The Cartel-ificent Five - Determining real owners of the “Big Five” is harder than catching a black cat in a dark room
24 July, 2015
The Cartel-ificent Five - Determining real owners of the “Big Five” is harder than catching a black cat in a dark room
After eight months of research, Georgia’s Competition Agency decided to fine companies operating at the petroleum products market a total sum of 54,698,329 GEL (~24,000,000 USD). The conclusion made by the agency has 50 volumes and contains 1,200 pages. Some parts of it discuss commercial secrets and are thus unavailable for public access; however, Kviris Palitra has managed to obtain the document’s run-down, which was sent to the fined companies.

The research revealed that in 2008-2014, competition rules at the
fuel market were being violated – imports were artificially impeded, production was being limited and price fixing was abound. Thus, petroleum market’s chief players – Wissol, Rompetrol, SOCAR, Lukoil and Gulf – were sanctioned, along with distribution agencies working for them. Enterprises working under the oil companies’ franchises were fined as well.

Following the Competition Agency’s decision, SOCAR Georgia Petroleum received the largest fine – 14 381 385 GEL. Sun Petroleum Georgia, which operates under the Gulf brand, was fined for 11 267 384 GEL, Rompetrol Georgia was fined for 10 845 806 GEL, Wissol Petroleum Georgia received a 10 426 393 GEL fine and Lukoil Georgia - 4.740.260 GEL. Two associated companies were also fined for over a million lari and another for over 650 thousand.


The research conducted by the agency has revealed that in 2008-2014, competition rules at the fuel market were being violated – imports were artificially impeded, production was being limited and price fixing was abound. Thus, petroleum market’s chief players – Wissol, Rompetrol, SOCAR, Lukoil and Gulf – were sanctioned, along with distribution agencies working for them. Enterprises working under the oil companies’ franchises were fined as well.
Following the Competition Agency’s decision, SOCAR Georgia Petroleum received the largest fine – 14,381,385 GEL. Sun Petroleum Georgia, which operates under the Gulf brand, was fined for 11,267,384 GEL, Rompetrol Georgia was fined for 10,845,806 GEL, Wissol Petroleum Georgia received a 10,426,393 GEL fine and Lukoil Georgia – 4,740,260 GEL. Two associated companies were also fined for over a million lari and another for more than 650 thousand. Also, symbolic fines of 200 GEL were assigned to small enterprises cooperating with the aforementioned companies.

A secret document obtained by Kviris Palitra

We managed to get our hands on the run-down of the document, which summarizes the main points of the 1,200-page conclusion and provides their brief evaluation. It is noteworthy that not a single company accused of being part of a cartel agreement cooperated with the Competition Agency or admitted to actually making such a deal.
If the opposite were the case, the companies would have been freed from the they were given fines. It has also become known to us that part of the materials comprising the agency’s conclusion pertains to such grave violations that their dispatch to Prosecutor’s Office and Financial Police is not being ruled out.

The companies refuse to plead guilty

The first company to respond to Competition Agency’s conclusion was Wissol Group, with the following statement:

“We have not violated any tenets of the Law on Competition. On July 8, 2015, a summarizing meeting was held at the agency, with all interested parties participating. At this meeting, we presented a substantiated, professional and objective position to the arguments stated in the draft conclusion. Unfortunately, the agency did not take our objectivity into consideration and made a decision that negatively evaluated our activity pertaining to the aforementioned law. We do not agree with this conclusion and, naturally, will attempt to exonerate ourselves through methods prescribed by law.”
SOCAR Georgia Petroleum does not agree with the Competition Agency’s conclusion as well, saying that they began actively cooperating with it in November of 2014. They claim to have answered all questions, provided all relevant documents and substantiated their arguments with material proof, but none of that was taken into account and the company was fined for a large amount. Just like Wissol, SOCAR and Gulf plan to appeal the decision in court. The companies’ representatives claim that in 2012-2014, their pure profits combined comprised 6.2 million GEL, while the fines demand almost twice that sum. Paying these fines off would put a massive strain on the companies’ activity.
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How the cartel formed

What the Competition Agency fit into 50 volumes and 1,200 pages was being pieced together by journalists and independent researchers for years. The perfectly logical and well-founded suspicion of oil companies fixing prices and profiting beyond their means is approximately 10 years old, supported by the fact that fuel products and associated services in Georgia are becoming more and more expensive. Until 2006, there were more than 2,000 companies importing fuel into Georgia. One could easily bring a cistern or two of fuel from Azerbaijan, set up a couple of gas stations and sell it rather cheaply while profiting at the same time. But in the following years, things have changed. Fuel imports from Azerbaijan were taken over by SOCAR, which promptly closed the market to other importers. As a result, only large oil companies, those that could import fuel from Europe, retained their presence at the market. Over the years, fuel retail market became dominated by six companies – Wissol, Lukoil, SOCAR, Eko, Rompetrol, Senta and Magnat. In 2010, Gulf entered the market, taking over the gas stations run by Senta, Eko and Magnat, which made it the owner of the largest amount of gas stations in the country. Gulf’s entry caused the prices on oil products to grow even further. This company is connected to the former Defense Minister Davit Kezerashvili. As a rule, when something like that happens at a market which is already shared and “domesticated” by older players, the newcomer should have a lot of trouble establishing itself there. However, for some reason the would-be competitors simply moved aside and gave Gulf its own niche. The increase in oil prices was also beneficial for Gulf, allowing it to establish a client base. As a rule, in such cases older companies usually reduce their prices to retain clients and suffocate the competitor. Strangely enough, this did not happen.

