The Gazprom Board of Directors took notice of the information about the cost optimization (reduction) trends across Gazprom Group in 2016.
It was highlighted that Gazprom pursued the consistent policy of improving the cost management practices, reducing operating costs and maximizing the value for money ratio. In an unstable economic environment this work is highly relevant, therefore Gazprom is using all possible means and exploring new opportunities for further cost optimization.
The cost optimization strategy is focused around several key areas: generation of the Investment Program and the Budget, development and execution of the cost reduction program, implementation of cost optimization plans by types of activity and procurement of goods, works, and services.
At the budgeting stage, Gazprom optimizes a number of expenditure items by using a standard setting approach, determining specific cost parameters and finding the best deals on the market. The costs are ranked according to the level of significance for performing the current activities and unconditionally fulfilling all the obligations. In respect of the Investment Program preparation, the projects are divided by the degree of priority for achieving the Company's strategic goals and meeting peak demand during the autumn-winter period.
Moreover, the Company annually approves the Cost Optimization (Reduction) Program which defines additional cost reduction provisions for specific areas of the operating, investment and financial activities.
This approach enables Gazprom to respond to adverse changes in the economic conditions and ensures sufficient flexibility in implementing all major projects of the Company.
Gazprom also carries out a comprehensive action plan to optimize costs in individual lines of business. It contains a list of practical measures for reducing the current investment, managerial and other costs. The most important ones are cutting down the expenses on the supply of goods, execution of works and rendering of services for Gazprom Group, as well as regulating prices for purchased materials and equipment.
A significant economic effect is achieved through planning and centralized procurement. In its procurement strategy Gazprom follows a number of fundamental principles, such as meeting the Company's demand for goods (works, services) having the required price, quality and reliability parameters, achieving value-for-money for goods (works and services) and ensuring the transparency of purchases.
Stringent control is maintained at every stage of competitive procedures – from the confirmation of the need to make a purchase and the control of its initial (maximum) price to the decision making about the final cost of procured goods (works and services). The procurement results are taken into account later when Gazprom Group companies draw up and adjust their budgets, while the performance of the signed contracts is thoroughly monitored.
Gazprom seeks to further improve its cost optimization measures with due account for the best practices in this area.
The Management Committee was tasked to continue with the cost optimization (reduction) efforts this year.