MOSCOW — Despite a recent Russian Government authorization to release its production, sales, and mining data in carats, ALROSA, the state-controlled diamond miner, has refused, saying it will only issue the hitherto classified information to bankers and investors. The move, which appears to fly in the face of government transparency policy, as well promises ALROSA issued last year to Eurobond buyers, protects the company from recent criticism that its diamond valuation data violate the international Kimberley Process rules.

President Vladimir Putin signed an order on March 3, lifting state secrecy designations from data on carats of ALROSA's mine production, reserves, mine recovery rates, export quotas, sales, domestic consumption, and company stocks. Exempt from this order, and still secret, are data on the carat volume and value of the state diamond stockpiles managed by Gokhran, an agency of the Finance Ministry. Recently, a Finance Ministry note was issued implementing the presidential decree.

However, Andrei Gusenkov, spokesman for ALROSA, told The Russia Journal: "The finance ministry's note offers a legal possibility to publish data. But it's not an obligation. At the moment, Alrosa has no plans to publish information on reserves as well as on production and sales in carats."

In the past, when ALROSA sought export secured loans from international banks, the company arranged for carat data on its mines to be made available. This was done indirectly through estimates prepared by a Belgian geologist, Luc Rombouts. Last October, when ALROSA's Luxembourg affiliate offered Eurobonds to investors, the company provided letters from the Ministry of Natural Resources and Finance Ministry in Moscow. These certified that ALROSA's diamond reserves were enough "to enable ALROSA to extract over the next 25 years…[at] an annual average volume of diamonds at least as great as that extracted during 2003." The average carat size and quality of the rough was also certified as "not materially lower" than diamonds produced in 2003. Watch the adverb, because the company neither disclosed the carat volume, nor the average carat value of its stones.

But it did give investors the impression this was its unwitting duty, imposed by the government's secrecy regulations. According to the October 2004 Circular, the regulations were about to change, and ALROSA only too happy to go along. Referring to last year's amendments of the state secrecy law – which paved the way for the March 3 presidential decree – ALROSA declared: "we believe that this liberalisation trend will create certain opportunities for our business. Based on discussions with officials of the Government of Russia, we believe that the Government of Russia will implement further diamond market liberalization reforms, and we intend to pursue additional opportunities resulting from such market reforms…"

Now that the government officials, with whom ALROSA had been speaking, have told the company it can release carat data, how could the company, whose board is chaired by the Minister of Finance, fail to comply. According to Gusenkov, "the policy of ALROSA is determined by its shareholders indeed." On the other hand, "ALROSA doesn't have any particular decisions from its owners regarding the data declassification."

As for how long ALROSA intends to keep the wraps on, Gusenkov said: "we did not give any prognosis in terms of time. And why should we?"

But if ALROSA wants to borrow money, or sell bonds, the wraps will be partially lifted, Gusenkov concedes. He told The Russia Journal. "It's possible that we would provide these data to certain investors within the framework of certain projects, but at the moment there is no need for that." Watch the adjective this time – if "certain" investors, who, and if not others, why?

International bankers and bond-buying institutions have little professional competence to analyze carat values, or to follow the chain of carat valuations from the mine-head to the point of sale. For years now, those who are expert in these matters, and whose livelihood depends on it, principally Russia's diamond buyers and manufacturers, have been vocally critical of ALROSA's pricing practices. They accuse the company's management of transfer pricing to move cash through subsidiaries offshore; of over-pricing for domestic buyers of the same stones exported for less; and of favouritism in the allocation of best-quality stones to polishers, leading to inflated profit margins for ALROSA's affiliated manufacturing plants, as well as kickbacks.

Critics of the concealment from within ALROSA, as well as government officials, have been trying to put a stop to these practices for several months. The campaign has led to bitter feeling between the so-called federals, supporting transparency and reorganization, and the so-called Yakuts, representing the Sakha region where most of ALROSA's mines are located, and where the company has been run since its beginnings. A showdown is expected within months between President Vladimir Putin and the president of Sakha, Vyacheslav Shtirov.

In the meantime, signaling that the federals believe ALROSA's information policy is causing international problems, a report issued in Moscow by the Civil Research Organization (CRC) recently identified millions of dollars in discrepancies between different sources of company data. According to CRC, there is an uncomfortable conclusion: current data "do not reflect the real state of affairs, and can be the basis for serious claims from other members of the Kimberley Process."

The Kimberley Process is the international effort to stop illicit diamond trafficking and criminality associated with diamond mining, especially in Africa. Russia is the standing chairman of the Kimberley Process this year, and Finance Ministry officials are responsible for the day to day enforcement of the rules. If ALROSA is to be taken at its word, however, it is seeking to operate outside the rules.