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Supply chain

Every year entities of the LUKOIL Group purchase considerable volumes of goods, work and services thus doing business with many companies. The procurement activities of LUKOIL contribute to maintaining existing jobs and creating new ones in various sectors of economy. The Company develops the practice of "green procurement" in cooperation with the leading manufacturers of modern energy saving equipment. At the same time, LUKOIL also acts as supplier of products for a wide range of consumers in many countries and industries. The Company has adopted a comprehensive approach to quality management covering all stages all the way from plant to consumer. 

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 in this category and disqualify it from a tender is made by the Tender Committee or the Procurement Committee of PJSC LUKOIL.

Contractors are selected in accordance with the corporate standard which applies to contracts for work/services provided by contractors at facilities of LUKOIL Group entities.

When engaging contractors for work/services the Company pursues a comprehensive approach to make sure that contractors perform their work/provide services in a quality and timely manner and comply with the applicable legal and other requirements.

When performing their contractual obligations contractors can attract subcontractors and in this case coordinate their activities and control the quality of their work or services.  Contractors must agree with the Company on their subcontractors, technology and equipment that they will use, and obtain a written approval from the Company. Subcontractors may not involve any third parties in performing work/providing services under subcontracts.   

The Company attributes a certain class of HSE importance to every contract depending on the contractor's impact on HSE performance of the LUKOIL Group entity. 

A contractor is recognized the key one for the entity of the LUKOIL Group if the nature or the scale of its activities has or potentially can have a considerable impact on the safe operation of facilities, health of employees as well as the environment  in the work area.

Jointly with its key contractors, LUKOIL prepares and approves the HSE Engagement Plan, which, among other things, provides for the following:

  •  holding safety leadership visits, checking  on the contractor's HSE management and knowledge systems; 

  •  holding HSE meetings and Safety Days;

  • controlling the contractor's participation in emergency response drills on hazardous production facilities of the customer.

 

Representatives of contractors take part in Safety Days, can adopt advanced methods of work and present their best practices.

The procurement activities of the LUKOIL Group are governed by internal regulations of the Company and the effective applicable legislation. The regulatory framework is under continuous improvement to reflect the accumulated experience and the effective applicable legislation of the Russian Federation, other countries where the Company operates and requirements of international laws.

Suppliers of goods and services are selected in accordance with requirements of the Corporate Regulation on Tenders for Selecting Goods and Service Suppliers by LUKOIL Group Entities and based on principles of the competitive, impartial and effective selection of suppliers.  As a rule, goods, work and services are procured through open tenders which include a competitive public bidding process on the subject of the tender.

Invitations to tender, information which potential bidders may need about the terms and the process of bidding and the list of documents to be provided by bidders is published on the website of PJSC LUKOIL and entities of the LUKOIL Group in the dedicated section on tenders.

The Company uses the following criteria to manage operating and professional risks related to the selection of suppliers:

  • criteria for evaluating the technical part of tender proposals, including checking on the bidder's reliability and experience as well as the conformance of goods with technical requirements;

  • criteria for evaluating the technical part of tender proposals, including  their competitiveness.

  • Due Diligence

    Based on the due diligence principle, a dedicated system is in place (Integrity Due Diligence) for monitoring the reliability of suppliers to reduce tax, commercial and reputational risks related to the conclusion and performance of contracts for goods, work and services.  The system helps to check bidders and monitor the reliability of companies concluding contracts with entities of the Group. A model was developed to calculate the reliability index on the basis of 62 risk indicators. 

    Corporate security, tax and legal divisions play a major role in the integrity due diligence process. The internal audit division carries out the due diligence of winning bidders on a sample basis.

  • Anti-Corruption Compliance Requirements

    In accordance with the Regulation, potential bidders that directly or indirectly offer, have given or agree to give any consideration of any form to an employee of PJSC LUKOIL or entities of the LUKOIL Group are banned from tenders.

    Potential bidders for which such facts were established are put on the black list of suppliers. The decision on blacklisting and banning suppliers from bidding is made by the Tender Committee of PJSC LUKOIL or the Procurement Commission of PJSC LUKOIL.  

