Supply chain

2018 results

The HSE requirements for potential tender participants were made more stringentAmendments and additions to the Regulations for Tenders for the Selection of Suppliers and Contractors by LUKOIL Group Entities were developed and enacted by Order No. 188 of PJSC LUKOIL dated October 15, 2018. , including introducing a requirement for holding mandatory assessments of subcontracting organizations to this end when granting access to the Company's facilities.

Requirements related to potential tender participants’ fulfilling tax obligations and the tax legislation requirements for tender documentsLikewise. were also made more stringent.

Methodological guidelines for holding a technical audit of contractors at oil and gas extraction and power sector facilities were elaborated.

Methods were elaborated to assess the qualifications of contracting organizations’ personnel to perform technical servicing works and to terminate overhauls at oil-processing, petrochemical, and gas-processing facilities.

Management system

LUKOIL Group entities procure a significant volume of goods, works, and services on an annual basis, and this involves greater and greater numbers of business entities in business relations. LUKOIL's procurement activities assist in preserving and increasing the number of jobs in various sectors of the economy.

Based on the results of 2018, the share of Russian suppliers of centralized material and technical resources stood at 94%, based on the number of suppliers, and 93% based on the total volume of purchases in Russia, corresponding to 2017.

As a part of the development of green procurement practices, we collaborate with a foreign company, which is the world's leading producer of energy efficient pumping equipment.

Selection of suppliers of goods, works, and services

Procurement activities in LUKOIL Group are regulated by internal regulatory acts and applicable laws. The selection of suppliers of goods, works, and services is performed in accordance with the Regulations on Holding Tenders to Select Suppliers and Contractors of LUKOIL Group Entities (hereinafter, the Regulations) and is based on the principles of the competitive, unbiased, and efficient selection of suppliers of goods, works, and services.

Notifications and the information needed by potential tender participants about the conditions of tenders and the procedures for holding them, the requirements for potential tender participants, and the list of documents that need to be submitted, are published on the corporate website of PJSC LUKOIL as well as on the websites of LUKOIL Group entities in the section Tenders.

The regulatory framework governing procurement activities is updated on a regular basis to take into account the latest experience in this area, as well as any amendments to respective Russian laws.

The foreign entities of LUKOIL Group adapt general corporate documents so that they comply with local legislation requirements.

Requirements for fulfilling anti-corruption regulations

Under the Regulations potential tender participants who, directly or indirectly, offer, have given, or agree to give compensation in any form to an employee of PJSC LUKOIL or LUKOIL Group entities cannot be admitted to tenders.

If any such facts are identified, potential tender participants can be classified as bad-faith suppliers of goods, works, and services. The decision to classify a potential tender participant within this category and disqualify it from a tender is made by the Tender Committee or the Procurement Committee of PJSC LUKOIL.

Industrial safety and occupational safety requirements

If the subject matter of the tender requires the need to verify the state of the HSE system of a potential tender participant, experts from PJSC LUKOIL and LUKOIL Group entities perform a comprehensive examination, based on the corporate document "Procedure for Assessing the Health, Safety, and Environment Level of Business Entities Intending to Participate in a Tender".

We pay significant attention to this matterThe corporate standard STO LUKOIL 1.6.5-2016 "HSE Management System. Requirements for Contracting Organizations" is in effect., since the safety level at the Company’s production facilities depends on the actions of both LUKOIL employees and contracting organizations.

In order to minimize manufacturing and professional risks, the procedure for assessing the HSE level of potential tender participantsThe assessment of candidates for contracting organizations is performed in accordance with an internal regulatory document: Appendix 32 to the Regulations for Tenders for Selecting Suppliers and Contractors by LUKOIL Group Entities, approved by a Resolution of the OJSC LUKOIL Management Board dated September 30, 2013 (Minutes No. 19 as amended). comprises:

  • Determining compliance between the potential tender participant's management systems and the following requirements:
    • the international standards OHSAS 18001:2007 "Occupational Health and Safety Management System. Requirements" and ISO 14001:2004 "Environmental Management Systems. Requirements with Guidance for Use"
    • the laws of the Russian Federation
    • the bylaws of PJSC LUKOIL
  • Ascertaining whether potential tender participants possess necessary licenses and whether their employees have the necessary level of qualifications, personal protective equipment, and technical abilities and technologies.

During assessments the following indicators are taken into account: the occurrence of accidents and fatal accidents; the number of breakdowns and accidents over the past three years; confirmations that trainings have been completed; and knowledge testing. Potential tender participants also provide social information, in particular related to observing the working hour requirements of their employees.

If it is discovered during comprehensive assessments that a supplier has not complied with respective corporate requirements, they are not admitted to the respective tender.

For certain types of procurement, technical audits of potential tender participants are carried out, with mandatory assessments of the suitability of potential tender participants' employees to perform scheduled works at facilities of LUKOIL Group entities.

91.6% of tender participants for whom HSE assessments were prescribed successfully passed the comprehensive assessment procedure, and 145 applications were rejected in 2018.

Interaction in the course of fulfilling contractual obligations

A contract is entered into with the organization that wins the tender; this, together with the requirements of applicable legislation, regulate the interactions of both parties. In otherwise equal conditions, when selecting suppliers, preference is, however, given to domestic manufacturers

Under the terms and conditions of agreements to supply goods/ works/services, all suppliers and contractors undertake to adhere to the requirements of current laws, as well as those of the Policy of PJSC LUKOIL in the area of occupational health, safety and environment in the 21st century. The following obligatory requirements form integral parts of the agreements:

  • Undergoing introductory / initial workplace briefings before contractors begin the performance of works / provide services at LUKOIL Group entity facilities, the availability of personal protective equipment in accordance with the nature of the work being performed, confirming that suppliers / contractors have appropriate first-aid skills.
  • Immediate notifications to the customer of works or services about all accidents that have taken place during performance of work.
  • Prohibiting the unauthorized accumulation and placement of waste, the discharge of wastewater (liquid waste) and chemicals, the discharge of pollutants into ambient air, or the contamination of soil with chemicals while performing works at LUKOIL Group entity facilities.

The Company monitors the operations of contracting organizations for compliance with the above requirements.