- The Washington Times - Sunday, January 6, 2002

UDACHNY, Russia Five-year plans and other Soviet relics dominate Russia's state diamond giant Alrosa but the world's second-largest diamond producer is determined to retool to meet global competition.
"Long live the friendship among the peoples of Russia" screams a banner strung across the walls of the factory at Udachny, northwest of Iakutye in eastern Siberia, where the glittering stones are extracted from rocks collected in the adjacent mine.
The slogan, next to a mural depicting two workers, male and female, in pure Socialist glory, recalls an old-style formula that once tried to reinforce the supposed links between the peoples of the Soviet Union.
Mining complex director Anatoly Popov happily calls it "this tiny island of Socialism" planted in the middle of the Siberian tundra which has been able to survive the chaos of the new Russia, where employee wages "depend on the plan and its execution."
Alrosa has clung to all the heavy socialist trappings child day care, employee lodgings, canteens from its Soviet days of a decade ago.
The company, based at Mirny, a mining town of 38,000 people, certainly keeps one foot in the past but has recently declared itself willing to change and is ready to "open its doors."
A delegation from the European Union also visited the monopoly's many installations in Iakutye, the Russian republic where nearly all of the stones known for their excellent quality are found.
But old habits die hard at Alrosa, supplier of 20 percent of the world's diamonds, whose two main shareholders are the Sakha Republic (Iakutye) and the Russian state.
In Mirny, the answer to questions is usually: "It's a state secret."
Among the closely guarded secrets are the value of Alrosa's mines, the number of carats per ton of rock extracted and the average price per carat.
However, several years ago, the monopoly began reporting its annual production figure and financial results. Last year, production was worth $1.6 billion, with net profit put at $345 million.
The company's ambitions are much bigger. Production should reach $2 billion in 2005, under a plan approved in June.
And investment needed in the period is targeted at $3.3 billion.
Alrosa has already announced a plan to raise between $250 million and $300 million on international markets in early 2002.
The unspoken but evident wish is to someday pass under the wing of world's leading diamond producer De Beers, with which it has cooperated for four decades.
Alrosa's contract with De Beers gives the South African giant the right to sell at least $550 million of Alrosa uncut stones per year on the international market.
The contract expires in December, and negotiations for a new contract are expected to begin soon. Alrosa does not feel big enough to stand alone.
In 1995 and 1996, Alrosa skirted its agreement with De Beers and poured raw diamonds into the black market. Prices crumbled.
"Alrosa should not enter a competitive battle with the big diamond producers," says Valery Rudakov, chief of Gokhran, the state reserve that controls sales of gemstones and precious metals.
For now, Alrosa is moving forward. While awaiting "independence," the group is speeding up development.
The huge open-sky Mir mine where diamond deposits were discovered in 1955, was closed last spring, but underground mining and other deposits have picked up the slack.
Alrosa also is developing its stone-cutting activities, worth $90 million in 2000 and targeted at $500 million in 2005, in India and Israel.
It has no constraints on selling the cut stones on the international market.


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