Alrosa Faces Restructuring, to Enter Oil and Gas Sectors

Russian diamond monopoly Alrosa is to be restructured as a commodity concern under state control since the federal authorities want Alrosa to diversify into oil and natural gas, Russian daily Gazeta cited Finance Minister Alexei Kudrin as saying.

The Finance Minister said the reformed Alrosa would extend its operations beyond the Siberian republic of Sakha-Yakutia, where the company is headquartered, and well beyond its original business - into coal, oil, and natural gas.

Kudrin stressed, however, that the restructuring of the firm would not impact its diamond operations. "Diversification does not mean ending diamond production," Kudrin said.

In a campaign to regain control over Russia's natural resources, last year the federal government secured Yuganskneftegaz, Yukos's former cash generator, as the leading asset that would propel state-owned oil major Rosneft to the top of the Russian oil sector, and is planning to secure a controlling share in the gas monopoly Gazprom by the end of the year. Alrosa, the producer of a quarter of the worlds' uncut diamonds, seems to be the next target.

Just last month, Alrosa announced it had gone against the recommendation by its major shareholders - the Russian federal government and the government of Sakha (Yakutia) - and decided not to invest in oil and gas company OAO NNGK Sakhaneftegas.

Earlier this year the government of the Republic of Sakha proposed to Alrosa management that it consider the acquisition of the oil and gas assets owned by Sakhaneftegas, and primarily its stake in OAO Yakutgasprom.

Alrosa is the second-largest diamond miner in the world, providing around 23 percent of global supply.

The Russian government owns 37 percent of Alrosa, while the Republic of Sakha-Yakutia holds 32 percent and company employees own 23 percent. Russia said in June it is planning to increase its share in diamond mining giant Alrosa so that it has a controlling interest by expanding the company's authorized capital.