Russia’s Ministry of Finance, State Property Management Agency and Audit Chamber begin a comprehensive audit of ALROSA

According to the Kommersant Daily, Russia’s Ministry of Finance, State Property Management Agency and Audit Chamber begin a comprehensive audit of ALROSA. They will examine a number of major transactions, including the IPO in 2013. According to the newspaper, the audit was authorized by President Vladimir Putin, while the initiative came from Yury Trutnev, Deputy Prime Minister supervising ALROSA. The fate of the company’s CEO Fyodor Andreev, whose resignation is sought by the Deputy Prime Minister, will depend on the results of this inspection.
The Kommersant was told about the order given by President Vladimir Putin to carry out a comprehensive audit of ALROSA by a source familiar with the situation, and this was later confirmed by another source in the presidential administration.
The Kommersant’s source in the government says that the audit was initiated by Yury Trutnev, who in early August allegedly sent a letter to the President motivating his reluctance to sign a directive on the reappointment of ALROSA’s CEO. “He questioned the effectiveness of Fyodor Andreev as head of the company and offered to check the feasibility of large-scale transactions,” the source said. Another source in one of the specialized agencies confirmed the existence of this letter. According to the Kommersant’s sources, Vladimir Putin gave a nod to the initiative by putting a resolution that personnel issues in ALROSA need to be addressed after a comprehensive audit of the company by the Ministry of Finance and Federal Property Management Agency assisted by the Audit Chamber. All the parties concerned declined to comment yesterday.
The audit of ALROSA will be carried out in several ways - all of them have been identified in Yury Trutnev’s letter, the daily’s sources said. The Deputy Prime Minister has questions regarding the acquisition of Nizhne-Lenskoye for RUB 7 billion in June 2013 (bought by Almazy Anabara, a subsidiary of ALROSA) and the deals involving oil and gas assets.
According to YurY Trutnev, the IPO of ALROSA held in 2013 and initiated by the miner’s top management was a wrong decision, which caused damage to the interests of the state. Finally, Fyodor Andreev is blamed for that the company’s sales policy led to a decline in diamond sales in the domestic market. Instead of supporting domestic diamond manufacturers, ALROSA made a bid for long-term contracts mainly with foreigners, who also buy rough at low prices, as the Deputy Prime Minister is convinced.
According to the Kommersant, Rough&Polished expert Sergey Goryainov recalled that before 2009, ALROSA was proactive in supporting the domestic market. “But in the crisis of 2009, none of ALROSA's clients rendered support to the miner. The sales system established after the crisis and by the way agreed with the Federal Antimonopoly Service allowed ALROSA to successfully survive the years of 2011 and 2012 difficult from the point of view of demand. Long-term customers were often buying rough above the market to preserve their contracts with the miner," the expert said. The previous government of Yakutia and the then company’s top management promoted the idea of turning ALROSA into a multi-diversified mining holding through purchasing oil-and-gas, iron-ore and gold assets. “But the crisis of 2009 showed the danger of such a strategy, which almost led the company into bankruptcy. The first thing that made Andreev was to voice the need of getting rid of non-core assets," Mr. Goryainov said. In his opinion, the acquisition of Nizhne-Lenskoye and the completion of constructing underground mines made it possible for ALROSA to achieve record sales in 2013, which was positively perceived by the market during the IPO.