Procurement

Principles and main objectives of procurement activities

The Company conducts procurement activities in accordance with the requirements of Federal Law No. 223‑FZ dated 18 July 2011 “On Procurement of Goods, Work and Services by Certain Types of Legal Entities”, Federal Law No. 135‑FZ dated 26 July 2006 “On Protection of Competition”, and the Uniform Procurement Standard of PJSC RossetiApproved by the decision of the Board of Directors (Minutes No. 604 dated 30 December 2022)..

In 2023, most subsidiaries of PJSC Rosseti joined the new version of the Uniform Procurement Standard of PJSC Rosseti in accordance with Article 2 of the Procurement Law (223‑FZ).

The main objective of procurement activities is to ensure maximum procurement efficiency and obtain the best possible result at the lowest possible cost. In order to achieve this goal, the Company mainly follows a competitive approach in purchasing goods, works and services required for the implementation of the investment programme, maintenance and repair programme and target programmes.

As part of its procurement activities, the Company is also guided by judicial and law enforcement practices, the experience of major customers in the field of government and corporate procurement, the practice of reviewing complaints from participants in procurement procedures by the FAS of Russia and its territorial departments, the Civil Code of the Russian Federation, and a number of resolutions of the Government of the Russian Federation; the complete list is given in Appendix 1.

In addition, the Company’s procurement activities were affected by changes in procurement legislation that took place in 2023.

Methods of procurement

Results of procurement activities in 2023

Based on the results of the 2023 procurement campaign, the Rosseti Group conducted 67,100 procurement procedures totalling RUB 857.0 billion. The volume of competitive procurement procedures totalled RUB 750.4 billion, or 87.6% of the total procurement volume. The economic effect of procurement amounted to RUB 16.0 billion

Information on co‑operation with SMEs for 2023

In accordance with the legislation of the Russian Federation, a mandatory share of purchases from small and medium enterprises (SME) is included in the procurement plan for goods, works, services, including innovative and high‑tech products. Since the start of the regulationResolution of the Government of the Russian Federation No. 1352 dated 11 December 2014. that approved quotas for purchases from SMEs, the Company has regularly exceeded their plan. As part of the core and investment activities of Rosseti, the planned share of purchases from SMEs is at least 20%.

— What kind of relations is built between the Rosseti Group’s companies and representatives of small and medium‑sized enterprises (SMEs)? Were there any recent shifts in the priorities of their relations?

— There have been no fundamental changes. As before, we see SMEs as having great potential for import substitution and technological innovation. Over the past five years, the Rosseti Group’s purchases from this category of suppliers exceeded RUB 1.3 trillion. We are set to bolster our co‑operation.

We are constantly working to make procurement procedures more attractive for SMEs, and are putting our own partnership programme in practice, which has more than a hundred participants. In 2023, we established a coordination council for cooperation in the electric power industry with OPORA RUSSIA. We anticipate that its work will strengthen interaction with SMEs and create an additional platform for information support for entrepreneurs. In particular, we intend to hold joint events to explain legislative regulations, various aspects of industry regulation and procurement activities.

In addition, the Company has an advisory body, the SME Council, which includes representatives of development institutions, industry organisations and associations. Under the SME national project, continuous efforts are made together with JSC SME Corporation to support SMEs. Issues related to ensuring timely payment of fulfilled contractual obligations, consideration of disputable issues related to participation in procurement procedures are promptly resolved.

In accordance with the law “On the Development of Small and Medium Enterprises” and the corporate programme for the development of suppliers, contractors among SMEs approved in 2023, the Company singed agreements with five SME organisations to carry out the activities envisaged by individual development roadmaps. Their ultimate goal is to accelerate the Programme participants — potential and existing suppliers of electrical equipment.

Marat Khanafeev, Deputy General Director for Procurement

Over the past three years, despite the challenging economic conditions brought on by sanctions and restrictive measures imposed by unfriendly countries, Rosseti has maintained its quota of purchases from SMEs within the targets set by the Russian Government: 20% for special tenders and 25% for the total volume of purchases from SMEs.

The Company also approved a list of goods, works and services that are purchased only from SMEs. This list is updated every year to raise the percentage of SME purchases. As of the end of 2023, it contained 137 items.

To enhance the efficiency of PJSC Rosseti’s procurement, the Company has an advisory body, the SME CouncilOrder of PJSC Rosseti No. 93 dated 25 February 2014.. Its tasks include regular interaction with development institutions, organisations, and industry associations to support SMEs and increase the share of purchases from SMEs.

The SME Council includes representatives of PJSC Rosseti, the Chamber of Commerce and Industry of the Russian Federation, the Skolkovo Foundation, the Association of Energy Construction Enterprises, the Directorate for Conformity Assessment and Monitoring of JSC SME Corporation, the Innovation Committee of the National Association of Public Procurement Institutes, the Solovyov Institute of Purchasing and Sales Management, and the Institute of Procurement and Sales Management of NRU HSE, and the Power Engineering Committee of OPORA RUSSIA, an all‑Russian public organisation of small and medium enterprises.

