3.5. Contribution to Russia’s Economy

By paying taxes to budgets of various levels, purchasing products from domestic producers, and cooperating with SMEs, Gazprom makes a significant contribution to the development of the national economy.

The Gazprom Group’s investment projects have an impact on the growth of regional economies and contribute to infrastructure improvement. They also have a social effect by providing jobs for local residents.

In the reporting year, priority investment projects continued progressing fully on schedule, with all production plans met. Efforts as part of other projects were adjusted to the unfavorable external environment and uncertainties in the energy markets.

In 2020, investment utilization under the revised Investment Program of Gazprom totaled RUB 922.5 billion.

^* Linear sections put into operation. For more details on the implementation of the Gazprom Group’s investment projects, see PJSC Gazprom Annual Report 2020

PJSC Gazprom’s investment projects are implemented in accordance with the design and estimate documentation audited by the State Environmental Expert Review of the Russian Federation. According to the Russian laws, this documentation contains requirements and information on the amount of investment to be spent on prevention, mitigation or elimination of pollution and other forms of environmental degradation.

Gazprom contributes to the national industrial development by involving Russian enterprises in the process of mastering the technologies never used in our country before.

• PJSC Gazprom Corporate Import Substitution PlanApproved by order of PJSC Gazprom No. 97 dated February 26, 2018;
• List of Priority Products for Import Substitution and Production Localization to Promote the Technological Development of PJSC GazpromApproved by order of PJSC Gazprom No. 88 dated February 25, 2020.

Import substitution activities are regulated by the PJSC Gazprom Corporate Import Substitution Plan. This document also regulates the improvement of the corporate mechanism for managing import substitution processes, including a monitoring and performance assessment system.

Import substitution measures are implemented through roadmaps designed for certain regions of the Russian Federation, state corporations, major industrial enterprises, and specific types of equipment being developed, as well as long-term contracts and the List of Priority Products for Import Substitution and Production Localization to Promote the Technological Development of PJSC Gazprom.Consistent efforts in the area of import substitution in 2015–2020 helped reduce the number of items on the List by 70%. The work in this area continues.

In 2020, the share of domestic materials and equipment (M&E) in the procurement made by Gazprom Komplektatsiya LLC (the Group’s dedicated supplier of M&E) was 97.6%.

PJSC Gazprom contracts Russian industrial enterprises and scientific institutions to produce import-substituting and high-tech equipment and materials. To that end, the Company cooperates with the governments of Russian regions as part of roadmaps aimed at setting up the production of items as specified in the Corporate Plan and the List. In 2020, such works were implemented under 14 roadmaps in 15 constituent entities of the Russian Federation.

On the whole, the work is carried out in line with the relevant schedules set. In 2020, a total of 32 activities were completed, with another 26 still in progress.

To satisfy the requirements of PJSC Gazprom's subsidiaries, the production and supplies of import-substituting products have been arranged under eight long-term contracts concluded with:

• Ural Special Valve Plant LLC (special purpose ball valves);
• Tomsk Machine-Building Technologies LLC (axial anti-surge and axial control valves);
• Kazan Compressor-Building Plant OJSC (package modular compressor units of the TAKAT series);
• SkatZ LLC (moisture-resistant silica gel for the production of high-density polyethylene);
• Chelyabinsk Pipe Rolling Plant PJSC (longitudinal welded steel pipes and fittings for offshore and onshore field pipelines);
• Trading House Sinara – Transport Machines LLC (LNG-powered TEMG1 switching locomotive);
• Almaz-Antey Air and Space Defense Corporation JSC (equipment and other elements of offshore hydrocarbon production system);
• NPF Mikran JSC (radio-relay communication complexes).

PJSC Gazprom pays particular attention to research-intensive and high-tech areas, such as LNG and offshore hydrocarbon production. In addition, the Company seeks to develop projects dedicated to increasing the depth of hydrocarbon processing, as well as the volume of products with higher added value.

PJSC Gazprom assesses the economic efficiency of import substitution activities on an annual basis. Its aim is to strengthen the rationale behind management decisions regarding the introduction of import-substituting technologies, equipment, and materials at the facilities of PJSC Gazprom and its subsidiaries, as well as to establish a comprehensive approach to elaboration of the activities for the Company’s technological development.

The cumulative economic effect of import substitution between 2016 and 2020 (inclusive) is estimated at RUB 52.2 billion. In 2020, the economic effect from import substitution grew by 12.5% to RUB 16.6 billion as compared to 2019.

