The world diamond market is going through rough times. There are a continuously growing number of dealer and cutting companies announcing their bankruptcy or suspending their businesses. Banks which used to cooperate with the diamond business reduced their credit activities virtually to zero levels. Export and import transactions involving rough and polished diamonds in the diamond mining countries of Africa and in Russia, as well as in Israel, Belgium, the United States and other countries involved in the diamond market have dropped down 60% to 90%, according to various estimates. Demand for polished diamonds is meek as never before and continues to go fatally flat, while Christmas sales turned out frustrating. The budgets of diamond-dependent countries - Botswana, Namibia and South Africa – are in a deplorable state and cannot support the major industry in their economies, so unemployment there is increasing at a brisk pace. Transnational corporation De Beers, being the leader in the field, started consultations with trade unions, which will result in a significant personnel reduction. Such is the picture of the developing crisis and so far there are no reliable indicators which could permit to say that the crisis has reached its bottom.
ALROSA’s position on this dismal background looks more preferable compared with that of its foreign counterparts. ALROSA is the only diamond mining company in the world owned by the state. This circumstance facilitated a timely decision to back up the Russian diamond business with national budget resources in this crisis situation. Starting from 2008, rough diamonds mined by ALROSA are being bought by Gohran, or the State Depository for Precious Metals. Although these funds cannot completely compensate ALROSA’s financial losses due to low demand for diamond products on the world market, they are sufficient to solve the major problems, that is to avoid massive layoffs, defer mothballing production facilities, continue capital-intensive construction of underground mines and keep the company’s credit portfolio in acceptable condition. Due to the reached agreements ALROSA got a real chance to live out even a delayed crisis with minimal losses retaining its competitiveness.
The paternal position of the Russian Federation government towards the national diamond mining company cannot be viewed upon as some kind of charity. Any crisis ends in recovery and sooner or later the diamond market will turn full circle, so making up a diamond stock by Gohran is a reliable investment into the future. Natural diamonds are a non-renewable resource since the majority of diamond fields known today are in their depleting phase, whereas no new diamond deposits have been discovered during the recent decade and this is why the long-term target price of diamonds is very high.
Nevertheless, the diamond industry as well as the Russian economy as a whole resembles now a body seriously weakened by a malignant virus and forced to strain every effort to maintain the wheels of life struggling for recovery. As it usually happens in such cases, there is a sharp increase in movements of all possible parasitic formations, whose activities may cause an indulgent smile in quiet times, but become critically dangerous in crisis periods.
In the early 1990s, the Russian diamond business was literally being torn apart. There were dead earnest scenarios to split off Udachninsky GOK, a mining and beneficiation complex, turning it into an independent open joint-stock society; to divide the diamond monopoly with its further sale; as well as to make Western Yakutia an autonomous entity of the federation. Several political groups were fighting to have a possibility “to skim the cream” off the diamond business, in other words to control export of Russian diamonds. In the course of these battles ALROSA was exposed to incessant inspections by every hue and cry of security agencies, the company’s export quotas were delayed and it was losing its floating capital which affected salaries retarded for many months and inflicted disruptions in financing production programs. Simultaneously, Gohran’s diamond stocks accumulated in the course of several decades were subjected to total plundering which brought global diamond prices down to their critical limit. After 1999, these destructive phenomena were finally quenched and the order permitting the state-owned diamond corporation to function in a sound way was restored.
Right now, in the Russian diamond industry there emerged signs of sliding back to those times of unhappy memory. As soon as the Russian diamond industry started to feel the breath of the global crisis, its “long-time friends” tight-lipped in good years were quick to express their concerns flocked by new players of specific business orientation.
The drop in diamond demand which started across the world in the summer of 2008 as if by miracle triggered the emergence of a “free” trade union in ALROSA representing the interests of the Association for the Taxation of Financial Transactions for the Aid of Citizens or, for short, ATTAC, a non-governmental international organization operating in the field of Russian unionism via its “affiliated branches” registered as “purely Russian scientific and production associations.” The key element in the “Russian program” of ATTAC, which is on very friendly terms with major financial players, is to imbed representatives of “free” trade unions into Supervisory Boards of corporations whereby gaining control over information and financial flows. Hence, it is no wonder that the first move made by the newly baked “free” trade union was to flatly demand the blocking stake in the diamond mining company.
Simultaneously, law-enforcement and supervising agencies were literally drowned by an avalanche of messages, requests and complaints from vigilant and responsible citizen in relation to would-be violations by ALROSA of virtually everything - from human rights to financial regulations. The main armament of the “oppositional” parliamentary faction – the Liberal Democratic Party of Russia (LDPR) represented by its legendary leader – was not late to join the campaign. Vladimir Zhirinovsky has resolutely demanded from Prime Minister Vladimir Putin “to order the law-reinforcement agencies to check the legitimacy of actions by the management of AK ALROSA and the Finance Ministry” taking into account… the publications in compromat.ru, an Internet site (Letter 17-18/22 as of 14.01.2009).
The name of the Web portal meaning “compromising evidence” is self-explanatory and the Parliament’s Vice Speaker will not send enquiries to Vladimir Putin after each publication posted on this site. So the reasons why the LDPR leader appealed to this pearly source of information are beyond the shadow of a doubt, as well as the fact that Vladimir Zhirinovsky’s interest towards the Russian diamond business is of a cyclic nature getting acute every time ALROSA is on a bumpy road. Last time similar activity was registered when German Kuznetsov, a “legendary” Vice President of ALROSA, whose political biography was inseparably connected with the “Xerox paper box” corruption scandal, was “invited to leave” the diamond company. It is almost an instance of folk superstition that Vladimir Zhirinovsky appears on the diamond business sky as a storm petrel only in critical cases and his appearance, seasoned with humor inherent to this leader and somewhat theatrical charm, means there is a flickering flame of backstage struggle to seize control over the Russian diamond monopolist.
It is hardly accidental coincidence that nationalist and separatist elements in the Republic of Sakha (Yakutia) have intensified their activity since they have been a standard tool used for the same purposes by the well-known political groups in the course of many years.
Altogether, the foreign “well-wishers” of the Russian diamond business should be merited for their trick with the “free” trade union because this is a sort of know-how, something new and fresh. However, the “well-wishers” based in Russia are not that smart – the same faces, the same letters and the same arguments as in the 1990s.
The support rendered by the state to ALROSA gives the company a chance to continue developing in the crisis period and this is something which its competitors on the world market cannot display. This is why when the crisis will be over the Russian company may lay claim to a much greater part of the market than that controlled by it today. This is an exclusive chance. But it can be materialized only if internal contradictions inside Russia which are regularly aggravated during uneasy crisis periods will not put the diamond company on the brink of collapse as it already happened in the 1990s.
Sergey Goryainov, Rough&Polished expert
