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. Last Updated: 07/27/2016

Mayor: We Must Stop Oil Oligarchs

Moscow Mayor Yury Luzhkov on Tuesday blasted the nation's oil giants, accusing them of trying to wipe out independent gasoline retailers and muscle their way onto the market.

"We spent 10 years creating a competitive gasoline market in this city and now oil companies want to take it for themselves. We can't let this happen," Luzhkov said.

"A battle outside the limits of legality is being fought for the ... market," he added. "We have to stop oligarchs from crushing all the independent operators."

City officials expressed fears that new tax legislation, due to come into effect in January, will sweep

independent gasoline retailers off the market, and open the gates to the oil majors.

The new law will shift the burden of excise -- which must be paid before sale -- from producers to retailers. Sergei Borisov, president of the Moscow Fuel Union and member of small-business support organization OPORA, said the change will put pressure on small operators on the market that do not have the resources of a major oil company.

"Small- and medium-sized entrepreneurs will not be able to take the pressure," he told City Hall officials. "The law has to be removed and altered."

Alexander Belyayev, head of the city's transport department, warned that the excise legislation could lead to a jump in gasoline prices of 10 percent to 15 percent.

Leonid Mirzoyan, an oil analyst with Deutsche Bank, said the looming change in the excise laws was definitely in the interest of the oil companies. "They have talked about it for years," he said.

"It could lead to the consolidation of retail businesses because independent retailers will be squeezed out by a lack of working capital and more transparent operations."

City officials and their allies also criticized what they perceive as a heavy-handed attempt to take over the local market by companies such as Sibneft.

"Large oil companies are taking the Moscow gasoline market hostage just as the terrorists took hostages in our city," said Shalva Chigirinsky, president of the Moscow Oil Co. and holder of the city's stake in the Moscow Oil Refinery.

The Moscow administration is in a power struggle with No. 6 oil producer Sibneft to control the Moscow refinery, which produces about 60 percent of the gasoline sold in Moscow.

At the core of the dispute is a share conversion giving Sibneft a majority stake in the refinery that is considered illegal by the Moscow administration.

Sibneft, however, does not view its maneuvering as a hostile takeover. Company spokesman Alexei Firsov said Sibneft has a two-pronged strategy on the Moscow market: its refining operation at the Moscow refinery and its expanding retail network. "These two directions are very closely knit together. Our retail operation largely depends on the oil we refine in Moscow," he said.

Sibneft hopes to have a stake of 10 percent to 15 percent in the Moscow gasoline market by the end of next year. It plans to create a network of 50 gas stations by the end of the year, and double that figure in 2003.

Five percent of the gasoline in Moscow is sold by Sibneft, according to Moscow Fuel Association data posted on the Sibneft-controlled Moscow refinery web site (www.mosnpz.ru). The city government also has a web site for the refinery that is currently under construction (www.mnpz.ru).

The Tyumen Oil Co. holds the lion's share of the capital's gasoline market with 27 percent. Tatneft comes in at second place with 14 percent and Slavneft and the Moscow Fuel Co. are tied at third place with 10 percent each.

Twenty-one percent of the market is controlled by smaller, independent companies.

There are about 800 gas stations in Moscow, with another 200 to 400 just outside city limits.

A quarter of the gasoline in Russia -- 5.5 million tons yearly -- is consumed in the Central Federal District, of which Moscow is a part. About half of that gasoline is used by consumers in the capital and the Moscow region, making it the largest gasoline market in the country.