In December 1956, Semyon Borisov, the first secretary of the Yakut regional Communist Party Committee, speaking at the plenum of the CPSU Central Committee made a dead-set at the management of the USSR Ministry of Non-Ferrous Metals Industry. Here are some quotes from the transcript of that speech: "Until now, the Ministry of Non-Ferrous Metals under the leadership of Comrade Lomako is mining diamonds in the Urals, where to get one carat of diamonds he has to process 300 cubic meters of rock or 600 times more than in Yakutia. In fact, the cost of one carat recovered in the Urals reached 3,325 rubles in 1955 and cost the state 22 times more than diamonds of Yakutia. Comrade Lomako spends more than 30 million rubles a year to extract these expensive Ural diamonds... This year, along with geological exploration for mineral deposits the Ministry of Geology organized accompanying production of diamonds, which enabled the republic to give five times more diamonds to the state than it was mined in 1955 by the special diamond industry of the entire Soviet Union... As far back as 1954 the Yakut regional committee proposed Comrade Lomako to accelerate industrial development of Yakut diamonds... When we pressed him to the wall by factual evidence, he said: "This is a new industry, and for us it is too early to get engaged into this business.” "Thus, in 1954 he refused to do it point blank... After that in early 1956 we had to address Comrade Nikolay Bulganin, Chairman of the Council of Ministers. On January 5, 1956 the Council of Ministers of the Soviet Union passed a special resolution to accelerate industrial development of Yakut diamonds. The resolution contained a provision specifically binding Comrade Lomako: "Practical proposals related to construction and capacity of diamond mining facilities are to be submitted in November 1956, bearing in mind the necessity to meet the needs of the economy in domestic diamonds in the coming years." So far this proposal has not been submitted by Comrade Lomako...”
The political "weight category" of Peter Lomako, the then USSR minister, candidate member of the CPSU Central Committee, and that of Semyon Borisov, who was the secretary of the provincial Communist Party Committee, were simply non-comparable. At a first glance it may seem that Borisov, exhilarated by aromas of the “Khrushchev Thaw” and inspired by a bright image of diamond future for the Yakut Autonomous Soviet Socialist Republic, made a bureaucratic feat, throwing himself against the administrative firing port protected by a grim Stalinist reactionary. (Peter Lomako was at the helm of the Soviet non-ferrous industry since the 1940s). However, there is one point that casts doubt on the Yakut impromptu. In his report Semyon Borisov fairly freely juggled with figures reflecting the diamond mining in the Urals. In 1956, this information was classified as "top secret." The document flow system for classified papers was arranged as follows: federal ministries had the so-called “List of data to be classified as secret by the ministry..." which itself was classified and defined the composition and procedure of classifying information related to facilities, industrial and economic metrics, etc. within the ministry. Any person who actually had access to classified information but did not work in the industry could obtain the information specified in the list only if he or she had a permit issued by an authorized official of the ministry. Simply put, the information about diamond mining in the Urals Semyon Borisov could only have obtained in the office of Peter Lomako. Any other way of obtaining such information, especially for its public use, was fraught with extreme danger, which Borisov being an experienced functional bureaucrat could not ignore. Rather, Peter Lomako was aware of the purpose of obtaining this information. And this is why the minister left the emotional performance of the Yakut leader without comment and neither set forth any arguments in his own favor nor tried to defend himself in any way.
In early January 1957, the Board of the Ministry of Non-Ferrous Metals Industry issued a resolution ordering to start up urgent commercial development of the diamond deposits in Yakutia based on capital investments provided by the ministry which was to establish a trust called Yakutalmaz. Such a rapid implementation of the Yakut initiatives looks particularly impressive against the backdrop of almost three years of previous delays, suggesting that the decision to start diamond mining in Yakutia was taken before the December plenum, which actually was given a chance to see a certain "diamond show". For whom was it intended and why was it timed for the end of 1956?
