RS Brief news Federal Antitrust Service calls for separation of oil extraction, wholesale and retail businesses

Federal Antitrust Service calls for separation of oil extraction, wholesale and retail businesses

December 2011

Speaking at the government hour in the Federal Council, the head of the Federal Antitrust Service Igor Artemyev once again proposed elimination of vertically integrated oil companies. In his opinion this would significantly improve competition in the mineral resources market and create favourable conditions in the oil retail market.

The goal of the draft bill on the trade of oil and petroleum products in Russia submitted for review to the government this spring is to make the oil market more transparent and economically manageable. The fuel crises in the spring of 2011 clearly demonstrated that the vast majority of deals in the market of petroleum products are struck behind the scenes, which creates conditions conducive to increased monopoly and speculation.

Experts in the mineral resources industry believe that the main idea behind the FAS’s proposal is better control over the prices, but oil industry lobbyists will most likely prevent the bill from ever getting passed into a law.

Oil industry operators have reacted with utmost hostility to the proposal. The president of the Union of Oil and Natural Gas Producers, Gennady Shmal, stated that other solutions should be found to the current situation with prices. One of them could be the construction of additional oil refineries to increase the supply of fuel to the market.

Before commenting on the proposed law, oil companies prefer to wait until the bill gets approved by the commissions and the government.

Russia’s largest oil companies extract 2.5-3 times more oil than they refine while in the West extraction makes up only 0.5% of the total amounts of refined oil. Russia extracts about 500 million tonnes of oil per year but only 270 million tonnes get refined.