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. Last Updated: 07/27/2016

Private Gas Stations Push Prices Down

Moscow's leading private gas station operator said Monday price competition was taking hold, but industry players say the sector is still too monopolized to attract foreign firms.

Ilya Kolerov, owner of the Ilya Kolerov & Co. chain of 15 outlets, said competition from the private sector had forced state-owned MPK -- which controls more than half of Moscow's 200-plus gas stations -- to go back on a price hike announced at the beginning of March.

"We considered the price increase economically absurd. There was no reason to do so, because there was a sufficient supply of petrol and other services on the market," Kolerov said.

The decision of the private stations not to raise the old price -- about 1,800 rubles ($0.37) for a liter of 92-octane gasoline -- put pressure on state outlets, which had to slash their prices of 2,100 rubles a liter, he said.

This is a rare sign of increasing competition in what insiders describe as a highly monopolized market.

The Moscow city government still keeps the licensing of gas stations under tight control; plans of foreign and domestic companies to create chains of high-profile gas stations have so far made little progress.

Kolerov's company is currently involved in a struggle with the Moscow city government over the rules of licensing new gas stations. While the city government now issues a separate license for each new outlet, Kolerov claims only a general license from city authorities to run gas stations should be necessary.

One Western oil manager, who asked not to be named, said that in spite of good market potential -- with booming car sales and few quality stations -- many foreign companies are wary of the bureaucratic problems in setting up and running outlets in Moscow.

Moscow city authorities could not be reached for a comment Monday.

When LUKoil opened its first Western-style gas station in Moscow in 1994, Mayor Yury Luzhkov said the capital needed another 250 such outlets. But so far only a handful have opened.

The Italian oil concern Agip, which also opened its first outlet on Leningradskoye Shosse in northern Moscow in 1994, has not expanded its operations. Nor has the Mobil-Balcar joint venture, which last year announced it would develop 30 to 50 service stations in Moscow over the next few years.

Other large Western companies also hesitate to enter the market. "We have no concrete plans," said Irina Arkhipova of Shell.

"We have been negotiating with several foreign companies over the last two to three years, but that has all come to nothing," Kolerov said. "Foreign firms open one gas station here, and then that's it. They are afraid to take larger risks."

Ilya Kolerov and Co. is now the driving force in the formation behind a holding that will include the Arsi company, with six Moscow filling stations and several other undisclosed petrol retailers.

According to Gocha Arevadze, president of Arsi, the company has been teetering on the brink of bankruptcy, after having been defrauded by its former general manager.

The new holding hopes to become one of five companies that will dominate the Russian gas market five years from now. "Today we are small kids ... but in five years' time we don't want to be small kids any more," Kolerov said.

According to Kolerov, Russian refineries have been edged out of the market for high-octane petrol by Scandinavian oil companies. In spite of a 40 percent import tariff, the market for 95-octane petrol is now dominated by imports from Sweden and Finland, which account for 70 percent of the volume sold.