Divorce on demand

ALROSA and De Beers complied with the conditions of the European Commission

The head of the Russian diamond monopolist ALROSA, Alexander Nichiporuk, and the managing director of South African De Beers, Gareth Penny, signed a memorandum on May 9 in Vienna on organizing the supply of rough jewelry diamonds for 2006-2008, ALROSA said in a statement issued yesterday. Thus, another step has been taken towards demonopolizing the global diamond market and increasing ALROSA’s ability to operate independently on it. This step, as is known, was dictated to both corporations by the European Commission: Brussels ordered the Russian company to stop selling rough diamonds to De Beers after 2009, and before that to gradually reduce the volume of their sales.

ALROSA Vice President Sergei Ulin told Vremya Novostey that the volume of trade operations between the companies, defined in the memorandum, exactly corresponds to the instructions of the European Commission of February 22, 2006. He emphasized that the document regulates the principles of relations between companies and only until 2009, and will also allow ALROSA to implement its own sales strategy on the world market and at the same time build relations with De Beers on the principles of free trade.

As is known, the European Commission ordered the leader in the production and sale of rough diamonds, De Beers, from 2009 to completely abandon the purchase of rough diamonds from ALROSA, the second largest diamond producer in the world (the company accounts for about 23% of global production), including through intermediaries. As stated in the February document, “implementation of this regulation will increase the share of rough diamonds on the free market and could create a truly competitive environment.” In addition, the European Commission expressed its wish that in 2006 the volume of sales of rough diamonds from ALROSA to De Beers should not exceed $600 million, in 2007 - $500 million, and in 2008 - $400 million.

De Beers, having begun regular purchases of rough diamonds from the Soviet Union in 1960, effectively monopolized the supply of Soviet diamonds to foreign markets. Created in 1992 and gaining control over the entire volume of diamond mining in Russia, ALROSA continued to sell diamonds to De Beers. However, in 2000, the European Commission ordered regulation of the volume of supplies of rough diamonds from ALROSA to De Beers. The companies decided to limit these operations from 2001 to about a quarter of the rough diamonds mined by ALROSA, and their sales to De Beers to $800 million annually. The European Commission was not satisfied with this option. Then the parties accepted for consideration the scheme proposed by the European Commission, according to which it was supposed to limit the volume of trading operations for the purchase of rough diamonds from ALROSA with a gradual reduction: to $700 million in 2005, 625 million in 2006, 550 million in 2007, 475 million in 2008, 400 million in 2009 and up to $275 million in 2010. After 2010, the volume of purchases should not exceed $275 million annually. But this scheme was protested by diamond market participants. In February of this year, the European Commission announced new recommendations, which resulted in the memorandum signed on Tuesday. Apparently, this agreement put an end to the long history of demonopolization of the diamond market according to the recipes of the European Commission.

Anna LANDER