Alrosa foreign clients who invest in diamond cutting in Russia should get preferences on rough diamonds - Trutnev
MOSCOW. May 19 (Interfax) - Foreign cut diamond producers who are clients of Alrosa and open cutting facilities in Russia should get preferences in purchases of rough diamonds from the Russian diamond miner, Deputy Prime Minister Yury Trutnev, whose brief includes Alrosa, said.
This issue was discussed with Alrosa's new president Sergei Ivanov, who "understands that if companies will come to Russia preferential conditions need to be created for them for acquisition of stones," Trutnev, who is also the presidential envoy to Russia's Far East, told reporters.
"What will this lead to in Alrosa's sales policy? To some changes. This will not happen instantly," Trutnev said.
Alrosa opened the Eurasian Diamond Center (EDC) in Vladivostok, which was granted free port status, in September 2016 as part of its policy of strengthening its presence on markets in the Asia-Pacific region and increasing diamond cutting in Russia.
The first resident of the EDC was India's KGK Group, which according to the Far East Development Corporation is prepared to invest about 500 million rubles in a cutting factory in Primorye. The factory, with capacity of at least 15 million carats, is expected to be launched within four years. KGK, one of the biggest customers for Alrosa's rough diamonds, is a long-term Alrosa client directly and through two subsidiaries registered in Yakutia: DDK LLC and S.D. Diamonds LLC.
KGK, according to market players, could have asked Alrosa for certain preferential conditions for acquisition of rough diamonds, although the provisions of the Alrosa Alliance, the association of long-term Alrosa clients, guarantees equal access for all its participants. Alrosa also held negotiations with other clients on the construction of cutting facilities in Primorye, but details were not reported.
KGK has already shipped in equipment for the factory, Trutnev said. "There is complicated training of personnel there. At first there will be many of their workers, but they will train and change the proportion in our favor [Russian workers]," he said.
In order to increase the profitability of cutting diamonds in Russia it is necessary to resolve the issue with value-added tax, he said. "There is a plan of measures. Certain things need to be changed in order for it to be lucrative to do this in Russia....When Alrosa sells stones within Russia to cutting enterprises, VAT arises. This is a big markup," Trutnev said.
"We are seeking to have more of the rough diamonds that are mined in Yakutia turned into cut diamonds and jewelry within Russia, and better yet in the Far East," Trutnev said.
Alrosa sells most - currently about 70% - of its diamonds under long-term contracts, but the EDC is not an impediment to the current model, because in addition to long-term contracts there is also spot trading, Alrosa management said earlier. The EDC can hold showings of rough diamonds for both long-term clients and spot buyers, the company said.
Alrosa plans to sell 2 million carats of product in all categories for $73 million at the EDC in 2017. This is about 5% of the sales target by volume, which is 39 million carats, and less than 2% of last year's revenue of $4.375 billion. Former Alrosa president Andrei Zharkov forecast at the end of 2016 that total sales through the EDC could exceed $100 million-$150 million.
