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Wednesday, September 05, 2007

Alrosa is Now an Arm of Putin and The Russian Government

There is a transformation underway. In 2006, the Putin government made a deal with Alrosa, the Russian Mining company. After significant pressure, similar to what happened with Gazprom, Alrosa accepted State Control and received a monopoly in the Russian Diamond trade. Alrosa now claims to control 100% if the Russian Diamond trade, and 20% of the trade in the rest of the world.

Why is this important?

Because in Africa, when Gazprom or Alrosa speaks it must be clearly understood that it is the Putin government speaking

-make no mistake of entering into arrangements with them believing that they are private companies, as is understood in the west....

Gazprom's methods will be much more like the KGB than BP

Look at the Boards of these companies, read the very public biographies. Note that the "Seconds" in Gazprom and Alrosa are former KGB old guards, and maintain Active FSB ties.

For more background, read about Putin's People in The Economist.


-Shimron

Here is a long, boring 256 page report about how they did it. What follows is a brief excerpt of an English translation of a Russian document, so please bear with the economic-English-Russian speak:


"....ALROSA JSC − to the Center became the «price» of prolongation of
Vyacheslav Shtyrov’s powers.

Vladimir Putin set this task before the Ministry of
Finance in 2001, however its solution was hampered by the fact that the process
of redistribution of the «diamond» financial streams is touching upon the
interests of very many influential political players of federal scale.

In this case both the representatives of the «liberal» grouping of elites, for which ALROSA
assets constitute the main resource base, and «siloviks», potentially interested in
the expansion to the sphere of their competitors’ traditional influence, are
implied.

The fight for ALROSA continued for several years at the regional level, but
only in November of the last year[2005-added by shimron] the administration of the Ministry of Finance headed by Alexey Kudrin managed to make the administration of the Republic of
Saha (Yakutia) sign the protocol fixing the main stages of federalization of the
Joint Stock Company.

At that, having formally agreed to the conditions of division
of the property suggested by the federal center, President of Yakutia for a long time
has been evading from taking active steps in this area, preferring the policy of
«maneuvering» with the purpose to avoid an open conflict with main federal
interest groups and oriented at the support of local elites and the republic’s
population.

Simultaneously the negotiation process was carried out on the issue of
compensation of the inevitable budget losses of Yakutia. The transfer of the
property of the production and scientific association Yakutalmaz, on the facilities
of which in the early 1990−ies the company was created (the parties must introduce
these assets to the authorized capital of ALROSA as the payment for the federal
and republican shares), to the property of Joint−Stock Company ALROSA entails
the decrease of the republic’s income by 10 billion (according to the
administration) or 9 billion (according to the Ministry of Finance) rubles a year.

The originally declared demands of the republic’s administration in this
connection totaled to the unprecedented amount – 500 million dollars from the
federal budget.

However, accomplishment of the process of transfer of diamond monopoly
under control of the federal Center before the end of the current year was of
strategic importance, − in the first turn, for the administration of the Ministry of
Finance, therefore, to achieve the set goal, Alexey Kudrin was ready to agree to a
series of concessions to regional elites.

One of them, in the long run, became the prolongation of Vyacheslav Shtyrov’s powers. The economic aspect of the achieved agreements looks as follows.
Russia 2006. Report on transformation

Deputies of Il Tumen (the State Assembly) have approved the variant of the
amicable agreement pursuant to which the main share of the property of
Yakutalmaz will be transferred to the state with its subsequent introduction into the authorized capital of ALROSA JSC. [highlingted and bolded by Shimron]


In its turn, the new procedure of distribution of the Mineral Extraction Tax is called to satisfy the economic requirements of Yakut elites: in accordance with the recently adopted law, all receipts of the diamonds extraction tax are transferred to regional budgets (earlier their share
constituted 60%).

Yakutia will get practically all losses of the federal center (2,6 billion rubles a year), with the exception of 18 million rubles in favour of the budget of Arkhangelsk region (extraction of diamonds by Severalmaz JSC) and 0,4 million rubles to Perm Krai (Uralalmaz mine).

The transfer of several social objects and infrastructure from the balance of Yakutia to the balance of the Russian Federation will become the second source of compensation.

These assets in the amount of 2 billion rubles are included into the state budget of 2007.

Deductions of ALROSA for implementation of local social, economic and ecological
programs – 2% of the cost of crude diamonds sold by ALROSA – will also remain
in the republic’s budget.
Besides, representatives of Gazprom OJSC [emphasis added by Shimron] have already declared that of the 2,4 trillion rubles planned for implementation of the general scheme of gas supply and gasification of the Far East, over 500 billion rubles will be used in the republic. At last, Rosimushchestvo (the Federal Property Management Agency) took the principle decision on recognition of the legitimacy of the recent incorporation of the company Yakutugol (Coal of Yakutia): the
government of Yakutia (75% minus 1 share) and Mechel group (25% plus one
share) became the shareowners.

Thus, the main stage of returning the diamond monopoly to the state property should be accomplished before the end of the year.

Strengthening of the administrative positions of Alexey Kudrin, the head of the
Ministry of Finance and one of the leaders of «liberal» grouping, who has
implemented Vladimir Putin’s strategically important order, will be the most
significant political consequence of the final redistribution of assets.

Gazprom management, increasing its influence in the region which is perspective from the
point of view of the resource potential, will have to solve the problem of
minimization of possible «costs» of interaction with national elites in future."

-Russia 2006. Report on Transformation, page 57

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