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ALROSA’s Marketing Policy 2009 in the Eyes of its Customers

24 december 2009

On the threshold of the coming New Year our correspondent asked a group of diamond manufacturers to share opinions about their work with the largest Russian diamond miner in the expiring year. Here is what they said.

Valery Morozov, General Manager, Ruiz Diamonds Group:

There were two marketing decisions which were basically correct: the decision to stop sales in the beginning of the year (that saved the rough market from a collapse), and the decision to start developing a customer policy tailored after the sightholder system, i.e. selecting a limited number of genuine and well-tried clients with a view to conclude long-term contracts for warranted delivery.

In our opinion, the company’s pricing policy is wrong: already for several years ALROSA has been trying “to squeeze” the maximum price out of rough buyers depriving them of the opportunity to develop and pursue their own balanced marketing policy, which is in the long run harmful to ALROSA itself (here is an example related to the situation in the end of 2008 when buyers having no “fat pool” were quick to refuse from rough purchases at the slightest drop in polished prices on the market).

Nikolay Zhuravlyov, Press Service Manager, Kristall of Smolensk:

Last August, the Kristall Production Association renewed its commercial relations with ALROSA and until now these relations are developing in a positive key. Our association occupies a good niche on the market and remains one of the largest customers of ALROSA - adequate, loyal and always ready for dialogue and work. We think that in the coming year our relations will remain at the same level.

Rajesh Gandi, General Manager, Choron Diamond:

There is simply nothing to say about ALROSA’s marketing policy - in the current year 95% of factories in Russia stayed idle because ALROSA did not supply any goods for the most part of the year. All the diamond cutters here depend on this company but the company itself, like us, is suffering from another problem, which is the 18-percent VAT. Like Russian diamond cutters, this company is in a tight corner trying to sustain competition – all of us are under severe constraints: if you pay money today and are going to return it after a while, the difference will make a great deal of money, because there will be quite another exchange rate. To develop diamond cutting on the Russian territory it is necessary to solve the VAT problem, because Russia is the only country where this tax is raised. And in the following year ALROSA’s marketing policy too will depend on whether this problem will be solved or not. Both the diamond mining and diamond cutting industries need to cancel the VAT as does the whole industry. In addition, in Russia it is still difficult to receive bank credits, and although in the rest of the world this situation has already returned to normal in Russia there are no visible changes in it so far. I think that the company will experience difficulties for another year, and only by 2011 its marketing policy will be normalized.

Pyotr Fyodorov, Chairman of the Board, EPL Diamond:

The current crisis has highlighted instability of such mono-function giants as ALROSA. As I believe, to boost the company’s stability it should pursue two major tacks in its strategic development. Firstly, it should facilitate an all-round development of the domestic rough diamond market in Russia. While doing this the company should revise the whole system of evaluating customers giving preference to diamond manufacturers able to reach retail end users of diamond jewelry.

Secondly, the company should diversify its business the way other transnational mining companies are doing this, as for instance ВНР, where diamond mining is only a small part of its business and where demand crisis on the diamond market is leveled by stable demand for other kinds of raw materials: Al, Cu, Pb, etc.

The strategy of development pursued by the ALROSA Investment Group reflects the intention of ALROSA’s shareholders to follow this way with a view of increasing the company’s financial stability.

Aisen Nikitin, Deputy General Manager, OAO Zoloto Yakutii:

As for ALROSA’s marketing policy in the expiring year there virtually wasn’t any since it sold almost everything to Gokhran of the Russian Federation. As for the next and further years I believe that ALROSA being a Russian company should pay attention to Russian diamond cutting enterprises instead of selling rough abroad. And, probably, there should be some legislative leverage to close speculation channels and sell only to enterprises which are really engaged in diamond cutting. ALROSA checks its customers, but such checks should be performed more often – it’s not a secret that the former company management connived at some companies, and rough under ALROSA’s quotas was re-sold abroad (this scheme as is now well-known was abused by many companies).

Generally, I wish that ALROSA turned its face to Russia’s diamond cutting industry and that added value stayed here, in Russia, instead of going abroad.

Galina Semenova, Rough&Polished