“The fruit of the cartel agreement were as follows: Competition was done away with, artificial import barriers were erected, distribution and sales departments as well the gas station network were divided between the parties” - Beka Kemularia

Beka Kemularia, head of Consumer Rights Protection Society:


“A few years ago, before this entire field ended up in the hands of one particular group and a cartel agreement was formed, the companies sold fuel with a 20 tetri markup per liter, while now it is being sold with a 60 tetri markup. The global oil price decrease had no effect on Georgia; on the contrary, at times the markup here reached 80 tetri. That’s the cartel agreement for you: Competition was done away with, artificial import barriers were erected, distribution and sales departments as well the gas station network were divided between the parties.
Limiting imports was an easy enough thing to do. The companies which owned oil plants simply told any would-be competitors that their tankers do not have additional space to transport their oil. This allowed strict “dosage” of fuel, which would later be drained from tankers and transported to Georgia by rail. Mind you, prior to all this, the quantity of imported fuel numbered in millions of liters. Before 2012, fuel import by anyone but cartel members was out of the question – unexpected difficulties would be created for would-be competitors at the customs, their transports would get raided by “bandits,” they would receive direct threats, etc. And if someone still managed to break through this cordon, they would find that the older companies held the market in such a death-grip that successfully selling one’s products was near-impossible for a newcomer. Moreover, there were cases of large oil companies preemptively buying plots of land where gas stations could potentially be built, as insurance.
Besides, there exists a strong suspicion that the companies traded or exchanged resources between each other. For example, in 2012 Gulf has imported the least and sold the most fuel of them all, while having the lowest prices in the country. Can you simply imagine that?!”

Who stands behind “The Cartel-ificent Five”?

After the Big Five had essentially appropriated Georgian fuel market and the prices on fuel started growing annually, questions about who really stood behind these companies emerged. There were talks about business interests of the previous government’s members and their covert connections with this or that company, but zero evidence could be produced to substantiate these claims.
We also became interested in identities of real owners of the Big Five and our research yielded some interesting discoveries. For example, 100 percent of SOCAR Energy Petroleum’s shares are owned by SOCAR Energy Georgia. In turn, 51 percent of this company is owned by the Azerbaijani state itself, while the remaining share is split into two, with Intersun Holding FZCO and EVENTUS GENERAL TRADING FZ owning 24.5 percent each. Both companies are registered in United Arab Emirates’ Free Trade Zone and both of them were founded in 2006, when SOCAR entered the Georgian market.
100 percent of Sun Petroleum Georgia’s shares is owned by Energy Investment Venture Holdings, a company registered in the United States. Rompetrol is owned by KMG International N.v., registered in the Netherlands. Same goes for Lukoil Europa Holdings B.v., which owns Lukoil. As for Wissol, the only information provided in the Public Registry is that its director general is Vasil Khorava and its supervisors’ council is chaired by Levan and Samson Pkhakadze and Nugzar Abramishvili.

Will the fuel prices drop?

No matter for how much the companies are fined, what interests an ordinary consumer most is whether fuel prices are going to decrease as a result, and if yes, by what margin. Prices shown at gas stations’ digital displays remain unchanged so far – if the companies uniformly decrease the prices, it might be assessed as admission of guilt, while if they continue to operate as if nothing happened, it might prompt yet another investigation and more fines as a result.

A cheap alternative – Will Georgia start importing Turkmen fuel?

About two years ago, replacing pricy Romanian fuel with much cheaper Turkmen one was proposed as a way of triggering a price reduction. Azerbaijan was supposed to open a corridor for Turkmen fuel, and this was supposed to be precisely the subject of negotiations held between Georgia’s ex-PM Bidzina Ivanishvili and the Azerbaijani government. In particular, regular petrol and L62 diesel were being discussed, due to both high demand for them in Georgia and the largest share of these fuels being imported by Azerbaijan.
However, the negotiations took a rather expected twist: Azerbaijan was basically asked to inflict financial damage upon itself by opening the way for Turkmen fuel. There also were questions about who would import and sell it in Georgia, whether this entity would become a new player in the market and where this fuel would be sold, due to the Big Five owning all of the gas stations.
The talks came to a standstill back then, but now this may change. We wouldn’t rule out new players emerging in the fuel market and the subject of importing Turkmen fuel again appearing on the agenda.

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