given the necessary priority through the active and effective management of such
business."
88
Note to Miss H Barton from Keith Dunt:
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DNP (duty not paid) clarification extracts
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119
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"The Colombian market is by far the largest in the Andean Pack at 31.2 bn and a very high
proportion is Duty Not Paid..."
COMPANY PLAN 1994-8: Asia Pacific South/SUTL [Singapora United Tobacco Ltd]
Domestic
Appendix A
Table showing SUTL's 1992-9 market figures for Myanmar. Table includes "Total Transit",
"Total Duty Paid" and "Total Domestic (dnp+dp)".
138
BAT/ SUTL [Singapora United Tobacco Ltd] Meeting 11 November 1994
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"Vietnam
144
"RESPONSE TO J REMBISZEWSKI VISIT [02/09/92]
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1.1 STOP DNP EXPORTS
Agreed to continue. [K Dunt Marginalia: Agreed with Ulrich/Barry (despite risk) in July]
149
LETTER: LAUX (CIGARERRA BIGOTT) to DUNT (BAT) 24/3/92
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"BACKGROUND
PCOK [Patrick O'Keeffe] explained that BAT wanted SUTL to ensure a retail price of 11 000
Dong on 555 SDNP in HCM [Ho Chih Minh] to allow 555 MIV [Made in Vietnam] an
opportunity to establish itself at 10 000 Dong. "
The Venezuelan domestic market has grown marginally during the past two years with a
decline in the Duty Paid (DP) market and growth in the Duty Not Paid (DNP) transit market.
The Duty Not Paid market is supplied primarily by Venezuelan Exports which reenter
Venezuela as transit."
157
FAX: BINGHAM to DUNT (BAT) 14/1/92
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"INTRODUCTION
Following the Company Plan meeting in London in 1991, it became clear that a more in
depth evaluation of the strategic direction for Bigott was necessary in order to optimally
manage the complex balance between their duty paid, duty not paid and export businesses.
PRIORITIES
BIGOTT's clear priority is to focus upon the domestic Venezuelan cigarette market (DP &
DNP) in order to maintain its dominant market share...BIGOTT has a relatively high share of
the DP market but a relatively low share of the DNP market. Market domination of both
markets is essential in order to minimise the threat of CATANA in the domestic Venezuelan
market.
...With regard to the probable resistance from CATANA to raise DNP prices and in particular
the price of ECU Belmont, BIGOTT should be prepared to issue and carry out the legitimate
threat/negotiating lever of supplying ASTOR (we own the trademark in Peru, Bolivia, Aruba)
to the DNP market.
To summarise the Pricing Strategy issue, BIGOTT's priority is to dominate the DP and DNP
markets even if this results in some decline in real levels of profitability in 1992. BIGOTT
cannot allow CATANA to maintain its current high share of the DNP market."
CIGARETTE EXCISE STRATEGY
"Although BIGOTT have made the Government aware of the DNP issue and the technical
officials understand and accept its existence...
During 1992 BIGOTT should do the following:
a)
Prepare a comprehensive paper upon the DNP business, using the European
Community "transit" paper as an example. Persistent lobbying of officials and politicians
will be essential if BIGOTT is to stand and chance of securing Government action on
the DNP business. However since export quota restrictions offer BIGOTT perhaps the
best, simplest, and quickest solution to their current low DNP share problem, this is a
course of action which should be pursued along with their pricing strategy and not as
an alternative.
...In the short term, DNP trade will be the key source of product flowing between Member
countries, longer term however, DP will become of increasing significance."
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DNP (duty not paid) clarification extracts
163
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FAX: WATERFIELD to LAUX 8/4/92
"RE: PROJECT LEAN
Tt is recommended that a BATCO company is "given" responsibility to develop the group
share of the others DNP segment of the Venezuelan market. It would be inappropriate for
Bigott's marketing staff to develop the strategy to increase share of this segment. The role
of Bigott is to persuade the authorities to close the borders and confiscate DNP product
which is transitted into Venezuela. [marginalia -- "misunderstanding"]
169
NOTE: Dunt (BAT) to Bramley (BAT) 6/9/92
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"RECOMMENDATIONS
6.1.3 It is recommended that BAT operate under "umbrella" operations. A small volume of
Duty Paid exports would permit advertising and merchandising support in order to establish
the brands for the medium/long term with the market being supplied initially primarily
through the DNP channel.
170
LETTER: DUNT (BAT) to WHITEHAIR (B&W). 16/6/92
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3 DNP volumes -- BATCo need aggregate monthly report on DNP for all Latin America...
