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Russians shrug off diamond trade
scare
By John Helmer
MOSCOW -
The Russian diamond industry believes that it has
nothing to lose if the European Commission forces a
change in the diamond trade agreement between De Beers
and Alrosa, Russia's monopoly diamond miner; and nothing
to lose either if the trade continues on the current,
willing-buyer, willing-seller basis. Asian diamond
manufacturers, too, say that they will also benefit,
whatever the outcome of the trade spat between Moscow
and Brussels.
The Russian agreement was signed
with Nicky Oppenheimer of De Beers after more than a
year of negotiations in December 2001. It provides for
the sale by Alrosa of up to US$4 billion in rough
diamonds to De Beers' Diamond Trading Company over a
five-year period, with the proviso that $500 million of
each year's deliveries should be run-of-mine, and with
the allowance for lesser deliveries in the last two
years of the agreement.
Since then, President
Vladimir Putin has signed into effect a decree allowing
greater flexibility for Russian diamond exports outside
the De Beers marketing channel.
Asian
diamond-cutting factories, particularly in Mumbai,
Bangkok and Shanghai, have been waiting for years for
the opportunity to buy directly from Moscow. However,
several factors have deterred them - corruption in the
Sakha republic, bureaucratic obstacles in Moscow, as
well as the fear of losing their access to supplies from
De Beers.
The European Commission announced in a
statement on January 16 that the terms of the agreement
are restrictive of competition on the rough diamonds
market "by eliminating competition from Alrosa. The
commission also takes the view that by entering into the
agreement, De Beers has abused its dominant position in
the rough diamonds market."
This was hardly news
in the Russian diamond market, where diamond cutters
have complained for more than a decade that the special
trade arrangements between De Beers and Alrosa curtailed
their access to rough at market prices, and allowed
Alrosa to act as a price and supply monopolist. It was
the local diamond manufacturing industry that has
lobbied for the permission to sell rough abroad which is
unprofitable for cutting in Russia.
Leading this
effort has been Ruis Diamonds, the Russian manufacturing
company owned by Israeli diamantaire Lev Leviev. In
September, Valery Morozov, who heads Ruis in Moscow,
told Asia Times Online that he favors cutting the volume
of diamonds to be sold to De Beers by 25 percent. He was
unavailable for comment on the EC move. In September
also, a senior Alrosa official who was appointed to the
company by the government, German Kuznetsov, also came
out in favor of modifying the terms of the diamond trade
pact by cutting the share of De Beers by 25 percent.
Alrosa directors were at a scheduled board
meeting through most of Friday, and declined to respond
directly. The company issued a pro forma statement,
following De Beers's lead in welcoming a fresh round of
negotiations with the European Commission in Brussels.
If the EC vetoes the trade agreement, Alrosa
will benefit from the increased flexibility that it will
have to market its diamonds, Ararat Evoyan, president of
the Russian Diamond Manufacturers, told Asia Times
Online. He said that there would be no benefit to BHP
Billiton, which has been trying for two years to get
Alrosa to trade its diamonds through BHP's Antwerp sales
network. "The company is not interested in
intermediaries," Evoyan said, "since it can easily sell
diamonds by itself."
According to Evoyan, "It is
De Beers that is more interested in the trade agreement
and its approval by the EC [than Alrosa], because
without the approval of the trade agreement, Alrosa is
already selling its diamonds to De Beers at higher
prices, and the EC doesn't interfere with this. De Beers
is more interested in a trade agreement with Alrosa,
because it will be able to get diamonds cheaper than the
market price, and at the same time add Russian diamonds
into the mix that it offers for sale."
There
have been periods in the past decade when Alrosa
continued selling up to $1 billion in rough annually to
De Beers without a formal trade agreement.
The
advantage of an approved agreement, Evoyan conceded, is
that it helps secure Alrosa's financing arrangements
with international lenders, who regard the Russian
company as a security risk. "Alrosa does need money for
its projects," he conceded, "but there are different
ways of attracting finance, some of which Alrosa still
haven't used."
Evoyan speculated that De Beers
and Alrosa will be able to persuade the EC to accept a
compromise version of the agreement without a major
overhaul, let alone abandonment of the current trading
terms. According to Evoyan, "The [current] trade
agreement limits the development of Russian polishing
industry, but preserving coordination between Alrosa and
De Beers on the market is preferable."
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