South Africa's Alrosa, De Beers, Defy European Union Regulation on Diamond Sales in Moscow

Alrosa, the world's second-largest diamond producer, plans to sell 80% of its output in Moscow. De Beers can purchase diamonds there, because the Moscow floor is not subject to European legislation.

Diamond giant De Beers based in South Africa has been Alrosa's main buyer for 50 years, although the European Commission has made two attempts to interfere.First it instructed Alrosa to reduce supplies to De Beers by $75 million annually (from $800 million in 2003 to $275 million by 2010).

In 2005, the European Commission decided that Alrosa should cut deliveries to De Beers from $600 million to $400 million in 2006-2008 reducing them to zero by 2009.At this point the Russian diamond producer decided to revise its sales policy.Alrosa's president, Sergei Vorobyov, did not elaborate when the new floor would start working, but pointed out that a substantial part of diamonds would be sold under long-term contracts.Alrosa will reduce the number of its clients, "keeping only the big ones, whose policy is understandable and who will really support the market," Vybornov said.

He refused to name the potential buyers or their number.Alrosa's constant Russian clients, which annually buy more than $13 million worth of uncut diamonds, are the Smolensk-based Kristall factory, Ruiz Diamonds (which represents the interests of Israeli businessman Lev Leviev), Mosalmaz, and Alpro.

Vybornov said up to 80% of the company's diamonds could be sold in Moscow, with the rest distributed among its foreign offices to monitor the market of one-off sales.The company's top manager said the decision to sell the bulk of its raw materials on one trading floor was logical. De Beers, which has trading sites in Britain and South Africa, is doing the same. Vybornov said Alrosa could do without De Beers, unless it makes gross mistakes in its new sales policy.There are legal ways to give De Beers an opportunity to continue buying Alrosa's diamonds, if it wants to, he said. Russia is not a member of the European Union and the diamond trading floor in Moscow will not be regulated by European legislation, Vybornov said.

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