Under a new arrangement worked out by the European Commission, De Beers will after 2009 stop buying diamonds from Russian producer Alrosa, the second larger producer of diamonds in the world.
There will be a phasing-out period of the contract which will run from 2006 to 2008. Under the contract, De Beers will buy $600 million from Alrosa in 2006, $500 million in 2007 and $400 million in 2008. After 2009, the sales will cease.
The deal will be a big boost for the open market and undoubtedly is a blow for De Beers.
“For the first time in the history of the diamond market there is an opportunity for genuine competition,” Competition Commissioner Neelie Kroes commented in a statement. “De Beers’ long-running primacy can now effectively be challenged by its biggest competitor, Alrosa. The Commission’s decision frees up a viable alternative source for supply of rough diamonds, which will ultimately benefit consumers.”
A Commission statement said the new deal “will result in more rough diamonds being available on the open market, paving the way for genuine competition in the supply of rough diamonds.”
A trustee will oversee compliance of the agreements. If De Beers were to break its commitments, the Commission could impose a fine amounting to 10 percent of De Beers’ total worldwide turnover.
The Commission also said it had received a number of complaints against De Beers’ Supplier of Choice policy and was “assessing” them.