  • HSE Requirements

    The Company has a system in place to assess the level of HSE  systems of potential bidders.  The system is described in corporate standard "Assessment of the HSE Level of Potential Bidders". The procedure applies to cases where the subject of the tender requires checking the state of bidder's HSE management systems.

    The procedure includes the following:

    • checking the compliance of bidder's management systems with the following requirements:

      • international standards ISO 45001 and ISO 14001,

      • legislation of the Russian Federation,

      • internal regulations of PJSC LUKOIL;

    • checking that potential bidders have necessary licenses, workers of required qualifications, personal protection equipment, technical capacity and technology.

      The assessment takes into consideration, among other things, the following indicators: number of workplace accidents and fatal work injuries, number of accidents and incidents over the past three years, confirmation of training and skill tests.    

      As part of the tender process, potential bidders also provide information about social aspects, such as observance of the work and rest schedule for their employees, provision of accommodation for personnel and social services. 

      Respective questions are included into the Bidder Qualification Questionnaire to assess the bidder's compliance with PJSC LUKOIL HSE requirements.  On the basis of the information contained in the Bidder Qualification Questionnaire, experts of PJSC LUKOIL and entities of the LUKOIL Group assess the level of HSE of potential bidders.

      Potential bidders with respect to which any nonconformance with the corporate requirements was founs during the assessment, are not allowed to take part in tenders.

      For certain types of procurement contracts technical audits of potential bidders are carried out that include the assessment as to whether the bidder's employees have sufficient qualification to perform the planned work at facilities of LUKOIL Group entities. 

  • Informing Suppliers of the Company's Position on Human Rights

    When concluding contracts with partners LUKOIL always informs them of the high corporate requirements to the ethical business conduct and respect for human rights and urges them to follow such requirements making it a condition of the long-term cooperation. Contractors are strongly suggested to familiarize themselves with LUKOIL's Code of Business Conduct and Ethics which describes the Company's position on respect for human rights. 

The Company concludes with the winning bidder a contract which, along with the requirements of the legislation, regulates relations between the two parties. With all other things being equal, the preference is given to Russian manufacturers.  

Contracts concluded with contractors for work/services establish HSE requirements which must be observed by contractors.

According to provisions of contracts all suppliers and contractors undertake to comply with requirements of the effective legislation as well as requirements set forth in the PJSC LUKOIL Policy for HSE in the 21st Century and corporate standards and acknowledge it in writing.

The contractor must comply with the following requirements that make an integral part of the contract (as attachment to it):

  • pass the workplace safety induction and training before contractors proceed to work/provision of services at facilities of LUKOIL Group entities, have personal protection equipment appropriate for the nature of their work and confirm their first aid skills;

  • inform the customer of work or services immediately of all accidents that take place in the work area;

  • unsanctioned accumulation and disposal of waste; discharge of sewage water  (liquid waste) and chemical substances; polluting emissions; chemical contamination of soil while performing work at facilities of LUKOIL Group entities are prohibited.

Contracts include provisions imposing penalties for the failure to fulfill or the improper fulfillment of HSE obligations.

Failure by a contractor to fulfill its obligations to comply with legal and other HSE requirements makes a basis for terminating the contract with such a contractor.

  • Admitting Contractors to Work

    The Company controls activities of contractors for their compliance with the above requirements at all stages of their work or services. 

    Package of Documents

    Any contractor provides a respective package of documents to be admitted to work at facilities of the Company.

    Contractor employees must have documents confirming that they have received training, passed HSE knowledge tests and obtained permit to work for the respective profession or type of work as well as documents confirming that they have attended a medical examination and  have no medical contraindications to work. At the customer's request the contractor provides the above documents for all employees (including subcontractor employees) assigned to perform work/provide services.  

  • Mandatory HSE Induction

    An induction training is arranged for contractor personnel admitted to the premises of LUKOIL Group entities to familiarize them with:

    - PJSC LUKOIL Policy for HSE in the 21st Century, its major points and sections;

    - internal labor rules and regulations of the respective entity of the LUKOIL Group;

    - rules of admittance to and behavior in the premises of the respective entity of the LUKOIL Group;  

    - general safety rules and requirements, including Key Safety Rules;

    - special considerations related to technologies and equipment used in the respective entity of the LUKOIL Group;

    - characteristics of main workplace hazards of the respective entity of the LUKOIL Group;

    - indicator species of flora and fauna which the customer monitors under the Biodiversity Conservation Program/Biodiversity Conservation Action Plan, rules of behavior in case of an encounter with them and making respective records (if any);

    - HSE risks and material environmental aspects of the respective entity of the LUKOIL Group;

    - information about working conditions, workplace injuries and occupational morbidity in the respective entity of the LUKOIL Group;

    - list of violations of HSE requirements by contractors performing work/providing of services at facilities of a LUKOIL Group entity and liability for the violation HSE requirements. 

