Procurement Activity

• 8.1 Company Policy for Procurement Activities
• 8.2 Indicators of the Annual Overall Procurement Program
• 8.3 E-commerce Implementation

Indicators of the Annual Overall Procurement Program

A total of 872 purchases for the amount of RUR 25,365,057 mln with VAT included have been implemented with selection of a winner.

The annual overall procurement program includes all procurement of goods and contractors’ services, which cost exceeds RUR 500,000 (net of VAT).

The AOPP form has been approved by the Regulations on the procedure for regulated procurements of goods, works and services for the needs of JSC "Lenenergo" and consists of 8 sections:

• New building and expansion of power network objects,
• Modernization and technical re-equipment of power network objects,
• Power facilities repair and technical maintenance,
• IT procurements,
• Research and Development,
• Consulting services,
• Services of appraisers,
• Other purchases.

The ways of procurement of goods and contractors’ services for all AOPP sections are defined depending on cost value of each procurement, and are performed as follows:

• open tender,
• open request for proposals,
• open request for prices,
• open auction,
• open competitive negotiations,
• purchase from the single source.

Open competitive methods of selection of Commodities and Materials vendors and contractors (open tenders, open requests for proposals, open competitive negotiations) are used in the purchasing process directly. Purchase from the single source is used to select contractors for elimination of the occurred emergency situations provided that the volume of the purchased production is no more than the sufficient one to prevent an emergency situation or eliminate the results of its consequences and if necessary to replenish the specified norms of emergency resources. The method of purchase from the single source is also used when the purchase is done from the organizations which provide their services on the market in a monopolistic way.

In the course of tender procedures the applicable methods of procurement are defined in accordance with the Regulations on the procedure for regulated purchase of goods, works and services for the needs of JSC "Lenenergo".:

• Procurement method "Open tender", selection criterion – purchase cost exceeds RUR 5,000,000, net of VAT;
• Procurement method "Open request for proposals", selection criterion – purchase cost is less than RUR 5,000,000, net of VAT, or there is no time to hold an "Open tender", or it is unreasonable to hold it due to any other solid reasons.

The information on holding of tender procurement procedures is available at 3 public sources: official website of JSC "Lenenergo", section “Procurement” - www.lenenergo.ru, there one find the text of the Regulations of the procedure for regulated procurements of goods, works and services for the needs of JSC "Lenenergo" and the Annual Comprehensive Procurement Program for the current year and two preceding years, on the electronic trading platform www.b2b-mrsk.ru, and in "Delovoy Petersburg" newspaper.

The Annual Overall Procurement Program is developed and approved on the basis of the Regulations on approval of the Annual Overall Procurement Program, approved by the Order No.356 of JSC "Lenenergo" as of 17.08.2009. This regulation includes the following:

• AOPP is developed on the basis of the programs, which define production activity of the Company: production program (including all procurements, which form the estimate of costs for manufacture and sales of goods (services) from the principal activities provided by the format of the business plan);
• the address program on repairs, the investment program;
• coordinated in specified timeframes with JSC "IDGC Holding";
• approved by the Board of Directors of the Company.

After approval by the Board of Directors, the AOPP is uploaded to the website of JSC "Lenenergo" (www.lenenergo.ru), section "Procurement", and on the electronic trading platform www.b2b-mrsk.ru within 7 days in accordance with the Regulation on the procedure for regulated procurements of goods, works and services for the needs of JSC "Lenenergo".

The information on inclusion of procurements to AOPP is delivered to the Logistics and Purchasing Department from the core divisions (Centers of financial responsibility) of JSC "Lenenergo" and from 8 branches of JSC "Lenenergo".

AOPP is implemented by corresponding procurement activities within the time planned in this AOPP. During the AOPP implementation it is allowed to adjust it:

• according to the results of electricity rates proof in the government regulatory bodies;
• due to adjustments of the Company’s business plan parameters;
• according to the results of formation of the Company’s demand for the next year’s production. This demand is achieved by competitive procedures in quarters 3 - 4 of the current year.

According to results of procurement activities of the Company, Logistics and Purchasing Departments create quarterly reports in accordance with forms approved by JSC "IDGC Holding". In accordance with the same forms JSC "Lenenergo" Director General makes quarterly and annual reports to the Board of Directors of the Company.

General Director quarterly reports are approved by the Board of Directors of the Company: for quarter 1 and 2 of 2010 – Minutes No.9 as of 29.10.2010, for 9 months 2010 – Minutes No.13 as of 04.02.2011, following the results of 2010 and for 4 quarter are agreed with JSC "IDGC Holding".