Management Committee reports expenditures to Board of Directors
It was noted that in the previous two years Gazprom had been one of the world's leading companies by net profit and that it was a leader among the international oil and gas majors by profitability.
Practical application of the price formula for pipe products in the first half of 2012 enabled maintaining the pipe prices in the said period at the level of 2011. In the second half of the year the prices decreased by 3 to 4 per cent
The results have been achieved due to the sales growth outrunning the expenditures, taking into account that the Company maintains close control over the operating expenditures. If the factor of an increasing severance tax on subsurface resources production is left out, the growth in the prime cost of gas production between 2009 and 2012 makes up 16 per cent, and in the prime cost of gas transmission net of the purchase cost of process gas – 10 per cent. Meanwhile, the inflation rate in the industry over the said period is estimated at 37 per cent according to the industrial product price growth indices calculated by the Russian Ministry of Economic Development.
The success achieved in control over the expenditures growth rates is to a great extent due to the comprehensive approach taken by Gazprom to expenditures reduction issues, including cost optimization at the budgeting stage, compilation and execution of the cost reduction program, implementation of cost optimization plans in various businesses.
A focus here is placed on restraining the growth in purchase prices for services, materials and equipment, including pipe products. In late 2011 Gazprom and Russian pipe manufacturers agreed on a price formula to be used when making contracts for pipe products supply, primarily large-diameter pipes. Since the first half of 2012 the formula has been applied in practice, enabling to maintain the pipe prices in the said period at the level of 2011. In the second half of the year the prices decreased by 3 to 4 per cent.
An efficient way of costs reduction is the wide use of tenders when selecting suppliers and contractors. Thus, in the first half of 2012 competitive bidding procedures resulted in 5,157 contracts worth RUB 437.95 billion in total. The economic effect, that is the difference between the sum of limit prices and the sum of contracts, including the competitive purchases organization and arrangement costs, amounted to RUB 18.21 billion.