In addition, the Company reaches out to suppliers, contractors and providers who have joined the Partnership Programme between PJSC Rosseti and SMEsOrder of PJSC Rosseti No. 92 dated 25 February 2014.. By the end of 2023, 118 organisations joined the Programme, and their register is available on the Company’s website.

PJSC Rosseti holds annual meetings with major suppliers with an aim to improve cooperation. In particular, in 2023, five suppliers of electrical equipment were selected as part of the SME Development ProgrammeOrder of PJSC Rosseti No. 255 dated 23 June 2023..

As part of the small and medium enterprise and support for individual entrepreneurial initiatives national project, Rosseti makes systematic efforts to support SMEs, including in cooperation with JSC SME CorporationAgreement No. S-180 dated 16 June 2016 between PJSC Rosseti and JSC SME Corporation.:

• To promptly resolve issues of timely payment under contracts
• To review disputable issues related to participation in procurement procedures of customers
• To send presentation materials and proposals of SMEs to the relevant structural units of the technical customer

The effectiveness of such cooperation is evidenced by the stable participation of SMEs in procurement, as well as in the implementation of development and partnership programmes between SMEs and the Rosseti Group.

Import substitution

In light of the risks of sanctions and cyberattacks, the Unified Technical Policy focuses on the use of electrical equipment, systems, devices, components and software from domestic manufacturers and developers, as well as localised equipment from foreign manufacturers.

PJSC Rosseti’s import substitution process is aligned with the Corporate Import Substitution Plan of PJSC RossetiOrder of PJSC Rosseti No. 466 dated 24 October 2023. The Corporate Import Substitution Plan was developed in accordance with the methodological recommendations for the preparation of corporate import substitution plans by state corporations, state companies, joint stock companies with the Russian Federation holding over 50% stake in their authorised capital, and organisations implementing investment projects included in the register of investment projects in accordance with the decision of the Government Commission on Import SubstitutionApproved by Order No. 219R-AU of the MED dated 11 August 2016..

Goals and objectives of PJSC Rosseti’s Corporate Import Substitution Plan:

• To ensure the technological security of the power grid sector of the Russian Federation
• To reduce dependence on foreign products, equipment and technical devices
• To reduce dependence on the services/works of foreign companies and the use of foreign software

The main expected result of the Corporate Import Substitution Plan is an increase in the share of domestic electrical equipment in the total volume of purchases made by PJSC Rosseti.

Measures to support Russian manufacturers

Cooperation with equipment manufacturers covers both the stage of development of new products, and the stage of testing and piloting of electrical equipment at the facilities of PJSC Rosseti and its subsidiaries. Meetings, equipment certification, interaction within CIGRE, etc. are other tools of communication with manufacturers. Scientific and technical institutes and associations are involved, including for the implementation of the equipment import substitution policy. PJSC Rosseti and JSC SVEL Group signed a cooperation agreement in 2023 to localise, promote and develop production of on‑load tap‑changers in the Russian FederationAgreement dated 24 October 2023..

In order to reduce the risks of import dependence on foreign equipment, components, and materials, the Rosseti Group additionally introduced requirements for import substitution and localisation of components in the Russian Federation in 2023 as part of product quality verification (certification). Currently, the reliability of supply chains for equipment, components and materials, the potential for their after‑sale servicing in Russia, and the level of localisation are analysed on a mandatory basis.

In 2023, along with the equipment certification system, a set of criteria was developed for industrial products to classify them as products manufactured in the territory of the Russian Federation. This set of criteria was approved in the form of an organisational standard of PJSC Rosseti “Requirements for Determining the Country of Origin of Products Purchased for the Production Needs of the Rosseti Group. Package of documentation. Standard Requirements” and is aimed at encouraging deeper localisation of products in the Russian Federation.

In addition, PJSC Rosseti is a customer corporation under the Grant Programme for growing technology companies that produce equipment for the Group’s needsPursuant to Resolution of the Government of the Russian Federation No. 392 dated 17 March 2022., under which domestic manufacturers develop import‑substituting high‑tech products that have no counterparts in Russia.

In 2023, PJSC Rosseti backed three projects of domestic equipment manufacturers:

• LLC PLS Technology with the project on development and organisation of full‑scale production of TOPAZ SW industrial network switches (RR and RF design)
• LLC PromEnergo with the project on smart electricity metering devices capable of diagnosing the location of short‑circuit faults in medium‑voltage grids
• LLC ENELT Production Company with the project on production of charging and rectifying devices for operational DC systems with increased efficiency

Transition to Russian software

The Company developed a software import substitution plan and created internal typical standards and policies for equipment and software, with due consideration of various scenarios of use in the Company. Forming a long‑term order for domestic IT infrastructure equipment is currently underway. In‑house testing centres for software solutions are being established.

The Rosseti Group is building an open IT infrastructure that will accelerate software import substitution, reduce the time required to deploy digital solutions, reuse best practices and promote the reliability, security and fault tolerance of IT services.