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

Taking part in the meeting were Members of the Gazprom Management Committee, heads of the Company's specialized subdivisions and subsidiaries, 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, Andrey Komarov, a shareholder of Chelyabinsk Tube Rolling Plant and Alexey Mordashov, Director General of Severstal.

It was noted during the meeting that in 2010 Gazprom had managed to retain the pipe products purchase prices at the level of 2009. In particular, this has become possible due to the payment system streamlining and a significant increase in the scope of orders.

The meeting participants stressed that Gazprom was taking stagewise actions to optimize the pipe products purchasing costs. For instance, Gazprom annually scales down the procurement of imported large-diameter pipes through the cooperation with leading domestic producers. Between 2003 and 2009 the share of imported products was reduced by the Company from 48 to 5 per cent.

Optimization of order placement deadlines is another important way of reducing the pipe purchase costs. Thus, early placement of pipe purchase orders within the Sakhalin – Khabarovsk – Vladivostok gas trunkline project allowed fixing the price that later on was lower than the similar product prices of 2010.

In the course of the meeting the parties addressed further steps in this direction, which involve streamlining the order planning and placement system (both for the next year and mid-term three-year period), pipe products specifications, transport and logistics schemes optimization with due account for location of pipe plants and facilities under construction. The meeting also highlighted it was important for domestic metallurgical plants to develop production of broad sheets and weldless pipes with premium threads.

“Gazprom expands eastwards. The gas industry saw nearly no development here until recently and the infrastructure is to be created almost from the ground up. The scale of the forthcoming construction activity is tremendous. Therefore, the focus of our investment activity is moving to eastern regions of the country. To this regard, prime cost optimization – for pipes and logistics – is of crucial importance to us,” Alexey Miller said.

Based on the meeting results, Gazprom's specialized subdivisions and subsidiary companies were tasked to further optimize the pipe products cost. In particular, the product supply volumes are to be specified by February 11, 2011 for the key 2012–2013 capital construction facilities. This approach will contribute to signing long-term contracts between Gazprom and pipe producers in the future.

Background:

In 2009 centralized supplies of pipe products amounted to 884 thousand tons, including 844 thousand tons of large-diameter pipes with 1,325 and 1,277 million tons scheduled for 2010 respectively.

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