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2007

MOL Group Procurement and Suppliers

Csaba Kiss, MOL GCPO

Budapest, November 14, 2007

MOL Supplier Forum

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Agenda

• Intro• Why do we need Supplier Forum?• Procurement in MOL Group• Challenges & Tasks• Inner programs - External factors• Supplier Relationship(s)

MOL Supplier Forum 2007

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Why do we need Supplier Forum?

• to meet You at least once a year in a relaxed atmosphere,

• to inform You about programs, initiatives and changes in our company,

• to let You know the tasks and challenges we are facing,

• to listen to Your issues, challenges and requests,• and last, but not least to award the best performers…

MOL Supplier Forum 2007

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Total spend(2006)

Yearly Procurement Spend Pattern (2006)

Including MOL, SN, TVK, US and Integrated SSC (percent)

Energy

24%PP

21%MMS*

19%US

16% PR

10% CSP

9% GMC1%

OPEX (69%)

CAPEX (31%)

EnergyEnergyCSPCSP – Corp.Serv. ProcurementGMCGMC – Gen.Mat. & CommunicatonsMMSMMS – Maintenace Mat. & ServicesPRPR – Production MaterialsPPPP – Project ProcurementUSUS – Upstream Procurement

* MMS* MMS including integrated SSC spend

2007MOL Supplier Forum

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MOL Group Procurement – Location & Staff

2007MOL Supplier Forum

KazakhstanKazakhstan

RussiaRussia (2) (2)

PakistanPakistan

OmanOman

YemenYemen

(1)(1)

(1)(1)

Sum: 176 FTESum: 176 FTE

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Challanges / Tasks – Inner drivers – Strategic partnership

Challanges& Tasks

Inner DriversSupplier

relationship

Hydrocrack

Energy

Bio-fuels

UGGS

UGGS - Underground Strategic Gas Storage Project

2007MOL Supplier Forum

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Challenges & Tasks

• Electricity: Electricity: – Prices increased cca. 30% according to previous year (base load product)

• Bio-fuelsBio-fuels (bio-diesel, bio-etanol):– EU & Hungarian Government regulation on application of renewable energy

sources (plus better excise tax judgment):• From July 01, 2007 4,4 v% bio-ethanol4,4 v% bio-ethanol in gasoil (benzin)• From January 01, 2008 4,4 v% bio-diesel4,4 v% bio-diesel in diesel

• Danube Refinery new Hydrocrack plantdrocrack plant (Project budget cca. 80 Bn HUF)– Capacity enlarging (plus 600 kT crude – from present 7.6 to 8.3 Million tons per

year)– Increasing of „White product” proportion (plus 1.3 Million tons diesel per year)– Connecting new plants (Hydrogen plant, Desulphurization plant, etc.) – Reconstruction of related plants (ie.: Delayed Coker)

• Underground Strategic Gas Storage Project (UGGS) (Project budget 66.5 Bn HUF)

– Compressors (Beregdaróc, Hajdúszoboszló) – 7.6 Bn HUF– Coated pipeline (5 km DN1400, 194,5 km DN1000) – 20 Bn HUF– Engineering, procurement & construction – 38.9 Bn HUF)

2007MOL Supplier Forum

Suppliesongoing

UnderConstruction

To be completedBy 2010

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Challanges / Tasks – Inner drivers – Supplier relationship

Inner DriversSupplier

relationshipChallanges

& Tasks

Hydrocrack

Electricity

Bio-fuels

USGS

USGS - Underground Strategic Gas Storage Project

Contractor safety

Code of Ethics

IBI

PRP

IBI – IntegratedProcurement Regulation

PRP – ProcurementRedesign Project - Category Management

2007MOL Supplier Forum

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1. Selection1. Selection

New approach of Supplier Relationship

CCompetitionompetition

VisibilityVisibility / /TransparencyTransparency

ComplexComplexevaluationevaluation

Equal chancesEqual chances

Integrated ProcurementIntegrated ProcurementRegulationsRegulations (IBI) (IBI)(MOL Group level rules)

2. 2. Partnership Partnership

Common benefitsCommon benefits

SustainableSustainabledevelopmentdevelopment

Different level ofDifferent level ofSupplier RelationshipSupplier Relationship

IntegrityIntegrity

Supplier Relationship levelsSupplier Relationship levels

2007

InvoicingInvoicing GoodsGoods ReceiptReceipt ProcurementProcurement ContractingContracting SourcingSourcingRequestRequest

MOL Supplier Forum

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PRP – Procurement Redesign Project

SRM = Supplier Relationship ManagementSRM = Supplier Relationship Management

CategoryCategoryManagementManagement

CompetencyCompetency DevelopmentDevelopment

SystemSystem(SRM*)(SRM*)

Business requirements,Business requirements,Value driversValue drivers

Leadership, people andLeadership, people andBehavioral ImplicationsBehavioral Implications

OperationalisingOperationalisingStrategic SRMStrategic SRM

Different typesDifferent typesof Relationshipof RelationshipManagementManagement

New approaches of Supplier Relationship:New approaches of Supplier Relationship:

Invoicing Goods

Receipt Procurement Contracting SourcingRequest

Procurement Redesign:Procurement Redesign:

2007MOL Supplier Forum

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Challanges / Tasks – Inner drivers – Strategic partnership

Challanges& Tasks

Inner DriversSupplier

relationship

Hydrocrack

Electricity

Bio-fuels

USGS

USGS - Underground Strategic Gas Storage Project

Contractor safety

Code of Ethics

IBI

PRP

IBI – IntegratedProcurement Regulation

New approachesof Supplier Relationship

The „soft” drivers

2007MOL Supplier Forum

PRP – ProcurementRedesign Project - Category Management

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2007

”The changing project engineering talent supply will reshape the oil and gas business.

Contractors are changing:- bidding strategies and methods of performing contracts, and- relationship amongst contractors, - oil companies, vendors and subcontractors are evolving to include partnering, profit sharing and long-term commitments among other strategies”

MOL Supplier Forum

MOL Group Procurement – New approaches…

(Cambridge Energy Research Accociate, 2007)

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The „soft” drivers of strategic Supplier relationship

• Business & cultural alignmentBusiness & cultural alignment– Mission, vision, values, ways of working, complementary strategies, strong

business insight and awareness of these.• Governance & executive commitmentGovernance & executive commitment

– Joint decision-making, easy access to top management, high quality leadership time, readiness to invest

• Ethics, trust & communicationEthics, trust & communication– Open sharing of information, – Transparency on strategy and costing,– Ethical, principled and trusting leadership model

• Day-toDay-to--day working relationshipday working relationship– Proactive, timely delivery, responsive, enthusiastic reaction to performance

improvement recommendations• Growth potentialGrowth potential

– Clear return on investment (ROI)– Real scope for performance improvement and breakthrough opportunities,– Jointly profitable account

2007MOL Supplier Forum

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Challanges& Tasks

Challanges& Tasks Inner DriversInner Drivers Supplier

relationship

Supplierrelationship

Regional excellence by 2009Regional excellence by 2009Regional excellence by 2009Regional excellence by 2009

Our Vision

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Thank you for your attention!