Rapaport Magazine

Russia

By Svetlana Shelest
New Rules, Changes Ahead

The Russian diamond industry might be facing some serious changes in the wake of the new World Trade Organization (WTO) customs requirements effective September 1. As Russia’s 6.5 percent export duty on rough gets lifted, overseas clients of ALROSA, the country’s and world’s top diamond miner, will have to pay that much less for their purchases. And ALROSA’s hands will no longer be tied to giving preference to intra-country sales.

Polishers Request Support
   While the move is beneficial both to the miner and its international sightholders, it might hit Russia’s diamond polishing industry hard, according to the state’s largest cutter and polisher, Kristall Smolensk. In a letter addressed to Deputy Finance Minister of Russia Alexey Moiseyev, the company’s head and two-time President of the International Diamond Manufacturers Association (IDMA) Maxim Shkadov pointed out that the export duty in question used to serve as a protective mechanism for the Russian polishers. To a certain extent, it counterbalanced the economic advantage that India’s polishers enjoy over them thanks to that country’s robust state support and easily available low-interest credit.
   Shkadov pleaded for either reversing the rough export duty annulment or for introducing a set of measures to help the country’s diamond manufacturers stand a chance against their international competitors. Such measures should include, in Kristall Smolensk’s view, giving preferential terms to Russia-based sightholders at ALROSA’s sights, abolishing the domestic value-added tax (VAT) on rough transactions, simplifying customs procedures and setting up a system of preferential loans for polishers.

Seeking Solutions
   The option to waive the WTO requirement is, however, not being considered by the government. In his interview with the Interfax news agency, Rinat Gizatulin, vice president of ALROSA since December 2015, shared that the State Customs Tariff Regulation Committee ruled that there is insufficient grounds to do so. At the same time, the Ministry for Economic Development and the Finance Ministry have been tasked to jointly produce a strategic development plan for Russia’s diamond mining and polishing industry through 2030 that includes state support mechanisms. The plan is expected to be submitted for the government’s review by October 1.
   In a statement to the press, Moiseyev also confirmed the government’s intention to support the polishers saying, “We shall certainly provide support, though the question is still open as to how.” Moiseyev also pointed out that the consequences might not be so disastrous after all, as “ALROSA’s sales strategy of long-term contracts levels out possible price fluctuations and ensures certain stability.”
   ALROSA also pitched in to support the country’s diamond polishing industry and already submitted its proposals to the government. In particular, the miner pledged to supply the equivalent of $23 million at the current ruble-to-dollar exchange rate to fund subsidized loans for polishers in need. The money will come from the savings generated by the canceled rough export tax, explained Gizatulin. He also added that the miner is running a polishing business, too, and therefore might also be interested in getting support to adjust to the changes.

ALROSA Reorganizes its Polishing Arm
   From the beginning of 2016, ALROSA has been implementing its plan to reorganize the in-house cutting and polishing business it had approved in 2014. The company recently completed bankruptcy procedures for its polishing branch Orel-ALROSA, which used to produce 12 percent of the company’s total polished output, in order to merge it with ALROSA’s two remaining polishing hubs. These are comprised of the Barnaul-based Kristall Factory that specializes in making medium-sized diamonds and Moscow-based Brillianty ALROSA, which is primarily focused on fancy color and extra-large gems.

Jewelers Preparing for the Fall Season
   In the meantime, Russia’s jewelers are getting ready for the revival of business activity that comes with the fall. As usual, it will be kicked off by the nation’s largest jewelry exhibition Junwex Moscow on September 28 through October 2 and the Russian Jewelers Guild’s fourth International Economic Jewelry Forum scheduled to take place on September 29. The country’s jewelers will gather to sum up the results so far and to discuss the industry’s pressing issues. In particular, the community was most recently shaken by the government’s ban on the activity of some online jewelry stores. This brought to light the urgent necessity to discuss prospects of the online jewelry trade and its legal framework. 

Article from the Rapaport Magazine - September 2016. To subscribe click here.

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