De Beers, the world’s biggest diamond producer, is under European antitrust scrutiny for the way it controls the sale of its diamonds, less than a year after regulators approved its sales practices, Bloomberg news service reports.
European Competition Commissioner Mario Monti is reportedly re- examining the supplier of choice distribution system after receiving complaints from dealers and distributors about how De Beers is enforcing the new agreements.
“The world’s most long-standing monopoly hasn’t been challenged by the world’s strongest competition authority,” Richard Corbett, a member of the European Parliament in Strasbourg, France, reportedly said. “De Beers is tightening its hold with the way it is implementing the supplier of choice system.”
The commission approved De Beers’ distribution system after the South African company agreed to change the contracts it imposes on clients who buy rough diamonds and sell them on. De Beers streamlined the way it selects sightholders and agreed to give more notice to end a contract.
“De Beers has picked firms where they can see through directly to which retail point they’re selling and under which sort of marketing programs,” Daniel Horowitz, Managing Director of IDH Diamonds in Antwerp, reportedly said. “It doesn’t leave room for generic diamonds and is effectively driving prices up at the consumer level.”
Horowitz said this “was one of the many aspects of our complaint against De Beers for abuse of dominant position.”
Monti reportedly told European parliamentarians earlier this week the commission will continue to monitor the market and reserves the right to reopen the file on the supplier of choice system.
The commission will be contacting companies in the coming weeks to seek more information about the operation of the sales system, Monti reportedly said. “The commission doesn’t yet have all the details at its disposal,” Monti said, according to a transcript of the parliament’s proceedings.
De Beers, 45% owned by Anglo American Plc, reportedly said it will cooperate fully with the commission.
“The commission has indicated that it is `fact-finding’ which is perfectly normal when faced with such a question,” Lynette Hori, a spokeswoman for De Beers, reportedly said. “We don’t see it as problematic in any way and will be cooperating fully with the commission, as always, if and when we receive any request for information.”
De Beers is also seeking European Commission antitrust approval for a sales agreement with ZAO Alrosa, Russia’s diamond- mining monopoly. Alrosa signed a five-year agreement in late 2001 to sell $800 million of gems annually to De Beers.
The setback to the company’s supplier of choice sales system is the second this week. Under the original agreement with the commission, sightholders were entitled to six months’ notice before a contract could be ended. An Antwerp court ruled DTC, part of De Beers, can’t end its relationship with an Antwerp customer after giving six months notice.
The court said the customer should be supplied rough diamonds at least until Sept. 2004, giving it a nine-month extension, according to the International Diamond Exchange, an on-line trading platform. The ruling further asserts that the additional nine months can be extended implicitly—until there is a final ruling in the case, the Web site reported.
The ruling could open the way for other customers to sue the company in Belgian courts, which are considered “relatively simpler and less complicated” than English courts, the International Diamond Exchange said.
The Oppenheimer family owns 45% of De Beers and a venture of the Botswanan government holds 10%.