1 Chile -- review impact on total Group-wide BAT business of DNP volumes via Iquique
2 Paraguay -- agreed that if DNP business commences for N-P we should be using the
same agent as B&W (and Souza Cruz). Must also try and use the LASU concept.
3 Colombia -- one office status agreed; rental contribution by Bigott. Souza Cruz in overt
illegal operation supporting Hollywood which at today's date is as DNP business.
Ethically wrong Bigott to sell product to B&W but only for "Turbo" routing and as part of
drive to "piggy-back" other Group brands."
174
FAX: LAUX (CIGARRERA BIGOTT) to DUNT (BAT) 21/4/92
"Project Lean (Venezuela)
This project is directly related to cope with the "good citizen" strategy which means no more
export of Belmont ES and Consul.
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a)
b)
c)
It is clear that Bigott can't be seen as a clean and ethical company by continuing with
DP and DNP in parallel.
To adopt a more aggressive stance with the Government to force a ban, it is important
that Bigott has a clean appearance. There exists the risk that some BATCo Operating
company has replaced the reentry product this could also be exploited by the
competition. For PA it will not be easy to defend the position that Bigott is clean and
ethical while an other company of the Group is behind the transit. We believe this is
unlikely to happen, but it is important to be aware of this risk.
To achieve in excess of 70% of this segment is a very tough target to achieve and we
are unsure if it is practically attainable.
Our share in this segment depends on the strategy that we and PMI [Philip Morris
International] adopt and whether BAT is proactive and the brands that BAT uses.
...Should BATCo be proactive then this is the opportunity to gain a share of close to
80% of DNP. BATCo will maintain 80% of DNP whilst no competitive 70mn product is
available.
...Our share of DNP to a large extent depends on competitive pricing ex-Aruba"
177
FAX: DUNT To GRANT [NOBLEZA PICCARO] 26/6/92
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"I look forward to receiving your plan on the DNP and accept your view that it is likely to be
DERBY which is the main transit brand. However, we will await the paper and see where we
go from there. Politically I do not feel that N-P can expose itself and so we will be driven to
managing this DNP operation from outside but we will do it together."
183
"RESTRICTED
COLOMBIA:EXECUTIVE SUMMARY
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Office Security
...Documents dealing with DNP have been separated and should now be forwarded to
Caracas.
A good quality safe and shredder are required..."
191
LETTER: K Dunt to G Burgess and B Bramley 1/2/94
"SUBJECT: Duty Free Markets -- Responsible Companies
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DNP (duty not paid) clarification extracts
Page 4 of 4
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...It is also proposed that the BTG (Border Trading Group) being established to monitor total
Group interest in the Paraguayan/Brazilian border business (and already agreed upon with
Antonio de Castro and Dick Green) be extended to include all DNP (Duty Not Paid)
channels -- most specifically Iquique (Chile) and Panama (Duty Free Colon). This will
ensure all up BATI interests are focused in one operational management for all channels"
192
K Dunt note [22/6/92]
"Note for the Tobacco Executive Committee
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...this refers to the Duty Paid market only, A flourishing DNP segment has evolved now
amounting to up to 3bn per year. There is no N-P involvement in this segment. BAT share is
of the order of 30%, mainly via Souza Cruz Ritz. B&W has a maximum 3% of DNP.
...
Against the above background this paper sets out three specific areas of action either
already in motion or proposed:An updated marketing strategy to reverse the share decline, including an aggressive
attack on the DNP segment with "domestic" brands so that inherent local brand equity
is sustained
MARKET AND BRAND STRATEGY
2.3 An alternative opportunity is to exploit the DNP routing of product from Paraguay and
essentially introduce a lower-price segment in this manner. Currently N-P [Nobleza
Piccardo] has lost 80% of its volume in the N-E [North East] province to transit imports -- eg
Marlboro at 50c -- US$1, Ritz 25-30c ex Souza Cruz. Present transit levels indicate a "Duty
Free" market of up to 3bn per annum, around 9% of total market. This option, presently
utilized in the non-IFF segment by Souza Cruz at N-P's request, would allow the
introduction of an effective lower priced brand option, though clearly adversely affecting NP's distributors in the Northern Province. It may however encourage the authorities to
introduce the absent border controls. DNP would not necessarily or preferably be
manufactured in Argentina. N-P have been instructed to analyse this option immediately
and report back end June and on a regional rather than N-P orientated basis. It offers the
opportunity of enhancing direct UK cash-flows via LASU (Latin America sales unit) by a
minimum US$6mn per annum.
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