Last Thursday evening, Lev Leviev met Russian President Vladimir Putin at Jerusalem's David Citadel Hotel. Chief Rabbi of Russia Berl Lazar was present. Lazar is considered close to Putin and in strong standing with him, as well as being very close to Leviev, who also serves as chairman of the Federation of Jewish Communities of the CIS (FJC), among his other posts.
Earlier, top diamond merchants sat at the same table with Putin at the state dinner President Moshe Katsav held in Putin's honor. Someone apparently made the innocent mistake of thinking that people working in the same industry have the same interests. That is how Dan Gertler and Lev Leviev found themselves sitting at the same table.
This came a day after Alrosa CEO Alexander Nichiporuk (who sat between Gertler and Leviev at the state dinner) announced a new partnership with Gertler to export $250-300 million worth of diamonds a year from Angola's Katoka mine, apparently at the expense of Leviev. The Alrosa-Dan Gertler Israel (DGI group) partnership will replace a partnership Leviev set up a year ago with Angolan government company Sociedade de Desenvolvimento Mineiro (Sodiam). The result was that the atmosphere at the table could be cut with a knife.
Sitting at the round table
Sitting at the same round table was former Israel Diamond Exchange president Moshe Schnitzer and his grandson Dan Gertler, who is closing in on and even threatening Leviev, both in the export of diamonds from Angola, and vis-à-vis Alrosa itself. Next to them sat Nichiporuk, a powerful man and a member of Putin's inner circle, with silver hair and an immaculate Western suit. New Diamond Exchange president Avi Paz sat next to him, then Rabbi Lazar and Leviev, to complete the circle.
In an interview with "Globes" earlier, Nichiporuk had removed any doubt that the balance of power had changed, and that Gertler was now Alrosa's main partner in both Angola, and in Alrosa's strategic target - the Democratic Republic of the Congo (Kinshasa). Nichiporuk said that Alrosa first wanted to establish itself in mining in Congo, and then in exports. Alrosa is prepared to help DR Congo state diamond mining company Miba increase production and profitability.
Nichiporuk also revealed for the first time that Gertler would be Alrosa's partner in mining, marketing, and exporting Congolese diamonds, and in Russia as well. The next goal is to export half of Alrosa's output to Israeli diamond merchants.
As far as the distancing between Alrosa and Leviev was concerned, a distancing brought about by his very announcement this week of the partnership with Gertler for exporting Angolan diamonds, at Leviev's expense, Nichiporuk remained diplomatically discreet in the interview. Poker-faced, he carefully avoided commenting on the new balance of forces Alrosa created between Leviev and Gertler. Nichiporuk did say, however, "We were partners with Leviev for many years, as well as with others," adding, "We want different members of the Israel Diamond Exchange as our partners. It's not good to create monopoly relations."
The mask slips
Nonetheless, Nichiporuk said, "We see ourselves as fair partners working together," while ignoring the damage to Leviev's standing. But right at the end of the interview, Nichiporuk's mask of stern neutral Russian diplomatic rectitude slipped completely. It happened when I asked him how many diamonds Leviev had imported from Russia to date, and I mentioned that in response to Alrosa's announcement about its partnership with Gertler to export Angolan diamonds, Leviev said that he was unaware of the agreement, and that four years remained of his five-year contract.
Nichiporuk said in response, "No one knows how many rough diamonds Leviev exported from Russia, not even me. I think that the best way to know is to ask Leviev personally, but I think that Mr. Leviev himself does not know the amount. Why? Because he has many ways of exporting diamonds from Russia." Nichiporuk then chuckled, and his aide burst out laughing.
In a subsequent conversation with "Globes", Leviev rejected the possibility that Nichiporuk was criticizing him sharply. He said that Nichiporuk merely meant that Leviev bought diamonds from other sources in Russia, besides Alrosa.
"Alrosa is not the exclusive exporter of diamonds from Russia. Every diamond merchant can export 15% of his allocation, and I also buy this way," said Leviev. "I have mining rights in Russia, so he (Nichiporuk) means that he can know how many diamonds we buy directly from Alrosa, but not about all the rest."
During the interview, it became clear that Nichiporuk understands English very well, but chose to reply in Russian. A man accompanying him to the interview at first seemed to be an ordinary interpreter, but when he later introduced himself, he turned out to be Diamond Chamber of Russia president Serguei A. Oulin.
Nichiporuk adamantly insisted that Alrosa's new partnership with Gertler in Angola, in which the Angolan government is a party, would have exclusive rights to import diamonds from the Katoka mine to Israel. When asked, "How do these imports comply with Leviev's rights to import diamonds from Angola?" Nichiporuk replied, "Only we will import 100% of the diamonds from Katoka. As far as I know, two companies cannot both import the same diamonds."
In other words, Leviev is out of the picture.
Leviev said in response, "I think the situation will clarify over the coming month. There has not yet been any official decision. Only the Angolan government will decide who will import Katoka diamonds."
"Good partners"
The competition for Angolan diamonds is for an export market officially estimated at $1 billion a year, plus another $500 million that is smuggled out of the country. The Katoka mine is expected to increase its output to six million karats a year, worth $450-500 million. Production could reach $1 billion in five years.
Leviev told "Globes" that he rejected speculations that his refusal to recognize Alrosa's agreement with Gertler was tantamount to a declaration of war against Alrosa. Despite the events and Nichiporuk's comments, Leviev reiterated, "Our relations with Alrosa and Angola have not been affected at all. We haven’t lost any deals, and we're good partners."
Regarding Arkady Gaydamak , whose deteriorating relations with Leviev are thought to be an important cause of Leviev's deteriorating relations with Alrosa and Putin, Nichiporuk said, "Gaydamak helped promote Alrosa's entry into Angola (which created the partnership with Gertler - H.M.)." He added that previous reports about rumors about Gaydamak overseas did not affect relations with Gaydamak, who represents Angola in Russia.
Nichiporuk also said that Russia's output of rough diamonds would total $3 billion this year, 20% more than in 2004, including Alrosa's rough diamond output in Angola. In this context, Alrosa's penetration of Africa constitutes its next hope to grow to a size to compete against De Beers Diamond Trading Company (De Beers), whose current production amounts to $6 billion a year.
Dan Gertler declined to comment on the report.
Published by Globes [online], Israel business news - www.globes.co.il - on May 2, 2005