1.9. Procurement System and Procurement Localization
The Gazprom Group conducts procurement and interacts with suppliers on the basis of the principles of fairness, openness and equality. Gazprom’s procurement activities mainly seek to cater, in a timely manner, to all the Group’s needs for goods, works and services taking into account their price, quality and reliability. By maintaining a steady demand for high-tech products, the Group contributes to the development of the country's industry by involving more and more Russian companies in the process of designing and making equipment for technologies not previously used in Russia.
Key Documents
- Federal Law No. 223-FZ On Procurement of Goods, Works, and Services by Certain Types of Legal Entities dated July 18, 2011.
- Regulation on Procurement of Goods, Works, and Services by PJSC Gazprom and Gazprom Group Companies (the “Procurement Regulation”)Approved by resolution of the Board of Directors of PJSC Gazprom No. 3168 dated October 19, 2018 (as amended).
Procurement Management
Gazprom’s procurement system relies on the following principles:
- safe operation of hazardous production facilities;
- information transparency;
- equality;
- fairness;
- zero discrimination or unreasonable restrictions on competition among bidders;
- targeted and economically efficient spending;
- stimulation of competitive environment;
- balanced ratio of costs and expected economic benefits;
- catering to all Gazprom Group’s needs for goods, works and services in full and in due time, and identifying a supplier (contractor) capable of meeting the Customer's needs in a timely and quality manner, and in line with the required indicators of price, quality, and reliability;
- safe operation of hazardous UGSS production facilities;
- unrestricted admission to participation in the procurement by imposing unmeasurable requirements on bidders;
- ensuring a balanced ratio of costs of organizing and conducting competitive procurement procedures, and their expected economic benefits.
For the purposes of the Gazprom Group’s unified procurement policy in accordance with the principles set forth in the Procurement Regulation, PJSC Gazprom established the Central Procurement Office of the Gazprom Group.
Savings of PJSC Gazprom and its subsidiaries as a result of bidding and marketing research, RUB billion(1)
(1) Savings are defined as the difference between the initial (maximum) prices and prices of the contracts made following the bidding procedure, taking into account the notional costs of organizing and conducting the bidding.
The Group's Central Procurement Office exercises the following functions:
- planning of the Gazprom Group’s procurements;
- defining a customer/organizer interaction procedure and distributing tasks to both parties in preparing, arranging and holding the Gazprom Group’s procurement activities;
- staging and conducting pre-qualification procedures, compiling and keeping a Register of the Gazprom Group’s potential bidders;
- arranging and conducting the Gazprom Group’s procurement activities;
- exercising control over the Gazprom Group’s procurement activities;
- establishing the form, content of, as well as the procedure for submitting, information required from the Gazprom Group regarding procurement and signed contracts for goods, works and services;
- providing methodological guidance to the Gazprom Group in respect of procurement activities;
- advising on the procedure for applying the Procurement Regulation and other procurement-related matters;
- coordinating the work of the Gazprom Group’s structural units for preparing and conducting procurement activities.
PJSC Gazprom has put in place the Automated Electronic Procurement System (AEPS), covering the pre-qualification of potential bidders and the entire procurement cycle, from needs planning to signing and executing contracts. As regards electronic procurement, the Group employs the Electronic Trading Platform of Gazprombank (ETP GPB)ETP GPB’s section of the Gazprom Group’s procurements)..
The documentation used in the procurement processAccording to the Regulation on Procurement of Goods, Works, and Services by PJSC Gazprom and Gazprom Group Companies approved by resolution of the Board of Directors of PJSC Gazprom No. 3168 dated October 19, 2018 (as amended by resolutions of the Board of Directors of PJSC Gazprom No. 3337, 3580, 3625, 3704, 3822, and 3829 dated November 19, 2019, May 20, 2021, July 6, 2021, January 18, 2022, September 20, 2022, and October 6, 2022 respectively) may require that the bidders should offer products included in the Unified Register of Material and Technical Resources Admitted for Use at the Facilities of PJSC Gazprom and Compliant with the Requirements of PJSC GazpromPJSC Gazprom’s Unified Register of Material and Technical Resources and that a relevant provision is stated in the draft agreement.
