Supplier and Contractor Relationships
Rosneft is the largest consumer of goods, works, and services among Russian private and state-owned companies. Annual procurement of goods, works, and services by the Company (Rosneft and Group Subsidiaries) from external counterparties totaled RUB 2.1 trln.
The procurement process is designed to meet the demand of Rosneft’s business units for goods, works, and services on time and in full, while ensuring maximum efficiency and a high standard of quality.
Key Procurement Achievements in 2018
As a vertically integrated holding company, Rosneft performs the consolidated procurement of goods, works, and services for Group Subsidiaries. This approach is consistent with the recommendations of federal executive bodies. Rosneft’s procurement is centralized at 69.3%, including 55.3% of procurement handled by the Head Office, and 14.0% sourced regionally.
In an initiative to improve procurement efficiency, the Company transitioned to signing long-term contracts, providing favourable commercial terms.
In 2018, the Company finalized its procedures covering the following types of goods, works, and services procured under domestic and international long-term contracts: tubular products, submersible cables, chemicals, substations, pumping equipment, buildings, shut-off and control valves, as pertaining to capital construction, drilling, oil production, and non-production works and services.
The Company is committed to establishing long-standing relationships with suppliers. Its local regulations stipulate long-term (18-month) accreditation, thereby reducing costs incurred by potential suppliers participating in procurement procedures. In 2018, a total of 7,566 potential suppliers of goods, works, and services had valid accreditation to participate in procurement procedures.
Rosneft and Group Subsidiaries apply the Company’s uniform Regulations on the Procurement of Goods, Works, and Services to standardize procurement principles and approaches. Maximum transparency is ensured through publishing their procurement plans, information on procurement procedures and their outcomes, and on the signing and execution of contracts (nearly 99% data on procurements being executed is publicly available in the Internet).
To achieve the procurement objectives and key principles via the electronic trading platform CJSC TEK-Torg (in Rosneft’s section), the Company and Group Subsidiaries initiated 58,605 procurement procedures with a total initial (maximum) value of RUB 2.035 trln and registered 40,382 suppliers (cumulative result since the electronic trading platforms has been launched) in 2018.
The Company pursues its import substitution program approved in 2015 and updated in 2016.
The Company’s Regulations on the Procurement of Goods, Works, and Services enable the Company to prioritize domestically produced goods, works performed, and services provided by Russian entities in the cases and manner stipulated by applicable legislation.
The Company is committed to promoting cooperation with small- and medium-sized enterprises (SMEs). To provide SMEs with wider access to procurement procedures, the Company implements measures stipulated by the regulations of the Russian Government on an ongoing basis. In line with the Resolution of the Russian Government No. 1352 dated 11 December 2014, targets for the share of procurement from small- and medium-sized enterprises were met. The total value of contracts signed by Rosneft with SMEs in 2018 (including those signed by Group Subsidiaries on behalf of Rosneft and considering payments falling on 2018) amounted to RUB 34.8 bln RUB 10.2 bln worth of contracts signed as a result of direct procurement from SMEs. SMEs account for over 76% of the total number of suppliers with valid accreditation in Rosneft.
The Company is implementing a comprehensive program to automate its procurement processes. Based on 2018 results, core tasks were completed across key IT projects and business areas:
- Transition to electronic document workflow: an IT solution was implemented that enables signing electronic contracts as a result of procurement procedures, allowing a sixfold reduction of the average contracting term (from 30 to 5 calendar days), and excluding the costs of contract paper copy administration. More than 50 Group Subsidiaries have implemented and use the functionality for signing electronic contracts. As of today, more than 10 thousand contracts worth over RUB 200 bln have been signed.
- The questionnaire and specification base (hereinafter - the base) has been completed. The base provides for high-level standardization of materials and equipment through the use of unified questionnaires.
- According to the IT development priorities, the Company has developed and approved the concept design of procurement processes and initiated the project for implementing the corporate vertically-integrated procurement within the pilot outline. The project is aimed at creating the shared information space for the through business-processes and a common control space based on a modern hi-tech IT platform.