Russia threatens to renege on De Beers diamond deal

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The Independent Online
RUSSIA is threatening to renegotiate the deal under which the vast bulk of its rough diamond output is sold through the giant South African De Beers group.

Yevgeny Bychkov, head of the state committee on precious stones and metals, said yesterday that the sales restrictions imposed by De Beers on price and quantity no longer suited Russia. He indicated that the state wanted to be free to sell up to 20 per cent of its production on the open market in key diamond-polishing centres such as Israel, India, the United States and Belgium.

Under the terms of the five-year contract between De Beers and Alkmazy Rossii Sakha, the Russian diamond-producing corporation, the state is obliged to sell 95 per cent of its output through De Beers. The remaining 5 per cent may only be sold in Russia itself.

De Beers has a virtual monopoly in the sale of rough, or uncut, diamonds, handling more than 80 per cent of the world's production, setting prices and, in effect, production quotas.

Russian supplies account for up to a quarter of the world's total rough diamond sales, although recent sales have been depressed by an export tax. There are fears that if it were to abandon its deal with De Beers and to improve its antiquated mining operations it could flood the market, depressing prices.

But a De Beers spokesman sought to play down Mr Bychkov's comments. He said the existing contract, worth an estimated dollars 5bn, still had two years to run and that in any case the company had had 'no official request' for a renegotiation.

If Russia were to renege on the contract 'they'd have to sell them on their own and they would find it very difficult to get such a good price as at present', he said.