Following the announcement that giant Russian diamond miner Alrosa has appointed a new CEO, its former chief Sergei Vybornov, has issued a lengthy interview to a Moscow reporter, in which he intimates that his ouster - made official by the diamond giant Alrosa’s board last Friday - was the result of plotting by rivals in the Sakha republic, and among international and Russian diamond buyers unhappy with Vybornov's new marketing deals.



The text of the interview was published in Kommersant in its July 13, 2009, edition.

The appointment of the position of Alrosa chief executive was for many years the prerogative of the Sakha region government, until the federal government in Moscow reasserted its power, and restructured the capital and shareholding of the state-owned diamond company to reflect a majority for the federal government, and 40% for the Sakha region.



The control stake is administered by the Ministry of Finance, whose minister chairs diamond miner Alrosa’s board.

No decision to oust the CEO or pick his replacement can be dominated by the Sakha government or by Shtirov. The key decision makers are the Finance Minister, Alexei Kudrin, who chairs the Alrosa board; and his advisor, a VTB banker named Otar Marganya. Neither has ever responded to direct questions about Alrosa personnel or policy issues.



According to Vybornov, he has negotiated long-term diamond sales agreements for a total value of $900 million. He claims the diamond pricing formula in the contracts was "the price-list of the Ministry of Finance plus 17 %."

Vybornov now says there are 15 such contracts. A month ago, Vybornov told a US newspaper that six contracts had been signed with the diamond price set "at a midpoint between the peak last August and this winter."



Each contract, according to Vybornov, is for not less than $200 million, and for terms of 3 to 5 years.

In Vybornov's latest claim, the new diamond sale contracts include luxury jeweler Tiffany of the US; Dali Diamonds and Diarough of Belgium; and some unidentified Israeli companies.

"We have begun with [the Belgian diamond companies] for the simple reason that the Belgian government declared the granting of guarantees to the diamond banks for a total of $1 billion. A bit later, this initiative got the [additional] support of the Flemish authorities, declaring guarantees for $250 million."



Vybornov said offers to buy from "ephemeral firms" for $10 million to $20 million in diamonds, "are not interesting." Up to 40% of diamond giant Alrosa's total diamond sales volume has been set aside, according to Vybornov's scheme, for these long-term contracts.

Vybornov said that Smolensk Kristall, the state owned diamond cutting enterprise based in western Russia, had been offered the same long-term contract deal in April, Vybornov said; but had rejected it for being "expensive. And now the window of possibilities has closed. But their problem has been solved - they will buy their rough diamonds on the spot market."



Vybornov said his new diamond marketing scheme ran into "a certain discontent" from "the authorities of Yakutia." He claims that they had become used to the 50-year old system of favoritism in pricing and selection of diamonds.

"Now conditions for all are equal, and this causes irritation, especially among those whose participation benefitted from preferences earlier."

Attacking "home producers" for falsifying the extent of their domestic beneficiation and diamond cutting as a cover for rough diamond purchases and exports, Vybornov claims they benefitted from "the artificial difference between the prices on the internal and external markets. Discounts in the home market reached 30%. The company could not support someone's private interests indefinitely," Vybornov said.



The 30% discount has also been charged by Vybornov's powerful predecessor, Valery Rudakov, as the basis for Alrosa's long-term diamond sales contracts with De Beers’ marketing arm, DTC.



When Rudakov made that charge, he was the Deputy Minister of Finance in charge of the diamond sector and head of Gokhran, the state stockpile agency.

It is unclear from Vybornov's latest statements what sales of diamonds have actually been made, or will be made this year under the contracts he says he has signed.

However, there are doubts that the diamond sales contracts will be enforced.



An international diamantaire who asked not to be named told PolishedPrices that he believes there have been no diamond sales under Vybornov's agreements because the price is too high, and because the contracts he refers to are no more than frameworks for future transactions, not sale-purchase commitments.



Another industry source familiar with the situation said that the formula of "MinFin plus 17%" is 20% above the current diamond market price. "Only suicidals would buy at that price,” he said, adding he does not believe that there are 15 long-term sale contracts.