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Alrosa chief sanguine on Brussel ban

Alrosa's chief executive Alexander Nichiporuk said the total ban on diamond trading between Alrosa and De Beers, proposed by the European Commission (EC) in Brussels to start in 2009, is up for negotiation, and far from decided.

"The idea is to cancel trading between the two named companies to create competition and avoid monopolization," Nichiporuk told PolishedPrices.com.

"The background is that, even if one company (Alrosa) is not under EU jurisdiction and another (De Beers's Diamond Trading Company) only by half, since the trading is happening on EU territory,  the (EU) can apply the rules."

Referring to the changeover of commissioners and staffs at the EC headquarters in Brussels, Nichiporuk added: "We had a good understanding with the previous commissioner on that issue, and no discussions with the new one.”

At this point, the unprecedented attempt by the EC to order the two companies, the two largest producers of diamonds in the world,  to cease trading with one another at the end of 2008, has produced no comment from De Beers, and no stated willingness by either side to threaten a legal challenge to the ban in court.

In 2005, according to Nichiporuk, Alrosa will supply $680 million worth of rough to the DTC, representing 45% of total export value. Total production by Alrosa and affiliated companies for the year is estimated by Nichiporuk at $2.5 billion.

He said that the value of exports allowed by Alrosa's multi-year export quota is 20% higher than actual value shipped this year.

In 2004, Alrosa warned that an EC decision forcing "an overly rapid or extensive reduction or termination of our sales to De Beers could have an adverse impact on our sales."

Negotiators for Alrosa and De Beers are now discussing in Brussels, not only the cut-off and the deadline, but also the value for trade allowable in the years that remain before the cutoff takes effect.

The trade agreement between Alrosa and De Beers, which the EC is reviewing, was signed at the end of 2001 and anticipated five years of sales at an average of $800 million per annum.

Internal pressure among Alrosa's senior management to break out of these terms has curtailed this level of annual shipments by roughly 15% since the signing.

If the EC goes ahead with the trade ban, the current value of shipments may decline to $600 million in 2006, and then around $500 million per annum in 2007 and 2008.

According to Nichiporuk, forward planning by the company anticipates the total elimination of annual diamond export quotas, issued by the government and signed by the Kremlin, which have caused repeated delays in shipment of rough from the new Nyurba mine in Yakutia.

In addition, Nichiporuk said, the company plans to allocate up to 65% of its rough output each year to a stable list of sightholders, and the remainder to auctions and tender sales. Independent selling outlets will be multiplied, adding Israel and Dubai to the one already in operation in Antwerp.

Nichiporuk said he wants to expand geological exploration to eight new areas in northwestern Russia, and five new areas in the Sakha region, Alrosa's home base.

He also reiterated potential interest in diamond exploration in Central Africa, including both Congo states and Guinea. Total investment for 2005 was Rb14 billion ($484 million). This is to be cut to Rb12.3 billion for 2006.

By John Helmer in Moscow.

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