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By John Helmer in Moscow

Alrosa announced last week that it has appointed Vasily Grabtsevich as a special senior executive for managing relations between the two controlling shareholders of the company, the federal government in Moscow and the Sakha republic government in Yakutsk. The federal government controls almost 51% of the closed shareholding of Alrosa; Sakha controls 40%.

The creation of the new executive post at the vice president level, and the naming of a trusted subordinate of regional president, Vyacheslav Shtirov (centre figure), indicates the extent to which the new Alrosa CEO, Fyodor Andreyev (rear right), is intent on eliminating informal mechanisms and mediators, who have dominated the sensitive inter-government relationship under previous chief executives, Alexander Nichiporuk and Sergei Vybornov.

It also appears to be the first public signal that the behind-the-scenes power of Otar Marganya has come to an end, as Alrosa sources have also claimed. Marganya, officially an executive of state bank VTB, was the acknowledged grey cardinal of the company and advisor of the board chairman, Finance Minister Alexei Kudrin. Insiders believe Marganya helped orchestrate the replacement of Nichiporuk with Vybornov in February 2007. Marganya’s influence has waned as a result of the ouster of Vybornov in July of this year, and of the financial cleanup Andreev has been obliged to implement.

Grabtsevich, 59, comes from Belarus, and trained as a civil engineer in the Siberian city of Tomsk. Since 1976, he built almost his entire career in diamond enterprises of the Sakha republic, save for a three-year stint building power stations in Cuba. In 1998 he became deputy head of the Mirny regional government, and from 2002 a senior member of the Sakha government. His rank until this month was first deputy chairman of the cabinet under Shtirov. Andreev’s announcement says Grabtsevich “will supervise issues of the interaction between the public authorities of the Russian Federation and Republic of Sakha, and also the licencing of Alrosa.”

Earlier this month, and before Grabtsveich came on board, Andreev held a senior management meeting to review this year’s results and to consider preliminary targets for 2010. Mine output for the Alrosa group for 2009, including the Nyurba mine shared with the republic government, was valued at $2.244 billion. Rough diamond sales revenue is reported to have come in at $2.187 billion. That aggregate includes $923.4 million in sales to the state stockpile agency Gokhran; with commercial sales amounting to $1.26 billion. Previous year-end estimates issued by Andreev’s office were $2.1 billion for rough production value, and $2.3 billion for sales. Last week Gokhran said it had paid Rb32.5 billion for purchases of rough. This is currently equivalent to $1.07 billion. The difference of $142 million may be accounted for by Gokhran’s purchases of other sources of Russian diamonds, including alluvial production in the Urals.

In its annual report for 2008, Alrosa said its mine production value for that year amounted to $2.361 billion. The latest figure for 2009 suggests a year on year decline in production value of 4.9%. Gokhran sources claim there was a decline of production, counted on a carat basis, of 8%.

The latest release from Alrosa indicates that polished diamond sales for 2009 amounted to $60 million. In 2008, the comparable sales figure was $158 million.

According to the latest company release, the mine production target for next year has been set at $2.314 billion, almost unchanged from 2008. Sales to Gokhran are planned to go down to $872.1 million, the company now says, while commercial sales will rise concomitantly. The new target for polished diamond sales is $124.9 million. According to Alrosa, “The bulk of the goods, no less than 70% of the total available volume, will be distributed to large players on the market under long-term contracts with them.”

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