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04 december 2012

Yakutia’s Arbitration Court upheld the Federal Antimonopoly Service Department for Yakutia in a dispute with the government of the Republic of Sakha (Yakutia) and ALROSA, according to a report posted on the official website of this supervisory authority on November 30, Roman Mandzyak writes in an article published by the Nashe Vremya online daily (http://www. nvpress.ru/economy/1619). This puts an end to an almost year-long confrontation.

On November 23, 2012 the Arbitration Court voiced the operative part of the judgment in the case challenging the decision and order of Yakutia’s Federal Antimonopoly Service (FAS), by which the Government of the Republic of Sakha (Yakutia) and ALROSA were recognized as having violated Article 16 of the Federal Law "On Protection of Competition" due to their conclusion of an anti-competitive agreement.

Let us remember that what we are talking about here is the Agreement on Social and Economic Development of the Republic of Sakha (Yakutia) signed in March 2011 between the Government of the Republic of Sakha (Yakutia) and ALROSA. In particular, the FAS set its eyes on Clause 2.15 concerning the diamond industry of the Sakha Republic.

This clause provides that the parties to the agreement acting via the Diamond Council under the President of the Republic of Sakha (Yakutia) "shall pursue a joint policy to support and develop the diamond cutting industry of the republic involving a stable supply of rough diamonds to the diamond cutting factories engaged in diamond manufacturing on the territory of the republic, as well as development of diamond mining and diamond cutting as a whole."

Having examined this covenant of the agreement, as well as the documents collected during the inspection, Yakutia’s FAS concluded that this covenant "could lead to restriction of competition, as it puts the enterprises engaged in production activities in the republic in a privileged position compared to other economic entities operating outside the republic," the report said.

The Federal Antimonopoly Service Department for Yakutia initiated this case at the end of March 2012. In an interview with the Nashe Vremya, Nadezhda Kononova, the then chairman of the Diamond Council under the President of the Sakha Republic (Yakutia), said that "the first request from the FAS came to us in December 2011, and then there was an investigation underway initiated by an appeal to probe into the violation of antitrust laws by the Government of the Republic of Sakha (Yakutia ) and ALROSA consisting in the conclusion of the Agreement on Social and Economic Development of the Republic of Sakha (Yakutia). We provided all the requested documents."

Nadezhda Kononova also assured the Nashe Vremya that "the Government of Sakha (Yakutia) believes that the antitrust laws are not violated" and "intends to continue to defend its position and leave the mentioned clause in the agreement intact."

The chairman of the Diamond Council also suggested that this interest in aggravating the situation may come from companies operating outside of Yakutia and most probably abroad, as well as from those that are controlled by foreign capital.

"The amount of rough diamonds is declining with each passing year and such actions that we see today can be interpreted as hidden competition. I am confident that the government will protect the interests of Yakutia’s diamond manufacturers," Nadezhda Kononova said.

However, the FAS held the first hearing of this case in early April 2012 followed by another one on May 30. The government lawyers filed an appeal to this decision to the Arbitration Court of Yakutia. Prior to that, the Arbitration Court confirmed that the position of Yakutia’s FAS was correct.

Yegor Borisov, President of the Republic of Sakha (Yakutia), was also quick to retort the attempts by Yakutia’s FAS to recognize the provisions in the agreement as "anticompetitive." At a press conference held in early June this year, he said: "I have requested these materials from the Federal Antimonopoly Service Department for Yakutia. But their lawyers were so competent (put this word in quotes) as to say this was a commercial secret and I was not supposed to get acquainted with them! Meanwhile, I happen to be the Deputy Chairman of the Supervisory Board of ALROSA, who knows everything about the company and who daily receives not only papers with commercial secrets but also other confidential documents. The activities of the Federal Antimonopoly Service Department for Yakutia turn into a stumbling block, not a tool for development of entrepreneurship and business in general. You may write just as it was said! We shall not sue them or stoop to mudslinging," the president said.

The government of Yakutia and ALROSA have a chance to appeal the decision of the Federal Antimonopoly Service Department for Yakutia to the Arbitration Court of Appeal.

However, the fate of Clause 2.15 contained in the "scandalous" agreement remains unclear. ALROSA has no obvious interest in supporting Yakutia’s diamantaires by a "stable supply of rough diamonds," so the company will not cling to this clause. However, for the government of Yakutia this clause is not just a matter of principle, but it is also a way to support local diamond manufacturers.