    The HSE induction for contractor employees is based on the respective program. Following each induction, a record is made in the HSE induction log and employees pass a quick oral test.    

  • Workplace Induction

    To be admitted to work contractor employees, irrespective of their qualifications and work experience, must take a respective workplace induction to familiarize themselves with the nature of operations, related risks, safe methods and techniques of work and possible evacuation routes in case of an emergency. 

While performing work/providing services at facilities of LUKOIL Group entities, contractors must:

–       perform work in accordance with design documentation, process regulations, federal and regional environmental legislation and mandatory environmental protection requirements which were adopted by PJSC LUKOIL and other entities of the LUKOIL Group and of which the contractor was informed during the induction training;

–       take measures to prevent the potential negative impact on the environment;

–       eliminate all damage of environmental incidents (accidents, incidents, near-misses) taking place through the contractor's fault;

–       if any environmental damage is caused through the contractor's fault, compensate the customer for any related losses; 

–       inform the customer of any situations where the environmental legislation was violated during works immediately after such a violation was detected.

Contractors must immediately (but no later than two hours after the occurrence of an incident) inform the customer of any HSE incidents.

While working on the premises of LUKOIL Group entities employees of contractors must:

–       observe the Key Safety Rules, legislative and other HSE requirements while on the on the premises of LUKOIL Group entities;

–       perform work in accordance with safety rules;

–       maintain equipment in a good working condition, keep the workplace and the premises of LUKOIL Group entities clean and in order, use feedstock, materials, energy, fuel and other resources in an efficient and rational manner;

–       take measures to eliminate immediately any reasons and conditions preventing or hampering the safe execution of work or threatening personnel's life and health;

–       immediately inform their immediate supervisor of any HSE incident; 

–       participate in accident containment action in accordance with standard procedures.

While working in the premises of LUKOIL Group entities contractors must also control the compliance of their employees and employees of their subcontractors with legislative and other HSE requirements.

LUKOIL constantly monitors compliance of contractors with design documentation, action plans, health, safety and environmental protection requirements. Engaging in-house and outsourced supervisors, who act as the Company's authorized representatives, the Company conducts in-process monitoring that includes field audits and on-site inspections. To increase the quality and integrity of these audits, the Company has developed checklists that cover the whole scope of audited components, ranging from record maintenance to quality and safety compliance. 

 

LUKOIL has also started to introduce ranking techniques to appraise well construction and workover companies against various criteria, including quality of operations, accidents-at-work statistics and delivery of plans.

Contracts with contracting companies envisage penalties for violations of HSE requirements. 

The Company regularly analyzes HSE compliance audit findings and performance against HSE Engagement Plan, applied to major contractors.

An authorized representative of LUKOIL Group's management in charge of HSE compliance and heads of contracting companies

–       review contractors' HSE compliance audit findings;

–       review HSE bottlenecks, consider how to resolve these bottlenecks and discuss steps forward to deliver health, safety and environmental protection;

–       hear status reports on penalties, imposed on contracting companies;

–       hear reports of heads of contracting companies that failed to deter accidents, and review measures to prevent  them in future and ensure HSE compliance of contracting companies; 

–       decide on the termination of contracts with contractors who acted in breach of HSE requirements and thus created conditions that could endanger health or life of employees or result in an HSE accident.

The HSE compliance, a mandatory provision of any contract with contracting and subcontracting companies, serves as an estimate factor in the appraisal of performance of LUKOIL Group companies heads against HSE key production indicators. For instance, the HSE compliance appraisal factors in

  • the number of fatalities among employees contracting/service or subcontracting companies during their operations at LUKOIL Group's facilities;

  • emergencies, accidents or near-accidents, resulting in significant damage to property and idle time.