Smoked out of Burma, BAT builds in Tehran

British American Tobacco, which last week bowed to political pressure and pulled out of Burma's oppressive regime, is to build a factory in the Iranian capital Tehran

The owner of Lucky Strike and Kent cigarettes is shipping machinery to Tehran and expects it to be operational by the first quarter of 2004.

The move is part of a continuing alliance with the Iranian Tobacco Company (ITC), first announced last year with an initial investment of $30m (£18m). BAT makes and distributes its Montana brand from an ITC plant but is seeking to switch production to a wholly owned facility. When operational, BAT expects the plant to produce around three billion cigarettes a year. It will retain its joint venture with ITC to distribute cigarettes.

Last week, BAT quit Burma after selling its Rothmans of Pall Mall Myanmar business to Singaporean firm Distinction Investment Holdings. The UK Government had requested the move in July; BAT was the last UK multinational to pull out of the military dictatorship.

Along with Iraq and North Korea, Iran has caught the eye of US President George W Bush, who dubbed it part of the "axis of evil". Concerns are centred on the country's nuclear capacity led by President Mohammad Khatami and the spiritual leader Ayatollah Ali Khamenei.

But a BAT spokeswoman said: "The Americans know we're there, they have given us a licence to trade there, and we operate in many difficult regimes around the world."