PJSC Gazprom prequalifies its suppliers (contractors, service providers) to be added to the Gazprom Group’s Register of Potential Bidders if their goods, works and services meet corporate requirements applicable to processes, quality and safety. Bidders that have submitted applications for participation in the prequalification are evaluated as regards their legal capacity, solvency, business reputation, availability of qualified personnel, materials and equipment, compliance with standards and legal requirements, including those related to occupational health, environmental, industrial and fire safety.
As of January 1, 2023, the Register of the Gazprom Group’s potential bidders included 1,014 pre-qualified participants, 716 of which are SMEs.
In 2022, due to foreign policy developments and increased sanctions pressure, the bidding procedure underwent certain changes. In April 2022, the Russian Government issued a decreeDecree No. 301 of the Government of the Russian Federation dated March 6, 2022 On the Grounds for Not Publishing Information about Suppliers (Contractors, Service Providers) in the Unified Information System for Public and Municipal Procurement of Goods, Works and Services. that prohibited the placement of information on procurement and suppliers by customers on which foreign states and associations of states imposed sanctions and restrictive measures. Following the adoption of this decree, the Group suspended the placement of information about procurements and suppliers in the Unified Information System (UIS)Unified Information System (UIS) for procurement. for procurement. Information about procurements by companies that are subject to sanctions and restrictive measures was posted in the AEPS and ETP GPB and was available to potential bidders registered on the ETP GPB, except for foreign legal entities.
Information about competitive bidding initiated by Gazprom Group companies in accordance with Federal Law No. 223-FZ On Procurement of Goods, Works, and Services by Certain Types of Legal Entities dated July 18, 2011, which is not subject to sanctions or restrictive measures, is published in the UIS, on Gazprom's official website (www.gazprom.com), in the AEPS and ETP GPB, which is accessible to all stakeholders.
For details on the Group's requirements for bidders, suppliers and contractors, see the relevant sections of this Report:
- for the requirements for compliance with corporate ethics, see section Corporate Ethics;
- for the requirements for compliance with environmental standards, see section Monitoring Compliance with Environmental Laws by Suppliers and Contractors;
- for the requirements for compliance with industrial safety standards, see section Process Safety Control in the Supply Chain.
For 2022–2024, priorities for procurement, materials and equipment management include:
- Creating a methodological procurement portal.
- Creating a Unified Materials and Equipment Handbook.
- Automating the management process of preparation and pre-approval of procurement documents.
- Creating an Interactive Map of Suppliers and Procurement
- Creating a Unified Potential Counterparty Database.
- Developing and implementing a new version of the procurement item index.
- Creating the Web Portal of PJSC Gazprom's Automated Electronic Procurement System and the Unified Tool for Prequalification, Certification, Corporate Inspections and Obtaining Required Admissions.
In 2022, PJSC Gazprom made great efforts to implement its topical projects, which enabled the Gazprom Group to improve its procurement efficiency and accelerate procurement procedures, in particular:
- automated the process of preparation and pre-approval of procurement documents;
- piloted Gazprom Group's procurement planning module (as part of AEPS 2.0 development);
- automated procurement cost calculation in a number of areas (as part of AEPS 2.0 development);
- converted into electronic form all announced prequalifications; since December 30, 2022, an application for participation in any of PJSC Gazprom's prequalifications can be submitted electronically through ETP GPB’s specialized service.
Materials and equipment procurement
- Gas, energy, liquid hydrocarbons
- Chemicals
- Gas pumping units and components
- Nonstandard equipment
- Large-diameter pipes and pipeline valves
- Electrical equipment, instrumentation and automation
- General plant equipment and gas equipment
- Pump and compressor equipment
- Gas production and drilling equipment
Procurement of works and services
- Gas and liquid hydrocarbons transportation and storage services
- Construction and installation works
- Lease
- Overhaul
- Construction of wells (production drilling and related works)
- Seismic research and exploration
- Transportation and logistics services
- Engineering and survey activities
- Maintenance and routine repairs
- Insurance
- IMS development and servicing
Gazprom Group Procurements
| Indicator | 2020 | 2021 | 2022 | Change 2022/2021, % |
|---|---|---|---|---|
| Total value of bidding and marketing research, RUB million | 548.4 | 454.3 | 919.1 | +102.3 |
| Total number of contracts signed after bidding and marketing research, thousand | 14.6 | 11.7 | 15.4 | +31.6 |
| Savings of PJSC Gazprom and its subsidiaries as result bidding and marketing research, RUB billion | 32.2 | 29.9 | 35.6 | +19.0 |
| Economic benefit of import substitution, RUB billion | 14.8 | 16.6 | 24.7 | +48.8 |
Supply Chain Control
When conducting procurement activities, the Group relies on corporate anti-corruption and anti-fraud principles and makes all efforts to prevent or settle conflicts of interest and prevent respective violations.
