The government of Russia's Sakha province has agreed to a reorganization of the Alrosa shareholding, legalizing open-market trading of Alrosa shares, and promising a privatization of state-owned shares of the diamond company soon.

A high-level source close to the Yakut government told PolishedPrices that the agreement was struck informally between the officials of the federal and Sakha governments.

The formal decision to convert Alrosa from a closed joint-stock company to an open form will be made at the next meeting of the company's Supervisory Board on October 1. The board, chaired by Finance Minister Alexei Kudrin, represents the federal and Sakha shareholders, with 51% and 40%, respectively.

The newly elected president of Sakha, Yegor Borisov, is quoted on his website as saying he favours a privatization sale of up to 25% of Alrosa's shares.

"Actually, we are running late in opening up the company," said Borisov, who replaced Vyacheslav Shtirov as republic president in July. Borisov's readiness to agree to reorganization of Alrosa's shareholding came more swiftly than Shtirov had been willing to concede before his departure.

Borisov noted: “The Alrosa contribution to the Sakha budget has been shrinking from 36% of the republic budget revenues in 2005 to 18% this year. If the company isn't restructured with a free float of shares in the international markets, he added, the company will languish for want of capital to develop underground [diamond] mines and build new open pits. We must open the company to give us an opportunity to attract additional capital and investment.”

The quid pro quo, Boris disclosed, is that he wants Alrosa's articles of association to be amended to increase the Sakha government's role in management decision making to offset the dilution of its shareholding.

Borisov has been adamant, however, that he will not agree to the privatization sale of more than 25% of Alrosa's shares; Kudrin and Alrosa chief executive, Fyodor Andreyev, have apparently been wanting to sell up to 49%.

Alexander Morozkin, deputy chairman of the Il Tumen, the Sakha parliament, announced through the parliamentary website: “On October 1, 2010, there will be the Supervisory Board of Alrosa, where the shareholders will express their views on the draft law. I think that probably the talk will be about the fact that there is no other option but to open the company, because of the current difficult financial situation in Alrosa, which requires taking immediate measures."

He said he expects the board to endorse the draft amendments, which will then go to the Il Tumen on October 6 for debate and enactment.

By John Helmer in Moscow.