Gazprom Buys All Pipelines from Russian Makers

All Gazprom's pipeline purchases over the last few years have come from within Russia and less than 0.5% of its overall purchases came from overseas in 2018, CEO Alexei Miller told the prime minister Dmitri Medvedev April 3. Medvedev and Miller regularly discuss Gazprom's day-to-day activities such as gas supplies and consumer debt; but as prime minister, Medvedev heads the Russian commission on import substitution. 

With the ruble weak, the savings on foreign exchange can justify the expense of state subsidies for domestic manufacturers. And the imposition of sanctions has also forced Russia to bring its manufacturing capability to world class, or beyond.

Miller said that Gazprom has been systematically working towards total import substitution for many years. In 2018, domestic equipment and materials accounted for 99.7% of our total procurements. "As for pipes, we have been purchasing 100% of those items from Russian manufacturers for several years now," he said.

Gazprom uses long-term, take-or-pay contracts and futures contracts where domestic enterprises assume an obligation to organise batch production, while Gazprom guarantees demand for the resulting products and is ready to buy them in the medium and long term.

The trade ministry generates all the demand for a specific product and provides subsidies for industrial enterprises to manufacture it under the import substitution program. 

Regional administrations undertake an obligation to present collective offers from local enterprises. Gazprom analyses those offers and conducted comprehensive audits at 165 enterprises. As a result, over 500 types of products have been accepted for use by Gazprom, Miller said. 

Some of Gazprom's requirements have never been produced in Russia and have no domestic counterparts. Miller said that this includes sectors that it is now entering, such as LNG, gas processing, and shelf exploration. "But with the passage of time, we have come to realize that Gazprom will pursue major projects in those areas in the medium and long term. Together with our domestic producers, especially the military-industrial complex, we are initiating timely work to localise the production of equipment for these sectors," he said, naming Rostec as one such supplier.

"The overwhelming majority of those items fully meets the global technological standards and is one or even two generations ahead of them in many respects. So, we are witnessing not just import substitution but also technological development of the gas sector and our industry at large," he said.

Gazprom is working towards the digitalisation of the gas supply process and blockchain technology. "Together with Gazprombank, we have developed a prototype of a technological platform to automate the process of concluding, monitoring and executing contracts. This system also provides for automated arbitrage and calculation of payments for gas. The system is completely open to all members of the contracting process. It is fully protected from tampering and unauthorised changes," he said. 

Medvedev said other Russian companies would do well to follow Gazprom's example, including when it comes to contract execution and blockchain, when dealing with a large pool of consumers and standardised services with quality control, mutual obligations and, if necessary, accountability measures. He said: "I believe that this technology has a promising future in our industry and in the activities of companies like Gazprom."