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Russian Integrated Oil Companies Could Be Forced to Dispose of Retail Division

By Alexei Kokin, Senior Analystifc Metropol

Russia's Federal Anti-monopoly Service (FAS) has suggested that Russian integrated oil companies could be forced to dispose of their retail divisions to enhance competition in the retail products market. According to the FAS, it would be an "extreme measure" to enhance competition among retail product sellers.

This would probably be next to impossible as Russia's major companies have invested heavily in filling stations in the past 10 years and would struggle to find buyers for those assets in the short term. More importantly, we believe that Russia's product market in the 1990s, dominated by independent retailers, offered lower quality fuel at higher retail premiums than oil majors are offering today.

It turns out however that the FAS and the Ministry of Economic Development only plan to force oil companies to legally separate wholesale and retail divisions, and prohibit their wholesale units to discriminate against independent retailers. The bill, drafted by the Ministry of Economic Development, would also require oil companies to disclose to the FAS their wholesale product prices and the pricing of intracompany product sales.

That could be a sensible move towards greater transparency which would not demand too much of oil companies. However there is a risk that oil companies would overprice wholesale products, squeezing retail margins. Eventually, we still think the government would consider price bands for domestic wholesale prices based on export netback prices.

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