Alrosa Agrees To “Equal Pricing” For All

Last week we reflected on the anti-monopoly investigation against Alrosa and the Republic of Sakha (Yakutia) in respect to Alrosa’s differential rough selling pricing applied to associated companies and third parties. Even though the investigation is still continuing, there are reports on an interesting development which may impact the relationship between Alrosa and De Beers.

According to Teimuraz Kharitonashvili, a senior official of Russia’s Federal Antimonopoly Service (FAS), the authorities have now agreed with Alrosa on procedures and terms for rough diamond sales. “The agreed upon framework set rules for equal conditions for all market participants,” notes the FAS spokesman.

Even though such agreements are not easy to enforce or monitor, Alrosa’s implementation in good faith would also mean – at least it appears that way – that De Beers will have to purchase the Alrosa rough at the very same prices anyone else can purchase Alrosa goods.

Governmental data, partly disclosed last week in this column, has suggested that De Beers enjoyed a significant discount in its purchases from the Russian diamond mining conglomerate.

The question is now whether it is still worth it to De Beers to buy Russian diamonds if it has to pay the same purchase price as any other market player. The DTC selling costs are among the highest of any rough producer and as the DTC wants to operate as an independent profit center within the De Beers group, paying market value may not make economic sense.

It must be stressed that the investigation wasn’t targeting the Alrosa-De Beers agreement but was specifically concerned with favorable conditions for Yakutian factories. It had been agreed, for example, that Yakutian factories would receive a mandatory allocation of very desirable 5-10 caraters, goods which other factories found it difficult to obtain.

It is far too early to jump to any conclusions as the investigation is still going on, simultaneously to negotiations to solve the impasse and to remove obstacles. If there is a “Law of Unintended Consequences” then such a law seems to be applicable here. An equal pricing commitment by Alrosa to all market players would certainly put question marks over the Alrosa-De Beers agreement, well before - and irrespective of - the decision which still has to be made by the European Commission authorities. We certainly live in interesting times, as the Chinese proverb goes.

Have a nice weekend.