Oil Firms Face Gas Station Cap

The Federal Anti-Monopoly Service wants to ban oil companies from buying and building gas stations in regions where they have at least 35 percent of the market.

Retail sales of oil products are currently divided almost evenly between independent gas station owners and oil companies with their own refineries. "It's an alarm bell, since not long ago independent sellers had 65 percent of the market," said Anatoly Golomolzin, a deputy head of the anti-monopoly service.

The Federal Anti-Monopoly Service decided to regulate the shares of vertically integrated companies in the regions and has prepared a bill with the working name, "On the sale of oil products." If a company crosses the 35 percent threshold, then it would automatically be prohibited from buying or building new gas stations in that region, Golomolzin said.

There is already a dominating company in 54 regions across Russia, according to anti-monopoly service figures. The service is not going to force companies to sell their gas stations in such instances, but it will recommend that they swap retail assets with competitors who have dominating positions in different regions.

Golomolzin said he was sure that the ban on expansion would be enough to make other operators develop more dynamically and change the relative strength of companies' positions.

The Federal Anti-Monopoly Service has used the 35 percent threshold, spelled out in the law on competition, to prohibit gas-station deals in the past. In 2007, it did not allow a LUKoil subsidiary to buy 19 gas stations in the Volgograd region to add to the 41 it already had. Last year, the service allowed Gazprom Neft to buy 11 gas stations in the Sverdlovsk region on condition that it would sell some stations if its market share were to surpass 50 percent.

But those decisions could be contested by the oil companies, Golomolzin said, whereas setting the rules down in the law would prevent the rulings from being challenged in court.

Rosneft spokesman Nikolai Manvelov said the company would follow the law if it comes into effect. LUKoil and Gazprom Neft declined comment. A source at one of the companies doubted that the idea of swapping gas stations would work, since oil companies would be reluctant to pay for the rebranding.

TNK-BP spokesman Nikolai Gorelov said the anti-monopoly service's proposal would help create a civilized market and that similar practices were used around the world.

Golomolzin said similar limits exist in Italy, which also has the right to fine for sales violations.

In 2008 and 2009, the Federal Anti-Monopoly Service issued fines totaling 26 billion rubles for inflated prices on oil products.

There are also restrictions in the United States. One of the conditions for Exxon and Mobil's merger in 1998 was that Mobil sell 795 gas stations on the East Coast.

The bill could be sent to the government for consideration as soon as this week, Golomolzin said, adding that the main points of the bill would be described in a report on the situation on the oil-products market that the anti-monopoly service is preparing jointly with the Economic Development Ministry. A working group was expected to meet to discuss the report Tuesday.

The anti-monopoly service and the ministry are also proposing that vertically integrated companies be required to split storage, wholesale and retail of oil products into individual legal entities. That would make it easier to understand how fuel prices are formed, including the price at which a company sells crude to its retailers as well as to outside retailers.

The Economic Development Ministry still has not received specific proposals from the service, said Kirill Yemelyanov, an official in the ministry's competition department.

"It's one of the few reasonable steps by the anti-monopoly service to develop competition on the fuel market," said Grigory Sergiyenko, managing director of the Russian Fuel Union.

But he said implementing the suggestions would not be easy, since oil companies expended considerable efforts and funds to expand their retail businesses and they will try to resist the restrictions.

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