“Barbarous” development of the diamond fields in the Pomorie area may turn into another ‘Khimki Forest’ incident which happened in Moscow, but, this time, at the international level,” Alexei Petrov writes in his article posted on arcticway.ru.
The activities of LUKOIL in the Arkhangelsk Region led to a serious conflict with its residents and it may develop into a grandiose international scandal. People living in the Soyany Village of the Mezensk District blamed Arkhangelskgeoldobycha (OAO AGD), LUKOIL’s subsidiary, for its intention to destroy the Soyany Biological Reservation, unique even by the world standards.
In their address to Dmitry Medvedev, President of the Russian Federation, and to Yuri Chaika, Russia’s Prosecutor-General, the Soyany villagers said that development of the Grib Diamond Field (located in the Verkhotinskaya diamond bearing area), which AGD is going to launch in the nearest future, will completely destroy the Soyany ecosystem and cause a fatal environment disaster.
The Arkhangelsk scientists share the concern of the local villagers. Among the scientists, the wildlife preserve is famous as a lagerstatt (‘fallow land’ in German), a kind of a ‘window to the past’, where the most ancient species of flora and fauna are preserved in their primeval form. The loss of Soyany would be a real tragedy for the national and world science.
In 2005, during the local parliament hearings in the Mezensk District, the AGD representatives emphatically promised that the development of the Verkhotina diamond field will be carried out by way of deep mining which is more environment friendly. Five years later, without any agreement reached with the public, AGD approved a ‘barbarous’ project involving open-cast mining. The Soyany villagers believe that this decision will result in violation of their constitutional right for favorable environment. They are ready to struggle to the end and are going to get support of both Russian and foreign environment protection organizations. LUKOIL which is lately investing huge money in its image-making projects may find itself in the centre of a scandal that will ruin the company’s reputation, and besides, damage its relationships with the national government. A second edition of the Khimky Forest drama may just fail to bring any forgiving for LUKOIL’s boss Alekperov. However, LUKOIL and its daughter-company keep on pretending that nothing has happened, which only aggravates the problem.
By the way, the situation around the Grib deposit has once already given rise to personal displeasure of Vladimir Putin. The reason was the failed alliance of LUKOIL with De Beers, the world’s largest diamond corporation.
As far as 1993, Arkhangelskgeoldobycha and Archangel Diamond Corporation (ADC, Canada) controlled by De Beers, established a joint venture, Almazny Bereg. As per the agreement terms, the Canadian Party was to finance geological prospecting while AGD was to transfer the license to the joint venture in case of successful exploration. However, after the reserves of the Verkhotina deposit were assessed (67 million carats equivalent to $5 billion), LUKOIL unexpectedly ‘backed down’ and refused to transfer the license. In response to this, ADC brought a charge with suits for about $5 billion. The litigation dragged on for several years, until, at last, Putin himself decided to settle the situation. On April 15, 2008 Nicholas Oppenheimer and Vagit Alekperov concluded an armistice in Putin’s office. Upon Putin’s word of honor, De Beers agreed to purchase 49.9% of ADG for a value of $225 million. The company was to pay $100 million immediately, another $75 million when signing the protocol about the development of the deposit, and the rest $50 million after the onset of mining. Besides, De Beers would fully refuse its claims in the court. In return, the company would receive the right for all the diamonds mined in compliance with its share. Putin kept his words, and in October 2008, he approved the draft at the session of the governmental Commission for control over the implementation of foreign investments in strategic industries.
But in January 2009, ADC’s Board of Directors announced that the deal was terminated. The reasons offered were ‘sharp deterioration of the AGD financial state’ and ‘negative parameters of the project’. Actually, De Beers openly declared that it was shoved an unviable asset, for which a company with an annual turnover of $7 billion would not like to part with even two hundred million. More than that, even having completed the ADC bankruptcy in December 2009, the corporation did not refuse from a further lawsuit against LUKOIL. Taking into account the court practice abroad, the Russian party has little chances of success. But it is not the worst. Because of these events, Vladimir Putin himself got into an embarrassing situation. As is known, Russian Prime-Minister does not like to lose, especially, to foreigners. We can only imagine what Alekperov had to go through when called on the carpet in the main office of Russia’s ‘White House.’
Having lost the hope for an agreement with De Beers, LUKOIL made the decision to push off its headache to ALROSA. In October 2010, Leonid Fedun told journalists that his company considers ALROSA as the major partner in developing the Grib deposit and even dropped hints that before going for an IPO such a ‘titbit’ would come very opportunely to the Russian diamond giant. Evidently, Fedun did not even suppose what would be the result of this light probing.
Two weeks later, Fyodor Andreev, the new president of ALROSA, in his policy interview to the Kommersant Daily not only rejected all the cooperation claims of LUKOIL, but, one can say, gave up the Verkhotinsky project for lost.
We quote word for word: “We have friendly relations with LUKOIL on the management level because it is geographically close, within 100 miles. They looked at our techniques and sorting, but there were no specific talks on joint development of the Grib Pipe. At one time we also mulled the issue. The project is hard to develop, the ore body lies deep enough, so you will have to shut off rivers and lakes. And it requires significant investments while we are in need of them ourselves.” (Fyodor Andreev, "I have no ill feelings towards the idea of a "people’s IPO,” Kommersant, October 19, 2010).
If prior to Andreev’s interview LUKOIL could still look for ‘naive Chukchi young men’ among foreign investors, now, it makes no sense at all. When two major diamond corporations rejected the project, it will not be possible to find anyone else. And if one takes into account possible ‘image losses’ in the impending war against environmentalists, scientists and local people, no billions will seem sufficient to recoup the damage.
Remained all alone, LUKOIL keeps on drudging and incur permanent losses. Thus, net losses of AGD in 2009 amounted to over RUB100 million, in 2009 RUB80 million, and in 9 months of 2010 already RUB104 million. These are only expenditures for the project management. LUKOIL has reserved over RUB10 billion earmarked directly for deposit development. The company’s order for construction of a power complex for RUB1 billion placed in the Saint-Petersburg-based NG-Energo is among the latest investments. May be, the oil company still cherishes the hope to sell its diamond asset to someone, but, most probably, it just pretends that everything is fine. Although, in this situation, it would be a better solution to mothball the deposit and use the investments for more feasible and profitable activities. Once, ALROSA already promised ‘the sky in diamonds’ to the people of the Arkhangelsk Region, but Severalmaz brought to this area nothing but damage to its nature. Is it not high time for Alekperov to think about it? Otherwise, the situation may well develop into a diamond mutiny.
