Monopoly drilling

What does the dominance of one company mean in the equipment market for the Russian oil and gas industry?

Last week, the Federal Antimonopoly Service (FAS) received an appeal from the autonomous non-profit organization “National Antimonopoly Society” with a request to understand the situation that arose after the acquisition in March of this year by the VBM-group company of two plants - OJSC Uralburmash and OJSC "Volgaburmash". The deal, as a result of which, in fact, the future of the most important sectors of the domestic industry will depend on the behavior of VBM Group, virtually monopolized the market for bits for the oil, gas and mining industries of Russia. The production of bits is a very attractive business that is of constant interest to numerous other players. As a result, the other day the Oasis Center company applied to the FAS with an application to purchase a 100% stake in Volgaburmash.

Pipes for the oil and gas industry have long been recognized in Russia as products of strategic importance, because without them it is impossible to imagine the functioning of the industry, which provides a significant share of revenues to the state budget and also makes the largest contribution to the national GDP. However, this is not the only type of product on which the fate of the industry depends - the oil and gas sector cannot operate without drilling equipment, the most important part of which is the bit. Moreover, in addition to the oil industry, the entire mining industry of the Russian Federation also depends on these same products. The acquisition by VBM Group of 100 percent stakes in Volgaburmash OJSC and Uralburmash OJSC, which took place in the spring of this year, can be regarded as an event that can directly affect the situation in the most important industries for the country's economy. More than 85% of the production capacity of this equipment is concentrated in the hands of the buyer, which makes it possible to dictate prices and regulate supply volumes at its discretion.

According to market experts, the FAS was initially not very positive about the deal to purchase Volgaburmash, which would create a structure with a dominant position in the market. Energy Consulting analyst Nikolai Kuchin noted that, having approved the deal, the antimonopoly authority accompanied it with a number of instructions to VBM Group aimed at ensuring competition, which include a ban on unjustified termination or reduction in the production of bits, and also prohibit refusing to supply drill bits for export , increase the price by more than 5% per quarter without prior notification to the antimonopoly authority. However, as practice shows, such prohibitions, despite their strict formulations, often work only on paper.

A clear example of market monopolization and the helplessness of antitrust legislation is the situation with Eurocement Group. De jure, the market is not monopolized; there are even “exemplary” cement trades on the Moscow Stock Exchange; they create the illusion of “free” supply and demand, as it should be in a market economy. But all builders know, and the media have repeatedly noted, that both buyers and sellers there are structures affiliated with the manufacturer. That is, de facto there is no market, but there is a dictate of prices and supply volumes. It is precisely this situation, as has been repeatedly noted, that becomes one of the factors that can call into question the implementation of the national project “Affordable Housing”.

Exactly the same situation, as the National Antimonopoly Society warns, may repeat itself in the oil and gas sector. Only with completely different consequences. A disruption in the supply of bits, a possible decrease in their quality, and an increase in the price of this equipment - textbook manifestations of monopolism - pose a significant danger to the economic security of the country. Today, many Russian oil and gas companies have large-scale plans for exploration and development of new fields. Thus, in the summer of 2008, Rosneft begins drilling on the Western Kamchatka shelf, Gazprom has already begun implementing a prospecting and exploration project in Uzbekistan, LUKOIL has planned its activities for laying new wells until 2016. But without bits, drilling equipment can only stand idle, which oil and gas workers cannot allow. This means that they will have two options: either follow the lead of the domestic monopolist, or reorient themselves to imported supplies. Both paths have significant flaws: the first, in fact, will be a clear demonstration of the weakness of the state, the second will give foreign companies the opportunity to significantly influence the most important sectors of the Russian economy (it is appropriate to remember that it was Western drilling equipment, including bits, that was subject to American economic sanctions when, in the end In the 70s and early 80s, the United States decided to “punish” the Soviet Union).

In addition, it is possible that one day the owners of VBM Group will want to sell their business to a foreign structure, and this means the loss of national control over strategic production. Therefore, it is not very clear how the FAS generally agreed in principle to give the green light to the expansion of the VBM Group.

In its letter to the head of the FAS, Mr. Artemyev, the National Antimonopoly Society asks to take measures to demonopolize the domestic market for bits, as well as to provide information on the implementation of VBM Group regulations aimed at ensuring competition. In the current situation, according to experts, one should rather expect the antimonopoly agency not to approve new applications from interested structures, but to make a competent decision, based primarily on the interests of the state.

published in the "Position" section

Anton ILYIN