The Gazprom headquarters hosted a meeting moderated by Alexey Miller, Chairman of the Company's Management Committee and devoted to pipe products cost optimization and organization of their deliveries.

Taking part in the meeting were Members of the Gazprom Management Committee, heads of the Company's specialized subdivisions and subsidiaries as well as Ivan Shabalov, Chairman of the Pipe Producers Association Coordinating Council, Anatoly Sedykh, Chairman of the United Metallurgical Company Board of Directors, Dmitry Pumpyansky, Chairman of the Pipe Metallurgical Company Board of Directors, Viktor Rashnikov, Chairman of the Magnitogorsk Iron and Steel Works Board of Directors, Eduard Potapov, CEO of Metalloinvest Management Company, Andrey Komarov, a shareholder of Chelyabinsk Pipe Rolling Plant and Dmitry Goroshkov, Sales Director of Severstal's Cherepovets Metallurgical Works.

The meeting participants highlighted a significant growth in Gazprom's demand for pipes, primarily of a large diameter. In 2010 centralized supplies of pipe products nearly reached a quarter excess of the planned volumes making up 1.65 million tons including 1.5 million tons of large diameter pipes (versus 1.277 million tons planned). This year Gazprom is planning to acquire up to 1.5 million tons of pipe products under centralized supplies while since the start of 2011 the monthly volume of the pipe products delivered to the construction sites of Gazprom has reached its record level of 200 thousand tons.

The scale of construction operations performed by Gazprom imposes specific requirements for pipe products cost optimization. Gazprom takes steady efforts in this direction. Thus, in 2010 and in the first quarter of 2011 Gazprom managed to generally keep the prices for the purchased pipe products at the level of 2009.

“We are facing the need for fundamental changes in the principles of interaction between pipe products producers and consumers. It is obviously inconvenient for everyone to continue working under short-term contracts. It is time to elaborate conditionsfor long-term contracts using a price formula that would objectively reflect the economics of the main industrial sectors. This will finally allow the supplier and the customer to accurately plan their expenses, develop businesses and arrange logistics,” Alexey Miller stressed.

Gazprom's specialized subdivisions were tasked to prepare their proposals before November 1, 2011 on the opportunity for the price formula utilization when signing long-term contracts to supply pipe products. In addition, updated schedules will be developed this year for pipe supplies to the Company's major capital construction sites with Gazprom's 2012 demand for pipe products determined as well.

Background

Gazprom has the following top-priority gas transmission projects in Russia: construction of the Bovanenkovo – Ukhta gas trunkline system, the Sakhalin – Khabarovsk – Vladivostok gas transmission system, the Gryazovets – Vyborg, Pochinki – Gryazovets, Zapolyarnoye – Urengoy and Dzhubga – Lazarevskoye – Sochi gas pipelines.

Gazprom's major suppliers of pipe products are the United Metallurgical Company, the Pipe Metallurgical Company, Chelyabinsk Pipe Rolling Plant and Severstal.