Procurement

In all regions where the Company operates, it performs procurement aimed at purchasing the necessary equipment and services on the competitive market within its corporate investment programme, and at fulfilling its annual repairs and target programmes

In 2015, the Company made competitive purchases totalling RUB137 billion or 96% of total purchases. The economic benefit of such procurement reached RUB 2.7 billion.

Question for P. Barkalov - Procurement Director of Federal Grid Company

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HOW DOES PROCUREMENT OPTIMISATION CONTRIBUTE TO THE FULFILMENT OF THE STRATEGIC OBJECTIVES OF REDUCING COSTS (SPECIFIC OPERATING AND INVESTMENT COSTS)?

“In 2015, procurement savings reached RUB 2.7 billion or about 2% of all purchases made”.

What are the main focuses for implementing the ‘ Road map’ for improving the access of small and mediumsized businesses to Federal Grid’s procurements?

“We have a list of goods, works and services specified by the RF Government to be purchased from small and medium-sized businesses. Federal Grid’s procurement plan for 2016 was agreed with the Federal Corporation for Development of Small and Medium-Sized Enterprises. Moreover, our Company has set up an advisory body to improve the procurement efficiency, including the procurement from small and medium-sized enterprises. Over the reporting year, we signed more than 6,300 contracts with small and medium-sized business entities for more than RUB33 billion that makes up more than 23% of all completed procurement procedures”.

WHAT IS THE ROLE OF LOCAL SUPPLIERS AND CONTRACTORS IN FEDERAL GRID’S REGIONAL PROCUREMENT?

“In each region where we operate, the share of local suppliers and contractors in regional procurement reaches 80%. To perform highly specific works, it is possible to contract companies that perform such work all over the Russian Federation. When constructing and commissioning energy facilities, we create new jobs and involve local residents or personnel of allied industries”.

To facilitate engagement with suppliers, procurement procedures are conducted with the use of an electronic trading facility at www.tzselektra.ru, accessible to a large number of service providers. The Company holds annual meetings with its major suppliers to improve cooperation. An updated procurement plan (procurement to be announced, currently conducted and already completed) is published every month on the web-site www.fsk-ees.ru in section To Suppliers with the link to the trading platform to obtain details immediately.

Federal Grid’s subsidiary JSK UES Energostroisnabkomplekt (ESSK) handles the preparation of tender documentation and bid evaluation. A winner is selected by the Tender Board, which is a collegial body. The Consolidated Planning and Procurement Department performs methodological and operational control of procurement. The Management Board Chairman reviews procurement reports on a regular basis. The Board of Directors is empowered to approve the Regulations on the Procedure for Regulated Procurement of Goods, Works and Services.

This is a fundamental document governing the Federal Grid’s procurement and ensuring that goods, works and services are procured on a unified methodological basis with the use of up-to-date forms of competitive procurement primarily through tenders.

Procurement from local suppliers

As purchases are made in the regions, where Federal Grid has its branches, a lot of local suppliers and contractors participate in procurement procedures.

Cooperation with Small and Medium-Sized Businesses

Pursuant to the RF Government Resolution No. 867-r dated 29 May 2013, our Company has approved the Partnership Programme between Federal Grid Company and small and medium-sized enterprises (SME) and keeps a register of SMEs that joined the Programme.

Federal Grid’s total purchases from small and medium-sized enterprises in 2015

Federal Grid has also set up an advisory body to ensure the procurement efficiency, including the procurement from small and medium-sized enterprises. The above body includes representatives of the Department for Contractual System Development of the RF Ministry of Economic Development, Skolkovo Fund, Association of Energy Constructing Enterprises, Compliance Assessment and Monitoring Directorate of JSC Federal Corporation for Development of Small and Medium- Sized Enterprises, JSC UK RUSCOMPOZIT, and Innovations Committee of the National Association of Procurement Institutions.

The 2016 Procurement Plan was agreed with the Federal Corporation for Development of Small and Medium-Sized Enterprises.

Import Substitution as a Strategic Priority

Reducing the dependence on imported equipment is a key priority of the development of the Russian electricity industry. Our Company, as one of the largest Russia’s consumers of high and extra-high voltage equipment, is interested in the development of the national electrical engineering industry and creation of internal competitive markets of such equipment.

Given the need to lower the risks of dependence on imported equipment, Federal Grid has resolved that import substitution would be one of the strategic priorities of its long-term development programme

To encourage these processes and overcome the dependence on imports, we drafted and approved in 2014 the Programme for Import Substitution of Equipment, Technologies, Materials and Systems for 2015–2019, which strategic priority is to reduce the share of imported electrical equipment procured by Federal Grid to 5% by 2030.

The main objective of the Import Substitution Programme is to develop an efficient and effective cooperation with manufacturers of electrical equipment for the purpose of increasing the quality and reliability of electricity supply to consumers, assuring the state energy security and implementing the tasks of Federal Grid’s innovative development, energy saving and improving energy efficiency.

Main Priorities and Results of the Import Substitution Programme in 2015

Growth of the share of Russian-made products in Federal Grid’s purchases (as regards main electrical equipment, which is included in the Import Substitution Program)

Average level of manufacture localisation of main electrical equipment used by Federal Grid

• The following nine groups of main electrical equipment were included into Federal Grid’s Import Substitution Programme as priorities: 1) 110–750 kV transformers and autotransformers; 2) 110–750 kV shunt reactors 3) 110–500 kV controlled shunt reactors 4) 110–750 kV switches 5) 110–750 kV circuit breakers/ 6) 110–500 kV current transformers 7) 110–500 kV voltage transformers 8) 110–500 kV SF6 insulated switchgears 9)110–330 kV power cable with cross-linked polyethylene coating The share of Russian-made products procured for these groups of equipment reached 75% in 2015.
• In 2015, the implementation of long-term contracts with leading manufacturers of electrical equipment providing for production localisation in the Russian Federation continued. 2,092 МVА/ МVАr of transformer equipment was purchased from such manufacturers.
• To increase the localisation of electrical equipment manufacture, Federal Grid promotes the cooperation of foreign firms with Russian manufacturers of units, materials and components capable of providing the quality in line with international standards. In this respect, a list of components and materials of foreign manufacture used by Federal Grid’s major contractors has been prepared.
Federal Grid Company has drafted and approved in 2014 a Methodology for assessing localisation of electrical products manufacturing, which allows to obtain a quantitative criterion for treating manufacturers as domestic ones.
• The launch of Russian electrical products to international markets is actively supported. Federal Grid maintains the cooperation with electrical grids of China, India, Vietnam and Belgium to exchange the experience of electrical equipment operation, in such a way increasing their awareness of Russianmade products.
• To support the development of domestic manufacturers, Federal Grid provides assistance to enterprises that applied to the Industry Development Fund for a special-purpose lowinterest loan for production growth.
• On 2 December 2015, Federal Gird Company together with the expert panel of the State Duma Energy Sector Committee “Import Substitution in the Fuel and Energy Sector” conducted the round table titled “Import Substation: Boundaries of Energy Security” as a part of the business programme of the exhibition “Russia’s Electrical Grids-2015”. According to the results of the round table, recommendations were made with respect to the implementation of the import substitution policy and promotion of domestic electrical industry and submitted to the Energy Committee of the State Duma, as well as to other interested departments and organisations.