By John Helmer, Moscow
When a man falls on his sword, his demise isn’t usually blamed on medical reasons.
A statement from the state diamond miner Alrosa on Monday reported  that chief executive Fyodor Andreyev (image, lower right) “decided to resign from the post of ALROSA president for medical reasons. He announced about this decision at the weekly management meeting held on 22 September. Stepping down from the operative management of the company, Fyodor Andreyev will continue to take part in ALROSA governance as a member of the Supervisory Board.” Now the smallest child in Russia knows that to absent himself from school, he must deliver a signed medical certificate. For a publicly listed shareholding company, as Alrosa has been since October 2013, to omit such a detail, and for Andreyev to judge it unnecessary, signals how little has changed in the governance of the company, and how unaccountable and non-transparent Andreyev was both in his coming to Alrosa, and in his going from it.
The trajectory of Alrosa’s share price indicates that the market has been relatively unmoved by the sight of Andreyev’s blood. During Tuesday’s low-volume trading on the Moscow Stock Exchange, the Alrosa share price rose and fell by less than a rouble, ending up where it began at Rb37.50. In the year to date, the share started at a low of Rb33 and reached its peak of Rb48 on July 16. Since then it has dropped to Rb36. The downward trajectory has followed the MICEX index for all Russian shares. But since Alrosa’s financial report  for the first half of the year appeared a month ago, indicating sales revenues up 28%, profits up 58%, the lack of bounce demonstrates the market is uncertain whether Andreyev’s demise will be good or bad for Alrosa’s prospects.
Andreyev absented  himself from the September 1 briefing of bank analysts on the financial report. Four of the five banks selected to ask questions – Morgan Stanley, UBS, Societe Generale, Bank of America, and Citi – omitted to ask questions about him or his tenure. Morgan Stanley broke the embarrassing silence by asking: “on the long-speculated CEO potential reelection, if there is any key date that we should be looking forward to or any update on that?”
The reply from Ilya Ryashchin, then First Vice President and now acting CEO, was: “As for our President and the renewal of his contract, that stays within the scope of the Russian Federation Government, and we are keen to get some news from there.”
TRAJECTORY OF ALROSA SHARE PRICE IN THE YEAR TO DATE
Source: http://www.bloomberg.com/ . Since listing, Alrosa’s shareholdings are: Federal government, 43.9%; the Sakha republic and districts, 33%; free float, 23%.
Since Andreyev has refused to give a single unscripted answer to the press in the five years he has held his job, there can be neither belief nor sympathy for his claim that he is suffering from a malady that hadn’t manifested itself when he applied for renewal of his five-year contract expiring in July. That a man of comparable career muteness, Yury Trutnev (image, upper left), the deputy prime minister in charge of supervising Alrosa, should have been able to dispose of Andreyev, also without explaining to the market the reason for the action, indicates how Russia’s new war economy continues to operate just as it did before, when there was peace.
At this month’s financial briefing, the bankers acknowledged the sensitivity of a state-controlled company like Alrosa to US Government attacks. One of them asked Ryashchin: “Suppose that sanctions against Russian diamonds are introduced by the EU, and ALROSA thereby loses the ability to sell diamonds into Europe. Will you be able to relocate, redirect your sales to other regions, and how much time might this take? Would this be associated with some losses to your realised prices, possibly?”
Lobbying by diamond interests in Israel and Belgium to deflect the sanctions campaign away from Alrosa, or from the state diamond manufacturer Smolensk Kristall, is well-known in the trade. Ryashchin answered that he and his board haven’t given the risk much thought, but they aren’t about to retaliate for Israeli and Belgian government support of regime change in Moscow. “[It] is quite hard to discuss a hypothetical thing,” the Alrosa executive claimed, “when you do not know what these sanction[s] could be, what these would be targeted against and what particular tools would be applied. It is even more difficult, given the degree of uncertainty in the question, to give any guidance on our realised price. Although we do look into different options of how we could sell our products, which regional markets we could use and which tools we can employ to refinance our debt.”
Trutnev’s attack on Andreyev became public knowledge in April. His pitch at the time was that Alrosa should invest more in downstream diamond cutting and polishing. For the Sakha republic, where all but one of Alrosa’s diamond mines are located and where diamond manufacturing has earned small private fortunes followed by large debts to the state budget and corporate bankruptcies, Trutnev’s proposal was, for all practical purposes, too unlikely to be an honest one. The full story, analysed in detail, can be read here .
Andreyev and Trutnev have never gone head to head in the intelligence quotient sense. If they had, Andreyev would have outpointed him. So long as Trutnev was mining minister between 2004 and 2012, Andreyev managed to avoid his attentions. With direct control over the federal government’s 51% stake – reduced to 43.9% on listing — the Finance Ministry and its minister dominated Alrosa, and shielded Andreyev. Alexei Kudrin’s (right) protection ended on September 26, 2011, when he was sacked  for grasping ambition. Trutnev too lost his ministry eight months later.