To answer this question, it is necessary to clear the air about the diamond industry which existed in the Soviet Union before the Yakut deposits were discovered. Not so long ago Russia declassified the report addressed to Lavrenty Beria and Georgy Malenkov which contained a description of industrial facilities administered by the Interior Ministry in 1949. Among other things, the report states: "The Special Main Directorate (Glavspetstsvetmet) of the USSR Interior Ministry has the task to provide for implementation of the government plan for mining gold, platinum and diamonds. The Glavspetstsvetmet system has trusts and integrated works, which include mine management, individual mines and other facilities directly involved in extracting precious metals. The trusts and integrated works have prospectors' teams working on contracts. Glavspetstsvetmet employs inmates of 9 camps for its operations. (The Central Archive of the Federal Security Service of the Russian Federation)
Glavspetstsvetmet also included the Uralalmaz Trust established in September 1946. More than 3,000 prisoners of the Kusinlag Prison Camp were engaged in diamond mining. Initially the posts of people in charge of Uralalmaz and Kusinlag were merged. In March 1953, Glavspetstsvetmet was transferred to the Ministry of Metallurgical Industry of the USSR, and Peter Lomako, then the first deputy minister, was appointed to supervise the directorate. In February 1954, this ministry was split into the Ministry of Ferrous Metals Industry and the Ministry of Non-Ferrous Metals Industry. Uralalmaz moved to the latter ministry this time run by Peter Lomako.
In the 1940s and 1950s, Uralalmaz’s output was low reaching about 10,000 to 30,000 carats a year. However, at least one third of recovered diamonds exceeded 2 carats in size and were of superb gem quality. At that time there was no diamond-cutting industry in the USSR, while its home diamond market was equal to zero. Still, it is hard to believe that hard-handed ‘Stalin falcons’ pounded this luxury yield into powder to hone the cylinders of tank diesel engines in Nizhny Tagil. However, speaking at the above mentioned board meeting at the Ministry of Non-Ferrous Metals Industry Peter Lomako made it quite clear that the main purpose of the diamond industry entrusted to him was to provide export products: "The international situation requires us to concentrate all the efforts and resources of our country to strengthen and develop our state monetary fund by mining the diamond deposits in Yakutia...” There is hardly any need to doubt that before discovering the diamond fields in Yakutia the “monetary fund of our state” was being replenished "by mining" the Ural deposits (using the Kusinlag prisoners).
There is no written history of rough exports in the Soviet Union from 1946 to 1957 and it is unlikely it will ever find its chronicler for a number of reasons. Official data about these export operations are non-existent. But the documents declassified in the early 1990s (mainly due to the efforts of human rights activists who fought to reveal the historical truth about the Gulag) occasionally mention an agency which carried out “operational chekist attendance" in the diamond industry. In the papers from different years it is referred to as "the special department of the Ministry of State Security" or sometimes as “the special department of the Interior Ministry” under different numbers. It is well known, for example, that in 1949 this department consisted of 221 employees of whom 208 were officers. What did “operational chekist attendance" mean in the diamond industry in 1949? Was it custodial guard of Kusinlag? It is unlikely since the camps were guarded by other well-known units, and then this activity could not be considered "operational". May be it meant infiltrating agents into the shadow diamond market? But such a market in the Soviet Union simply did not exist at that time. Was it associated with diamond smuggling control? Any talk about diamond smuggling in the Stalin-type USSR surrounded by the Iron Curtain is simply ridiculous. Keeping safe Uralalmaz produce? But it disagrees with operational work. So the only thing left is to assume that the function of this unit was diamond export which was sanctioned but nowhere reflected in the official statistics and which was one of the extra-budgetary sources to replenish the "monetary fund of our state."
If this assumption is true, then it must be admitted that since 1946, when the USSR started commercial production of diamonds in the Urals, it was building up a sustained export channel for rough diamonds of which Peter Lomako, the "boss" of the Soviet diamond industry and a Soviet nomenclature "heavyweight", was well aware (and this is indirectly proved by his argumentation at the notorious board meeting) in contrast to the secretary of the Yakut regional party committee. Who was the buyer of these diamonds is not known for certain. But in any case this diamond flow did not appear to be so small (as well as its source, which is most important) as to escape the attention of the De Beers Corporation, which at that time firmly held its monopolistic position in the diamond market.