Russia’s Ministry of Industry and Trade together with the Ministry of Energy has established an interdepartmental working group which aims to achieve the import substitution goals through fostering consolidated demand and setting up state support measures for import-substituting manufacturers. Gazprom Neft is the moderator of five expert groups that are part of the interdepartmental working group.

Gazprom Energoholding participates in the development of the List of Priority Products for Import Substitution and Production Localization to Promote the Technological Development of PJSC Gazprom within the scope of its competence. An action plan for import substitution of products included in the List has been developed. The implementation of the plan is being monitored continuously. PJSC Gazprom cooperates with the constituent entities of the Russian Federation to implement the roadmaps of projects aimed at expanding the use of high-tech products, including import-substituting ones. Representatives of Gazprom Energoholding are among members of a provisional working group established for interaction with the constituent entities of the Russian Federation, and the work is underway to fulfil the tasks set by the group.

As of the end of 2020, Gazprom Neftekhim Salavat had no import substitution programs. The work was carried out in accordance with the PJSC Gazprom Regulation on the Selection of M&E Analogues without the segregation between imported and domestic products. The main objectives are to initiate competition between suppliers by expanding the list of approved analogues, as well as to ensure the independence of Gazprom Neftekhim Salavat from M&E supplied by individual countries.

PJSC Gazprom implements a set of measures to expand the access of SMEs to the procurement carried out by PJSC Gazprom and its subsidiaries.

Procurement procedures in which SMEs can participate have been simplified to the maximum extent possible in order to involve them in cooperation:

• procurement is conducted electronically;
• a minimum set of documents is required;
• no financial security is required to place a bid.

The total value of contracts signed in 2020 by the Gazprom Group with SMEs included in the Unified Register of SMEs809 companies, including 577 SMEs, were included in the Register as of February 1, 2021, following the pre-qualification exceeded RUB 300.5 billion (more than 35,800 contracts), including 4,900 contracts for the amount of over RUB 86.0 billion based on competitive bidding results and market research involving SME suppliers only.

Under contracts for the supply of goods, works and services to the Gazprom Group signed in 2020, SMEs accounted for over 59.6% of the total number of suppliers (13,200 contracts with SMEs out of 22,200 contracts concluded).

The GBP ETP Small-scale Procurement Trading Portal e-service is used for deals under RUB 1 million. Over 14,000 suppliers, including more than 11,000 SMEs, placed their price lists there covering 415,000 items of goods, works and services. In 2020, the orders placed through the Small-scale Procurement Trading Portal amounted to RUB 3.19 billion, of which orders for RUB 2.11 billion (or 66.1%) were placed with SMEs.

PJSC Gazprom received 134 submissions from SMEs and individual entrepreneurs through the Single Point of Contact System in 2020.

Starting from 2015, the System of year-end bonuses for PJSC Gazprom's executives annually sets an individual target for some executives of the Company as to the share of goods, works, and services to be supplied by SMEs, including procurement of innovative goods (works, services), research-and-development, experimental and technological works in the total annual value of contracts concluded by the customer as a result of procurement.

The individual target for the share of goods, works, and services to be procured from SMEs in 2020 has been achieved in full.

PJSC Gazprom plans to continue its cooperation with domestic producers in order to maximally employ the potential of Russian enterprises and organize the work required for meeting new statutory requirements on the minimum share of purchases of particular Russian-made products.

Gazprom is among Russia’s largest tax payers. In 2020, the Group’s tax payments totalled RUB 2,116 billion, 60.7% of which were the mineral extraction tax (MET) and customs dutiesFor the purposes of the consolidated financial statements, the Gazprom Group does not collect information on its tax payments to regional budgets categorized by federal districts. Starting January 1, 2021, it is planned to to begin collecting data through corporate (specialized) forms of financial statements.

For the purposes of country-by-country reporting, PJSC Gazprom being the parent company of an international group of companies submits its country-by-country report to the Federal Taxation Service of Russia not later than within 12 months from the end date of the reporting period pursuant to Article 105.16-3 of the Tax Code of the Russian Federation.

Entities included into the country-by-country report for 2019 (the preparation of which was completed in December 2020) are residents of 48 tax jurisdictions. At the same time, over 80% of the entities included in PJSC Gazprom’s international group of companies are located in the Russian Federation, and account for the major part of all disclosures present in the country-by-country report.

The country-by-country report includes the disclosures on the entities which are included in the Gazprom Group’s consolidated financial statements prepared under the IFRS. Those entities are residents of 35 tax jurisdictions.

The Tax Strategy of PJSC Gazprom sets out long-term tax goals and targets of PJSC Gazprom and the Gazprom Group's entities. The Tax Strategy of PJSC Gazprom is available at the Company’s corporate intranet server. The Strategy is approved by the PJSC Gazprom Management Committee and is updated as necessary.