As the US war against Russia has intensified this year, Kudrin has sided, as he usually does, with those foreign forces whom the presidential chief of staff, Sergei Ivanov (below standing), considers inimical. The more Kudrin (sitting) has lobbied for President Vladimir Putin to make concessions to the US and European Union on Ukraine, the more his name appears on lists of the “Fifth Column” circulating among the nationalists of the war economy under Ivanov’s direction.
That Kudrin could not save his protégé Andreyev from six months of menaces from Trutnev is a signal that Kudrin is now out of the running for the promotion to the prime ministry he continues to hope for. According to Moscow press reports, Andreyev has taken his case for contract renewal to Putin. In February, at their last recorded meeting, Putin asked  Andreyev “Are there any problems between the local communities, the regional authorities and the federal government? Is everyone working in harmony?”
Andreyev is reported as answering: “I think that harmony also comes out of debate. We do debate many issues and do not always share the same point of view, but we have come a long way since the economic crisis. The crisis taught us a lot, above all, not to spend carelessly on all kinds of investment projects.” That last phrase was Andreyev’s shot at Trutnev.
Andreyev also told Putin: “I think that the agreement between the shareholders and the company’s significance as a taxpayer for the region are the economic foundation for our good relations. We will therefore try to make these relations more clear and transparent and will not undermine our economic base for the sake of fine slogans. I think that these foundations have been laid now.” Transparent is not what Andreyev has ever intended. Nor was Putin’s reply – “thank you”.
The “medical reason” which overtook Andreyev this week also signals that Kudrin’s old ally and Trutnev’s current boss, First Deputy Prime Minister Igor Shuvalov (below left, center), continues to scheme for personal advantage at Alrosa, just as he did when he backed Suleiman Kerimov’s (right) attempted takeover  of the company. That was before Kerimov was pushed onto the same sword as has disposed of Andreyev.
Trutnev’s  long ministerial career demonstrates the rich rewards that can be earned in Moscow for lacking a mind of one’s own. In consequence, whenever Trutnev makes a move as obvious as this year’s campaign against Andreyev, it is natural for the Russian diamond industry to speculate on the identity of the individual, corporation, or group giving Trutnev his marching orders.
This obvious question is one diamantaires in Tel Aviv, Antwerp, Gaborone and New York aren’t comfortable answering. One reason is that the one powerful (also jealous, aggressive) diamond industry figure who may gain financially from the move is Lev Leviev (lead image, centre), the Russian-speaking Israeli who continues to operate Ruis Diamonds, the second of the diamond-cutting and polishing companies in Russia, after the state-owned Smolensk Kristall. For years now, starting with Andreyev’s predecessor at Alrosa, Sergei Vybornov, Leviev has suffered a steady loss of influence at Alrosa and the supply of discount-priced rough diamonds for his local and international businesses. Has Leviev employed Trutnev to replace Andreyev with placemen to suit them both?
Sergei Goryainov suspects as much. Goryainov is a leading analyst at the Russian diamond industry bible, Rough & Polished. He believes Trutnev and Leviev are planning to revive old schemes of secret discounting for rough diamonds; exports of partially faceted stones; and other revenue-negative operations which Alrosa’s management has been eliminating. The Andreyev faction is fighting back with kompromat on Trutnev’s record like this , published the day after Andreyev announced his resignation.
“Andreyev’s leaving, “says Goryainov, “likely means the strengthening of the position of Trutnev in the form of putting some of his staff in the management of the company, especially in control of financial flows, of course. The probability that this attempt will be successful in the current situation is quite high. In this case, Leviev, as an advisor and consultant in the field of diamond business… can certainly get preferences, mainly in the field of product availability from Alrosa. If we draw a historical analogy, in the 1990s and early 2000s, 25% of Alrosa’s production was ‘processed’ in this way… If you look at current prices, with Alrosa now taking $5 billion in revenue, it can be assumed that a billion and a quarter will be utilized so nicely.”.
In April, Valeriy Morozov, the chief executive of Ruis Diamonds and Leviev’s representative in Moscow, was asked to say if Leviev and Trutnev are acting to concert to get rid of Andreyev. He replied: “Trutnev is certainly familiar with Leviev, but not so close. And even more, we cannot speak about any lobbying. As for Andreyev, on the contrary, our group has with him very constructive relationships in all areas. He is a very competent manager, the best of all the presidents of Alrosa in recent times. Indeed, today he is the most suitable candidate, and there is no alternative candidate for this position. Our view on this issue is well-known, including [our view] on Trutnev. But it is obvious he has his own view on Alrosa.”
This week, following Andreyev’s exit, Morozov said: “Leviev’s relationship with Alrosa does not depend on a specific person, and so to speak of ‘benefit’ is incorrect. As for Andreyev, we regret his departure from Alrosa. In our opinion, he was the most appropriate and professional president of the company for the past ten years. About the candidates [to replace him] we are absolutely in the dark. That’s the truth.”