To understand any further development of the situation it is important to note a few events which happened in 1954, critical for the diamond market. It was the year when the Russians discovered their first primary diamond field in Western Yakutia (the Zarnitsa Diamond Pipe). Peter Lomako, heading the associated ministry, came hard on the Yakut administration blocking its initiatives aimed at "accelerating the commercial development of Yakut diamonds.” At the suggestion of De Beers Sir Percy Sillitoe, the former head of the British intelligence (until 1953 inclusive) started to create the International Diamond Security Organization, the nucleus of which was composed of MI5 members.
The invitation extended to Sillitoe to head the special service of De Beers was undoubtedly due to the threat faced by the market, which could only be created by Yakut diamonds. In the first place, in those years the "Russian direction" was predominant in the activity of MI5, and Sillitoe was versed in the tactics and strategy of the Soviet secret service better than anyone else. Secondly, at their first meeting Ernest Oppenheimer explained to Sillitoe that if there emerged an independent source of rough equal to about 20% of the current production level, the monopolistic market structure could be irreparably damaged. The discussion of this figure shows that De Beers at that time was savvy to prediction estimates of the Yakut diamond deposits, which of course were classified as "top secret" by the office of Peter Lomako.
From the memoirs of Semyon Borisov ("Diamonds and Leaders", Moscow, 2000) it is quite impossible to understand what motives made Peter Lomako to take such a tough stance on the timing set for development of diamond deposits in Yakutia. The arguments of Semyon Borisov regarding the economic aspects of the project look perfect whereas Peter Lomako’s objections, to put it mildly, seem non-constructive. However, it would be impossible to think that one of the main founders of the Soviet mining industry, who held ministerial office in a total of more than forty (!) years, was just a stupid, lazy and irresponsible bureaucrat. Taking into account the above circumstances, this strange paradox is removed by the following hypothesis.
The Ural diamonds mined by Peter Lomako’s ministry were exported to De Beers or its affiliated companies. This channel was maintained by informal agreements of the parties at a sufficiently high level and was technically implemented by special services of the USSR and controlled by the British intelligence service. The information about the development of the diamond project in the USSR was passed along the same channel. The discovery of Yakut diamond fields and impressive forecast of their capacity apparently provoked debate in the Soviet leadership whether to go to the market alone, or lie down under De Beers. In particular, Nikita Khrushchev literally proclaimed the following: "We have to show the aggressors and imperialists what’s what. Soon our homeland will take a dominant position in the international foreign exchange market, increasing production of diamonds in Yakutia to accelerate the creation of material and technical base of communism in the Soviet Union." For such "old coons" as Peter Lomako the economic idiocy of Khrushchev was without doubt obvious (by the way, after the resignation of Nikita Khrushchev Peter Lomako remained to be the minister of non-ferrous metals up to 1986 having survived in this position Leonid Brezhnev, Yuri Andropov and Konstantin Chernenko). And that part of the Soviet leadership, to which belonged Peter Lomako, decided to give De Beers time to regroup. During this period, De Beers was to solve the following tasks: develop a marketing strategy for the polished market making it able to absorb polished goods made of diamonds from Yakutia without overheating and provide a hedge in case the proponents of an independent venture to the market would prevail in the USSR. The first task was solved, as you know, with the help of the Eternity Ring Marketing Program, while the second task was attended by Sir Percy Sillitoe and the information about his activities disseminated along the informal export channel undoubtedly generated additional arguments against those willing "to take a dominant position in the international foreign exchange market.”
Apparently, two and a half years were enough to carry out this work, and by December 1956 Peter Lomako received a positive signal. The parties reached an agreement avoiding a price war disastrous for the market and eliminating the threat to the monopoly of De Beers. The "diamond clownery" at the plenum of the CPSU Central Committee became a sort of final chord to the negotiation process comprehensible only to the initiates. In 1957, simultaneously with the start of large-scale mining in Yakutia’s deposits the International Diamond Security Organization ceased to exist, and in 1959 the first formal agreement with De Beers was concluded.
(to be continued)