A collegial body, i.e. a Procurement Committee, is set up to approve the results of bidding and marketing research. The Group strictly monitors the Committee membership. The Regulation on Procurement establishes specific restrictions on participation in the Procurement Committee, including in the event of any conflict of interest or personal interest. Such restrictions are included in pursuance of Federal Law No. 160-FZ On Amendments to Article 3 of the Federal Law On Procurement of Goods, Works and Services by Certain Types of Legal Entities dated June 11, 2022 and the Federal Law On Contracting in Procurement of Goods, Works and Services for State and Municipal Needs.
A member of the Procurement Committee shall promptly report any circumstances indicating the presence of restrictions on participation in the Procurement Committee stipulated by the Procurement Regulation. Upon detection of such circumstances, a member of the Procurement Committee shall recuse themselves and shall not participate in voting on summing up (individual stages of) the procurement during which the circumstances have arisen, and the customer (the organizer) shall replace such member.
Following the bidding, the Committee selects a supplier (contractor, service provider) based on the principles of fair, equal and objective treatment of bidders while also taking into account criteria for evaluating and comparing bids. Minutes of meetings are generated electronically using AEPS.
Administrative liability for any violation of the procedure for the procurement of goods (works or services) provided by Article 7.32.3 of the Russian Code of Administrative Offenses shall be borne by the persons (legal entity and officials) that organize and conduct procurement.
Procurement participants may challenge the results within ten days, because no contract based on the results of the bidding and market research can be made before expiry of that period. They may also submit proposals on improving PJSC Gazprom’s procurement procedures, as well as comments and complaints regarding the actions or failure to act by customers, organizers or their officers, or any instances of unreasonably restricted competition. A feedback page is available for potential bidders in the Procurement section of PJSC Gazprom’s official website. All feedback received during the reporting period was reviewed.
The Gazprom Group’s procurement practices comply with Article 13.3 of Federal Law No. 273-FZ On Combating Corruption dated December 25, 2008, which obliges companies to develop and implement anti-corruption measures according to the Anti-Corruption Policy.
In addition, the Group follows the Code of Corporate Ethics of PJSC Gazprom setting out business conduct rules aimed specifically at preventing and minimizing the negative impact of conflicts of interest.
Compliance with Anti-Trust and Monopoly Laws
The Gazprom Group strictly complies with the procurement-related antimonopoly laws and creates a healthy competitive environment for procurement. This is facilitated by the following principles set forth in the Regulation on Procurement:
- information transparency of procurement;
- unrestricted admission to participation in the procurement by imposing unmeasurable requirements on bidders;
- stimulation of competitive environment for businesses taking part in the bidding.
Compliance with anti-monopoly laws relating to procurement is overseen by the Gazprom Group’s Central Procurement Office. In particular, in order to minimize risks of this nature, work is underway to unify Gazprom’s procurement process, for example, introduce uniform rules, standard forms and document templates used by Group companies for procurement.
Gazprom put in place criteria for material violations of procurement procedures. The procurement of the Group companies is evaluated annually to ensure that there are no violations of these criteria. In case of any violations, the persons at fault are held accountable for them.
The Group cooperates with antimonopoly authorities in connection with the review of complaints from participants of procurement.
The Gazprom Group realizes its importance for Russia’s industrial development and engages domestic companies in the development of import-substituting technologies, as well as required equipment and materials. The Group's policy is aimed at the complete replacement of industrial products imported from unfriendly countries with Russian-made alternatives. The current situation requires urgent decisions for rapid import substitution and advanced technological development, which is why a new Department was established within the structure of PJSC Gazprom.
