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Russia Strikes New Diamond Deal With De Beers

  • Roland Eggleston

Munich, Feb. 28 (RFE/RL) - After two years of tough negotiations, Russia and the world's biggest diamond sales organisation, De Beers, have reached a preliminary agreement on a new contract for the global sale of Russian rough (uncut) diamonds. The deal assures Russia that it will receive at least 100 million dollars a month for continuing De Beers' exclusive right to sell the country's rough diamonds.

A spokesman for De Beers, Tim Capon, said in London that a memorandum of general principles had been signed with Russian Finance Minister Vladimir Panskov. The docuemnt does not become official until it is converted into a formal trade contract with Almazy Rossii-Sakha, which is the only organisation authorised to export rough diamonds. The De Beers spokesman said he was confident this would happen. But he did not know when.

Many details of the preliminary agreement have not been published, but Russian officials in Moscow have been quoted as saying it is a good arrangement, and that it is in Russia's national interest. The basic point is that, in return for the minimum 100 million dollars a month, De Beers remains "the sole and exclusive buyer" of all of Russia's rough diamond exports. One change is that the new contract will be only for three years unlike the previous one, signed in 1990, which was for five years. Officially, the contract expired in December, but it was extended while the negotiations continued.

De Beers has a virtual monopoly in the sale of rough, or uncut diamonds, handling around 80 per cent of the world's production. This enables it to set prices at a high level by controlling the number of diamonds on the market. Russian supplies account for up to a quarter of the world's rough diamond sales. Most of Russia's diamonds come from the Sakha-Yakutia region in the vast permafrost of Siberia. Experts say Russia's tough new approach in its dealings with De Beers is partly due to a new assertiveness in the diamond industry in Sakha-Yakutia since the collapse of the USSR.

The two years of negotiations have been scarred by accusations and counter accusations from each side. Russia believed it was not getting enough for its diamonds, while De Beers accused Russia of selling both industrial and gem-quality diamonds on the private market in Belgium, Israel and India in violation of the 1990 agreement. Some experts have suggested that as much as one billion dollars' worth of diamonds "leaked" out of Russia in this way in the past few years.

De Beers also complained that Russia kept the best of its gem diamonds for its own cutting industry, which has grown considerably over the past four years with new factories in Moscow and Sakha-Yakutia. The new agreement assures De Beers of getting a "reasonable" quantity of good quality gem diamonds for cutting.

The previous agreement obliged Russia to sell 95 percent of its diamond exports through the de Beers organisation. The remainder could be sold only in Russia. According to de Beers, the agreement brought Russia 1.13 billion dollars in 1993.

Under this agreement, Russia's quota was 26 percent of De Beer's world sales. In recent years, Russia has made no secret of its dissatisfaction with this, and said it needed to sell more to bring in more hard currency. It is unclear whether this percentage has been increased in the new agreement. Russia was also seeking to sell more diamonds on its own account, outside the de beers system.

Analaysts of the diamond business said the new agreement, if converted into a formal contract as expected, would bring stability to the market and avert industry fears of a price war. But many expect Russia to demand much better conditions from De Beers if there is to be a new contract, when this one expires three years after it is signed.