De Beers Agrees to Buy Less from Russia

By Rob Bates, Senior Editor -- JCK Online, 2/1/2005 2:00:00 AM

De Beers' Botswana deal may be keeping it on top (see story on page 40), but its overall share of the market likely will shrink again in coming years, as the company has agreed to buy fewer stones from Russia so the European Commission can approve its contract.

The original contract between De Beers and Russia was submitted for EC approval in 2002. The EC rejected it, calling it an "abuse of [De Beers'] dominant position."

In the new version of the contract, De Beers and Russia will conduct far less business with each other. Alrosa, the Russian diamond monopoly, was originally supposed to sell De Beers $800 million in diamonds per year. The new version calls for it to sell $700 million in diamonds in 2005, with the number eventually dropping to $275 million in 2010, and then continuing at that level.

While the EC's apparent approval of the contract is a legal victory for De Beers, many noted that the deal is hardly favorable for the company, because it eventually cuts De Beers' supplies from Russia by nearly two-thirds. The two are currently doing business on a "willing buyer-willing seller" basis.