Alexander Matveyev, Member of the Federation Council of the Russian Federal Assembly, First Deputy Chairman of the Federation Council Committee on Northern Territories and Indigenous Minorities, Mining Engineer, Academician of the Russian Engineering Academy, Doctor of Economic Sciences, Professor, worked as Chief of Industry Department of the Yakutsk Region Committee of the CPSU, Chairman of the Yakutia Planning Committee, Vice-President and First Vice-President of ALROSA.

In what way will the economic crisis affect Yakutia? What will happen to the large-scale projects included into the “Schedule of Comprehensive Development of Productive Forces in the Republic of Sakha (Yakutia) up to 2020?”

The crisis which started in the crediting and financial field and already produced a serious impact on the stock market is gradually shifting to the sector of real economy. Lower capitalization of companies, including those taking part in the Yakut projects, has an adverse effect for the possibility to attract investments. Some companies, for instance belonging to the electric power industry, planned to expand their presence on the stock market, but it is evident that today it is inexpedient. The crisis situation is complicated by the traditional foot dragging of our bureaucratic machinery. Currently, the way of processing documents necessary for allocating investments to fund regional projects, including Yakut projects as well, is much more inert and laborious than even in the Soviet time. Of course, the crisis will have a negative influence on the Yakut mega projects and the time needed for their implementation will evidently increase. But they will not be cancelled. The projects in Western Siberia and in Yakutia in particular are a natural tack of development in the Russian economy and they will be accomplished.

ALROSA has announced a significant decrease in rough diamond supplies to the market to stabilize prices, which will inevitably result in lower income of this diamond-mining company. In what way will it influence the budget of Yakutia?

Today one half of Yakutia’s budget is filled by funds received from the diamond company. There are other major payers to the budget – Surgutneftegaz and Yakutugol. More than one third of the budget is made up of transfer payments. Let us hope the crisis will not affect transfer deeds – the budget of the Russian Federation for the next year was approved with a great surplus and if these computations are correct the budget-dependent employees in the republic and the social sphere in general may feel confident. It should also be taken into account that the 30-percent decrease in ALROSA’s sales will bring down the republic’s budget revenue from the diamond business by about 7-8 percent and these losses can also be painlessly countervailed by the federal budget. However, the investment program of ALROSA itself will most likely be significantly corrected, which will inevitably affect the terms of commissioning the most capital-intensive projects – the underground mines.

Do you consider the cutting down of diamond supplies a correct decision?

Yes, it is a correct decision. And it is important that it be agreed upon by all the major diamond producers. Such a strategy is similar to that used on the oil market, but for the diamond market it can be even more vital. During the last decade, the one-channel system created by De Beers was destroyed. At first, it produced some euphoria and there emerged new trading floors and to many it seemed that competition between mining companies could animate the market and give it a new impetus to development. But I have always reckoned that competition between companies totally controlling more that 70 percent of the diamond market will not bring any good to the market and sooner or later it will forfeit this market. The polished diamond is a highly specific commodity and the consumer will need it only when its price will be growing. A polished diamond going cheap is not a polished diamond at all. Competition on the rough diamond market is inevitably expected to decrease prices for polished diamonds. As far as I know, right now, in the period of crisis high quality polished diamonds of three carats and above are in great demand, for such stones preserved their attraction as an investment. No one needs small stones, because their number is too great and they will quickly go cheap thus undermining the main idea of the diamond market. And this is exactly the result of destruction of the one-cannel system. A similar situation was shaping when Argyle left the one-channel system and at that time the market was saved by India and the growing demand in China. However, today these factors are non-operational.

Does the idea of a “diamond OPEC” suggest itself?

If the major producers of rough diamonds will be able to come to an agreement and establish a body similar to OPEC, this will guarantee their breakeven operation and give an opportunity to survive the crisis with minimal losses. And stability of diamond mining companies is a pledge of prosperity to the rough and polished diamond market as a whole.