Procurement Activities

Basic documents of TVEL JSC and its SA that regulate procurement activities and set the supplier and contractor selection criteria are:

• Unified Industrial Procurement Standard of the ROSATOM State Corporation (“the UIPS”);
• TVEL JSC Corporate Standard Procurement Process.

Procurement procedures are implemented using the following electronic platforms: EETP JSC, Fabrikant LLC and A-K-D LLC. This approach to procurement management promotes its openness and transparency, and saves labor and financial resources.

Procurement procedures based on free competition saved TVEL FC in 2013 approx. RUB 2,534.2 mln.

Dynamics of key indicators of efficiency of TVEL FC procurement activities is shown in Table 11 below.

Over 90% of competitive procurement procedures are carried out at electronic trading platforms.

Dynamics seen in the Table above indicates the enhanced efficiency of procurement management and transparency of procedures. Efficient interaction with suppliers reduces the risk of corruption, fraud and purchase of substandard quality products.

Pursuant to TVEL JSC Procurement Standards, the Company may not provide any preferences to the suppliers on a territorial basis. Local suppliers participate in competitive procedures on a common basis and are subject to no special approach of any kind. The exception is only envisaged for outsourcing companies founded during the restructuring of the Fuel Company (TVEL FC guarantees certain volumes of orders over a period of five years). To this effect, 75% of orders in 2013 were guaranteed to enterprises comprising TVEL FC and 25% to open tenders; starting in 2014, the proportion will change from 60% -40% to 50%-50% and to 25%-75% every year.

Some of the key suppliers and contractors of TVEL FC enjoy monopolist position on the market* Analytical capacity of the system is not sufficient for estimates. . Under the TVEL JSC Procurement Standards, procurement procedures with such contractors are implemented without announcement of any tender (for entities representing natural monopolies) and through the “Procurement from Sole Supplier” procedure.

TVEL FC supports, respects and protects basic human rights and builds its external business relationship on the principles of honesty, integrity and openness.

At the discretion of the suppliers, the competitive procedures may have no provisions that are potentially detrimental to human rights. The Company also keeps any such provisions from its contracts and agreements. Since there are no regulatory requirements, the suppliers and contractors are subject to no assessment for their respect of human rights but all contracts are checked for compliance with applicable laws of the Russian Federation which implies human rights compliance check. All enterprises comprising the Fuel Company have the all obligatory organizational structure and resources for performance of procurement in accordance with the с UIPS.

Since 2013, all enterprises comprising the Fuel Company place their competitive bids by means of an integrated solution of the centralized procurement system EOSZa kupki Rosatom (SAP SRM), online trade platforms and the official Website of the ROSATOM State Corporation http://zakupki.rosatom.ru/.

Over the year of report, Commercial Center JSC (CC JSC)* CC JSC is an SA of TVEL JSC specifically assigned to implement procurement procedures. upgraded its Website by adding a function that allows the potential participants, subject to their prior registration, to receive personal invitations to participate in procurement procedures involving the lots of their interest.

Enterprises covered by Federal Law No. 223­FZ “On Procurement of Goods, Works and Services by Certain Legal Enti- ties” are required to publish the procurement information in the integrated information system of the Russian Federation http://zakupki.gov.ru/.

In September 2012, TVEL JSC appointed an arbitration committee that is competent to study complaints against actions (or omission thereof) of the customer, competent authority, procurement manager and/or procurement commission during the implementation of procurement procedures in the interest of organizations governed by TVEL FC.

Over the period of report, 156 complaints were submitted to the arbitration committee with respect to procurement procedures to the amount of RUB 2,274.28 m, of which: 39.8% were found to be without merit; 13.1% — valid; 7.8% — partially valid; 19.6% — revoked by the petitioner; and 19.7% tabled by reason of wrong jurisdiction and other technicalities (wrong procedure, form and terms of filing).

On January 1, 2013, acting in compliance with procurement procedure decentralization policy, TVEL FC set specific limits: subsidiaries and affiliates may engage in procurements to the amount up to RUB 5 mln.; CC JSC shall be responsible for procurement within the range of RUB 5 mln. to RUB 100 mln.; whereas procurement to the amount exceeding RUB 100 mln. shall be within the competence of Atomkomplekt JSC* Atomkomplekt JSC is one of the SA of ROSATOM State Corporation. .

To streamline the decentralized procurement, a number of measures were taken, including:

• personnel recruitment and training;
• setting the structure of supervisory bodies;
• enhancement of asset protection; and
• integration of information systems.

In furtherance of the roadmap “Streamlined Admittance of Small and Mid­sized Businesses to Procurements by Infrastructural Monopolies and Government-linked Companies”, approved by Decree of the Government of the Russian Federation No. 867-r dated on May 29, 2013, TVEL JSC developed a plan to facilitate participation of small and mid- sized businesses in competitive procedures of TVEL FC. Implementation of the plan will commence following the approval of regulatory legal acts applicable the roadmap.

Project “FC Logistics Management System Optimization” started late in 2013.

Purpose of a project:

• introduction of category management* Category management as it pertains to procurement means the operations plan to promote efficient management of procurement, supplies, stock and interaction with suppliers of each specifi c category of purchased products. By introducing the category management, TVEL FC intends to minimize involvement of go-between companies and to enter into long-term contracts directly with manufacturers. in TVEL FC;
• reduction of stock at the warehouses of companies comprising the Fuel Company (optimization of uncalled stock and reduction of their level at the enterprises);
• optimization of warehouse infrastructure and material flows (optimization of material flows both in the internal logistics scheme of the enterprises, between the enterprises comprising TVEL FC and between enterprises of various divisions of the ROSATOM State Corporation).

Implementation of the project will continue until 2016.