RAPAPORT... Russian President Vladimir Putin inked the long expected decree lifting export quotas on rough diamonds and precious metals on January 13. Russia’s Finance Ministry said in a statement that it expects lifting export quotas to level Russia’s rough diamond price with that of the world’s.
The decree, which took effect on signing, allows the export from Russia of rough diamonds, affined platinum and platinum-group metals without any quantity restrictions. However, exporting companies still have to obtain a license from Russia’s Ministry of Economic Development and Trade.
Producers view the lifting of the export quotas as an important step toward market liberalization. “We think that the market will react well to the decision [as it eliminates the] artificial divide between the external and internal markets,” an ALROSA spokesperson said.
Previously, producers had to get an annual or multiyear quota from the Russian government before they could export their goods via the government’s trading agent Almazjuvelirexport. In the past, some producers have failed to obtain quotas in time to export their goods because of the complicated bureaucratic procedure. For example, ALROSANyurba, an ALROSA subsidiary, obtained its export quota for 2005 nine months into the year.
Before the January 13 decree was signed, Norilsk Nickel, the world’s biggest platinum exporter, had to halt exports for almost two weeks because its platinum quota had expired on January 1. The company said in a statement that it had anticipated uncertainties because of the expected change in the law and had planned its shipments accordingly to minimize its losses.
Effect of Quota’s Decree Limited
ALROSA, along with Norilsk Nickel and other major producers, had called for lifting the quotas in recent years. But now, the company says that the decree will not cause any drastic changes. “The quotas the government granted [ALROSA] in the past were substantial, and thus we do not expect any major changes in our sales structure,” ALROSA announced. In recent years, diamond producers have used 65 to 70 percent of their export quotas, according to Russia’s Finance
Ministry data.
Although major producers, who already had generous quotas, may not see much difference immediately, the decree considerably facilitates exports for smaller companies, such as platinum miners ZAO Artel Staratelei Amur and Koryakgeoldobycha, who together mine about 30 to 35 percent of Russia’s platinum output.
Experts also agree that the effect of the decree will be limited because the government still has other export controls in place, including the export licensing by Russia’s Ministry of Economic Development and Trade, specialized custom control points that handle exports and the involvement of state controllers from the Finance Ministry in export contracting. It is generally believed that only after these controls are eliminated will real changes be seen.
Now that Russia is closer to joining the World Trade Organization (WTO) and the government has secured control over ALROSA, eliminating these other export controls seems more likely. “We expect that, within the framework of joining the WTO, the government might take new steps toward liberalization. Thus, both the licensing of precious stones exports and export taxes could be dropped,” the ALROSA spokesperson said.
ALROSA Sets Targets for 2007ALROSA projected sales of $2.898 billion in 2007, roughly the same as in 2006, according to the production targets approved by ALROSA’s supervisory board on December 25. The estimate includes $154 million from the sale of cut diamonds.
Although no official data for 2006 is available yet, ALROSA officials estimated sales in 2006 at about $2.8 billion. In 2005, the company sold $2.856 worth of diamonds, including $144 million worth of cut.
The board did not change the size of the dividends this year: 1.962 billion rubles (approximately $74 million), or 13 percent of the net profit.
In 2007, ALROSA plans to spend 2.65 billion rubles (approximately $100 million) on geological exploration, 565 million rubles (approximately $21 million) more than in 2006. Spending on prospecting will total 466 million rubles ($17.6 million).
ALROSA said it plans to start exploration in the Murmansk region and the Republic of Karelia. In other goals, ALROSA said it will work to improve the efficiency of explorations at the deposits of the Aikhal GOK and Nyurba GOK, to confirm the reserves of the Botuobinskaya and Verkhnyaya Muna diamond deposits and to construct mines at the Udachny, Mir and Aikhal deposits.
Among other ALROSA targets for the year are development of the overseas sales network and completion of the development plan for 2007 to 2011.
The Marketplace• Russia exported 35 million carats of diamonds worth $1.7 billion and 100 tons of platinum group metals worth $1.5 billion in 2006, according to the Russian Finance Ministry’s preliminary data. In 2005, the country exported 23 million carats of diamonds worth $1.658 billion and 144 tons of platinum group metals worth $1.314 billion.
• Gokhran, the Russian Finance Ministry’s State Precious Metals and Gems Depository, purchased $400 million worth of rough from ALROSA in 2006. In 2005, Gokhran bought $98 million worth of rough.
Article from the Rapaport Magazine - February 2007. To subscribe click here.