PJSC Gazprom implements a single tax policy and ensures uniformity in tax law application by the Gazprom Group entities. The main principles of this approach are as follows:

• legitimacy, which is based on rigorous and strict compliance with the tax laws of the Russian Federation and other countries where the Gazprom Group operates when determining tax liabilities;
• flexibility and responsiveness: the tax policy must promptly respond to the dynamic environment and adapt to new conditions;
• rationality, optimality, and reasonable care in tax planning: the mechanisms and opportunities of tax planning must be used rationally, taking into account the interests of shareholders and the Company's strategic goals;
• centralization and unification: tax management processes are to be coordinated on a systematic basis by a single methodological center represented by the Company.

These principles are implemented through the search for and use of the most tax efficient solutions in the course of business activities.

The Tax Strategy of PJSC Gazprom ties into the corporate strategy and is geared towards cementing PJSC Gazprom’s status as a global energy leader. Responsible and diligent performance of tax obligations by PJSC Gazprom has a direct influence on the achievement of its strategic business targets.

According to the Risk Index of PJSC Gazprom, its Subsidiaries and EntitiesApproved by order of PJSC Gazprom No. 848 dated December 15, 2017 (as amended by order No. 8 dated January 16, 2020),operational risks include tax risks associated with the calculation and payment of taxes, charges and insurance premiums, incorrect calculation of the tax base, and tax policy risks associated with the choice of inefficient tax models and schemes, transfer pricing risks, and risks of unjustified actions on the part of tax authorities. The key approaches to identifying, assessing, responding to, monitoring, reporting and disclosing operating risk management information are defined in the Regulation on Operational Risk Management at the Gazprom GroupApproved by order of PJSC Gazprom No. 291 dated July 11, 2019.

Self-assessment of compliance with the requirements of the tax management and control system is based on the results of implemented tax control measures, as well as information provided by the Gazprom Group entities in accordance with the by-laws of the Company and the Group’s entities.

Tax violations are identified by competent state authorities in accordance with the procedure established by applicable Russian or foreign legislation. The Gazprom Group entities immediately inform PJSC Gazprom of any case of tax violations on the part of subsidiaries identified by tax authorities and documented in relevant audit reports.

The reliability of the information disclosed by an entity is validated by an external auditor. Corporate reports are published on the website.

The key approach to stakeholder engagement is transparency, since building a constructive dialogue is essential to form the basis for economically sound managerial decisions, business development, and achievement of the Gazprom Group’s strategic goals.

PJSC Gazprom actively cooperates with government authorities — the State Duma of the Federal Assembly of the Russian Federation, the Government of the Russian Federation represented by the Ministry of Finance, the Ministry of Economic Development, the Ministry of Energy, as well as the Federal Taxation Service, etc. The Company is involved in the activities of professional communities — the Russian Union of Entrepreneurs and Industrialists, the Chamber of Commerce and Industry of the Russian Federation, the Expert Council of the Committee on Budget and Taxes of the State Duma of the Federal Assembly of the Russian Federation, etc.

In addition, PJSC Gazprom maintains an ongoing dialogue with representatives of international credit rating agencies (Moody’s Investors Service (Moody’s), Fitch Ratings, and Standard & Poor’s (S&P)), promptly responding to polls regarding assessment of the current and forecasted tax burden.

In 2020, a Data Mart framework was implemented to foster the transition of the Gazprom Group entities to tax monitoring. The framework was expanded to allow subsidiaries to join the tax monitoring regime, improve their interaction with the tax authorities, and develop tax reporting and control procedures.

The Gazprom Group entities implement a phased approach in their transition to tax monitoring. During the first two stages, seven Gazprom Group entities joined the tax monitoring framework. In 2020, it was decided to implement tax monitoring in 17 other entities that will switch to this tax control regime in 2021, followed by 12 more entities in 2022. Upon completion of this phase, tax monitoring will be introduced for tax control purposes in 36 key entities operating in the main business areas.

PJSC Gazprom’s plans regarding tax policy for 2021–2023The PJSC Gazprom Management Committee by its resolution No. 52 dated December 10, 2020, approved The Key Areas of the PJSC Gazprom Tax Policy for 2021 and the Planning Horizon of 2022–2023:

• Mitigation of risks associated with the failure of counterparties to fulfil tax obligations
• Compliance with tax law requirements regarding transfer pricing
• Phased transition of the Gazprom Group entities to tax monitoring
• Creating a favorable tax regime
• Adapting to changes in Russian and international tax laws and EU tax initiatives
• Improving tax efficiency and tax risk management