The company, one of few profitable Bosnian firms, is also negotiating with US tobacco giant Philip Morris to win back its licence from before the war to produce Marlboro cigarettes, he said without giving further details.

Last year, the factory reached 60 per cent of its 1992 production. Output rose to nearly 3,000 tonnes, a rise of 20 per cent from 1997 and compared with an annual 4,500-5,000 tonnes before the conflict, Lojo said.

The Sarajevo tobacco factory was the only plant licensed to produce Marlboro cigarettes in former Yugoslavia, but cooperation with the US firm was halted by the 43-month war.

Despite the siege of Sarajevo, however, the 120-year-old plant never stopped producing other cigarettes, keeping output at about 30 per cent of the level before the war. Cash-starvedSarajevans used cigarettes as a means of exchange.

Today, it makes eight different local cigarette brands, and Lojo said the company had managed to rebuild and modernise its facilities without foreign loans, unlike many other Bosnian firms. It has 560 employees, down from 900 in 1991.

He estimated the war damage at 12 million German marks ($7.1 million), and said the factory had invested about 15 million marks ($8.9 million) to renovate and to buy new machines.

Lojo said the company -- which is 67 per cent owned by staff with the rest belonging to the state -- had shown a profit since the war ended, but declined to give figures.

The company would be ready to be privatised by the end of next month, and to be sold off in Bosnia's planned privatisation process.

So far, the plant sells its tobacco products only in the Moslem-Croat federation, which together makes up post-war Bosnia, but Lojo said it would seek to expand once the ``political conditions'' for this had been created.

However, the companyfaces tough competition from cigarettes which are smuggled into Bosnia and sold at low prices.