Revolution At The Gas Pump

A dark blue Ford Taurus zips up to the gas pumps at the gleaming new station. Roman Tolubee, the driver and a Moscow businessman, signals "fill 'er up" as an attendant sprints past potted plants and an abstract sculpture to the pump. The attendant is wearing a brightly colored windbreaker with "Kanda" written on the back. "I haven't tried Kanda gas yet," says Tolubee, "but their station sure is beautiful."

Few Westerners rhapsodize about their gas stations, but in Moscow and elsewhere in Russia, motorists are joyfully descending on the hundreds of stations now opening. The new spots are light-years removed from the old, Soviet-era versions--usually filthy huts next to pumps that almost never worked and yielded fuel of dubious quality when they did. This revolution in gasoline retailing offers vast new marketing opportunities for Russia's newly privatized oil companies and Western oil giants.

BAD GAS. Modern gas stations first appeared on the scene in 1991, when Moscow and other cities began leasing state-owned stations to local private interests, who spruced up their sites to attract customers. Now the stations are really sprouting. In Moscow alone, 100 new stations have been built in the past year, making for about 350 stations in total in the area. At least 40 Russian companies are getting into the business.

Foreigners have jumped in, too. Mobil Oil Corp., working with Russian oil exporter Balcar, has plans for up to 50 stations in the Moscow area starting next year. On Sept. 9, Amoco Corp. opened its first station, complete with snack bar, in the city of Ryazan, about 300 kilometers south of Moscow. Minimarts will offer groceries in several of the stations slated to open. The new stations also claim to offer a superior grade of octane to motorists, who in the past have had to change spark plugs frequently to counter the effects of subpar gasoline.

Driving the demand is a flood of new automobiles. In 1992, some 8.7 million cars were registered throughout the country; two years later, there were 11.2 million, many of them imports because Russian car production has remained flat. To meet demand in Moscow alone, a city of 8 million people, there should be at least 800 stations, not just 350, says Leonid P. Tavrovsky, president of Grand, a conglomerate that builds and operates gas stations.

Grand is perhaps the largest independent gas retailer in the capital, and its experience is typical. In 1991, it acquired leases on 17 state-owned stations, some of them badly located and with leaky storage tanks. "Then we started reconstructing, putting in Finnish pumps and new buildings that cost from $300,000 to $1 million," says Eugene A. Arkusha, director of the company's gas-station development. Grand has built two new stations and plans to add two more a year for the foreseeable future.

Russia is also witnessing the emergence of integrated companies like Exxon, which do everything from exploring for oil to refining it and selling it at the pump. Energy giant Lukoil already had big oil-well and refinery interests before it opened 20 new stations across the country. Lukoil also picked up 1,000 old-style gas stations across the country when it was formed from several state-owned enterprises in the early 1990s. Lukoil plans to upgrade most of them. Oil companies Yukos and Surgutneftegas have similar plans.

SKEPTICS. Foreign oil companies have different obstacles to overcome. Foreigners still can't own station sites and are skeptical about long-term leasing arrangements. So they're cautiously looking for Russian partners. For example, Amoco, which is teaming up with a local refiner in its Ryazan project, will use the new station as a test site for future projects.

While the giants maneuver for position, the market still offers plenty of opportunities to anyone who can hustle. The Kanda station, one of two now open in Moscow, is owned by a small startup formed by Assyrians--Persian Christians who emigrated to Soviet Georgia in the early 1900s. Kanda is the name of the Georgian hometown of the company's owners, who now live in Moscow. Soon, Kanda stations will also offer food and snacks, making the road to capitalism just a little easier to navigate.

    Before it's here, it's on the Bloomberg Terminal.