In the reporting year, this Department prepared and proposed 19 key import substitution projects. Plans to develop and introduce import-substituting products at PJSC Gazprom’s facilities became the basis for nine draft agreements and roadmaps with Russian industrial companies. These agreements are scheduled to be signed in 2023.
In 2022, CHPP-22 in the Moscow Region put into operation a refurbished power unit with a T-295 turbine, a cutting-edge development of Russian turbine designers.
This is the world's most powerful turbine for combined heat and power generation for consumers. All core equipment for the refurbished power unit was made in Russia. Another important feature of T-295 is that for the first time in Russia, pre-installed equipment was used to connect to an intelligent analytics and remote monitoring system. The system can read data from turbine sensors, identify and warn of potential malfunctions long before they occur. This enables the Company to plan repairs in advance and prevent breakdowns.
In 2022, the share of Russian-made materials and equipment in the Gazprom Group's centralized procurement increased, reaching 99.0%. This was the result of replacing imported materials and equipment with similar Russian-made equipment, as well as the Group's efforts to improve procedures for centralized supplies of materials and equipment. The economic effect of import substitution was up 12.8% year-on-year to RUB 24.7 billion.
Total value of bidding and marketing research doubled in 2022. New contracts worth more than RUB 256 billion with manufacturers of large diameter pipes helped achieve it.
Supporting Small and Medium-Sized Businesses
The Gazprom Group consistently enhances cooperation with small- and medium-sized businesses and expands access of SMEs to procurement of PJSC Gazprom and its subsidiaries.
The total value of contracts signed in 2022 by the Gazprom Group with companies in the Unified Register of SMEs exceeded RUB 468 billion (more than 56,000 contracts), including 9,960 contracts for over RUB 354.6 billion based on bidding and market research.
SMEs accounted for more than a half (60%, or 19,600) of the Gazprom Group's suppliers (32,500) of goods, works and services in 2022.
ETP GPB’s Trading Portal is used for transactions under RUB 1 million. Over 20,500 suppliers, including more than 18,000 SMEs, placed their price lists there covering 746,000 items including goods, works and services. In 2022, the orders placed through the Trading Portal amounted to RUB 10.1 billion, including RUB 9.4 billion in orders placed with SMEs (93%).
2022 saw a new version of the Gazprom Market web platform put into commercial operation to provide a single convenient environment for interaction between the customer and the supplier during the performance of price-list contracts. The platform has a customized modern design taking into account the approaches of popular marketplaces, product information contains images, the number of mandatory steps was reduced for preparing and executing an order so that it takes five days instead of 14 to approve an order. Over 1.5 million items are available for ordering on the platform. In 2022, the volume of orders on Gazprom Market exceeded RUB 51 billion.
Gazprom Group Procurement from SMEs
| Indicator | 2020 | 2021 | 2022 | Change 2022/2021 |
|---|---|---|---|---|
| Share of SME suppliers in the total number of the Gazprom Group’s counterparties, % | 59.6 | 62.1 | 60.3 | –1.8 p.p. |
| Value of contracts signed with SMEs, RUB billion | 300.5 | 248.5 | 468.2 | +88.4% |
All this was the result of, among other things, simplified access of SMEs to Gazprom Group procurement: minimum number of documents is required, SME procurement are electronic, and no financial security is required for bids.
In 2022, Gazprom reduced the payment period for such businesses to seven days after the goods (works or services) delivery certificate has been signed by the customer.
In 2023, the Group plans to make the following to improve its procurement system:
- develop proposals to amend the Regulation on Procurement to further improve the Gazprom Group’s procurement activities;
- adopt the procedure for interaction with potential suppliers (contractors, service providers) of PJSC Gazprom and the Gazprom Group entities, as well as the Code of Conduct for Suppliers (Contractors, Service Providers) of PJSC Gazprom and the Gazprom Group EntitiesAccording to the Action Plan for Sustainable Development Policy approved by order of PJSC Gazprom No. 333 dated September 1, 2022.;
- update the pilot program of partnership with small and medium-sized businesses and propose measures to support them.
