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Gazprom reviews Standard for Procurement of Large-Diameter Pipes

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World Pipelines,

The Board of Directors reviewed the issue of the improvement, jointly with Gazprom's representatives, of the Standard for Procurement of Large-Diameter Pipes (LDPs) by Gazprom Group entities, which was previously developed by the Federal Antimonopoly Service (FAS) of Russia together with the Ministry of Industry and Trade of the Russian Federation.

It was noted at the meeting that LDPs are among Gazprom's essential material and technical resources. They are purchased by the Company in strict compliance with the corporate Procurement Regulation that meets the requirements of current law.

The LDP procurement procedure applied at Gazprom gives priority to original manufacturers over intermediaries, while lots are generated with due consideration for the production capacities of domestic pipe plants. In 2019, 98% of LDPs was purchased directly from manufacturers, with most of the LDP purchases carried out via competitive bidding in electronic format. In this case, bidders have access to real-time information on competitors' prices (without disclosing company names), including when prices are reduced as a result of bargaining.

From 2018 to 2019, competitive procurement involved six major domestic manufacturers of pipes, ready to deliver high-quality products in due time. No applications were submitted by intermediaries. There were no claims to Gazprom regarding restrictions on manufacturers' participation in the procurement process. Another large purchase of pipe products involving five major manufacturers was made in 2020. The lot was split among all procurement parties. No violations that could affect the results of the procurement were revealed during a follow-up inspection conducted by the FAS of Russia.

In this way, the corporate Procurement Regulation makes it possible to conduct LDP procurement transparently, fairly and with no restrictions on competition. Moreover, Gazprom annually submits reports to the Russian Ministry of Energy regarding LDP procurement activities and measures to streamline them.

In order to give full consideration to the issue of improving the LDP Procurement Standard, it would be useful to analyse Gazprom's pipe procurement practices for the entire year 2020 in the following areas: level of competition, cost efficiency, manufacturers' participation, selection of several winners based on bidding results, and distribution of volumes of lots among the winners with due regard for production capacities.

The Management Committee was instructed to provide information about LDP procurement in 2020 for consideration by the Board of Directors in 1Q21.

The Board of Directors approved the updated Long-Term Development Programme of Gazprom.

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