Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case COMP/E-2/38.381 — De Beers–Alrosa   (Text with EEA relevance)
Date: 2005-06-03
Institutions: European Commission
Subjects: competition law, dominant position, economic concentration, exchange of information, merger control, mining extraction, precious stones, trade agreement

C 136/32

EN

Official Journal of the European Union

3.6.2005

Notice published pursuant to Article 27(4) of Council Regulation (EC) No 1/2003 in Case
COMP/E-2/38.381 — De Beers–Alrosa

(2005/C 136/13)

(Text with EEA relevance)

1. Introduction

(1) The European Commission has received two sets of
commitments formally endorsed by the De Beers
Group of companies (‘De Beers’) and Alrosa Company
Limited (‘Alrosa’)
respectively in the course of a
Commission investigation pursuant to Articles 81 and
82 of the Treaty and to Articles 53 and 54 of the EEA
concluded
into the Trade Agreement
Agreement
between these two companies.

(2) By means of the present publication, the Commission
intends to market test De Beers and Alrosa's proposed
commitments, which purport to address the Commis-
sion's competition concerns expressed in its preli-
minary assessment with regard to the notified Trade
Agreement. Subject
the present
market test, the Commission intends to adopt a deci-
sion pursuant to Article 9(1) of Council Regulation
(EC) No 1/2003 of 16 December 2002 on the imple-
mentation of the rules on competition laid down in
Articles 81 and 82 of the Treaty (1). Such a decision
would not conclude whether or not there has been or
still is an infringement.

to the outcome of

2. Summary of the Case

(3) On 5 March 2002 De Beers and Alrosa Company
Limited notified under Regulation No 17 a Trade
Agreement dated 17 December 2001 to the European
Commission. Pursuant to this Trade Agreement Alrosa
would supply rough diamonds to the value of USD
800 million per annum to De Beers for a duration of
five years. At the time of notification, this amount
represented about half of Alrosa's output and corre-
sponded in practice
rough
diamonds Alrosa had been exporting in the previous
years outside the Former Soviet Union through similar
Trade Agreements with De Beers. The said Trade
Agreement provides that its implementation is condi-
tional upon confirmation from the European Commis-
sion that it does not infringe Articles 81 and 82 of the
Treaty.

to the quantities of

(4) De Beers is the largest diamond mining company in
the world. Next to its wholly-owned diamond mines in
South Africa, De Beers has entered into production
joint-ventures with the governments of Botswana,
Namibia and Tanzania. It has interests in operations
throughout the world in relation to diamond explora-
tion, mining, recovery, valuation, marketing, trading,
cutting and polishing of rough diamonds and jewellery
sales, covering in effect the entire diamond pipeline
from the mine to the consumer.

(1) OJ L 1, 4.1.2003, p. 1.

(5) Alrosa is the second largest diamond mining company
in the world, accounting for over 98 % of Russian
diamond production, Russia being the second largest
diamond producing country in the world,
in value,
after Botswana. Alrosa has interests in operations
the Russian Federation in relation to
throughout
diamond exploration, mining,
recovery, valuation,
cutting and polishing of rough diamonds as well as
jewellery manufacturing.

(6) On 14 January 2003 the Commission opened proceed-
ings under Article 81 of the Treaty against De Beers
and Alrosa and under Article 82 of the Treaty against
De Beers regarding the Trade Agreement notified on 5
March 2002 and provided access to the Commission's
file.

(7) Supplementary

of

statements

objections were
addressed to the parties on 1 July 2003. The only
purpose of these was to add the legal basis of Articles
53 and 54 of the European Economic Area Agreement
to the statements of objections of 14 January 2003.

(8) The statements of objections referred to at recitals 6
and 7 are deemed to constitute the preliminary assess-
ment within the meaning of Article 9(1) of Regulation
(EC) No 1/2003.

(9) Pursuant to the preliminary assessment, De Beers holds
a dominant position in the world-wide
rough
diamonds market. By entering into the notified Trade
its largest competitor, De
Agreement with Alrosa,
Beers would gain control over a significant source of
supply on the rough diamonds market, enabling it to
acquire additional market share on that market and to
obtain access to an extended range of diamonds other-
wise not accessible to it. This would, on the one hand
eliminate Alrosa as a source of supply on the market
outside Russia and would enhance the already existing
market power of De Beers with the effect of hindering
the growth or maintenance of competition in the
rough diamond market.

(10) The preliminary assessment also noted that pursuant
to the notified Trade Agreement, De Beers, the largest
diamond producer in the world, would act as a distri-
butor of about half
its largest
competitor. In view of the fact that quantities traded
would be substantial and the agreement
is made
between the two largest undertakings on the rough
diamonds market, competition on this market as a
result of the Trade Agreement would be substantially
weakened.

the production of

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EN

Official Journal of the European Union

C 136/33

3. Commitments

3.1. The Commitments offered

(11) The parties subject to the proceedings replied to the
Commission's objections in writing on 31 March 2003
and defended their arguments orally at a hearing held
on 7 July 2003, emphasising that they did not agree
with the Commission's preliminary assessment. They
have nevertheless offered to abide by a set of commit-
ments, which are designed to remedy the Commis-
sion's
are briefly
summarised in what follows and are also published in
full in an English version on the website of the Direc-
torate-General
for Competition: http://europa.eu.int/
comm/competition/antitrust/cases.

concerns. These

commitments

the sales of

(12) De Beers and Alrosa undertake to gradually decrease
rough diamonds made
the value of
between them and that
the maximum amount of
rough diamonds to be sold by Alrosa to De Beers
annually would not exceed the amounts specified in
the following table:

Year

2005

2006

2007

2008

2009

2010

Maximum Supply cap (US $
million)

700

625

550

475

400

275

(13) In 2011 and thereafter, De Beers and Alrosa undertake
that the maximum amount of rough diamonds to be
sold by Alrosa to De Beers annually would not exceed
USD 275 million.

(14) De Beers and Alrosa further undertake to implement
the commitments by concluding a trade agreement

similar in principle (in particular pricing provisions,
sorting and valuation) to the notified trade agreement
but including an obligation on Alrosa not to sell to De
Beers and an obligation on De Beers not to purchase
from Alrosa rough diamonds in volumes greater than
those specified in recitals 12 and 13.

(15) An independent third party will be appointed by each
De Beers and Alrosa to verify compliance with the
commitments by De Beers and Alrosa respectively. The
appointment and mandate of this independent third
party will be subject to the Commission's approval. A
separate report for each of Alrosa and De Beers on
compliance with the commitments will be submitted
annually to the Commission.

4. The commission's intention

(16) The Commission intends, subject to the outcome of
this market test, to adopt a decision under Article 9(1)
In accordance with
of Regulation (EC) No 1/2003.
it therefore
Article 27(4) of Regulation No 1/2003,
invites
their
interested third parties
comments to it within one month of the publication
of this notice.

to submit

(17) Interested third parties are also asked to submit a non-
confidential version of their comments, in which busi-
ness secrets and other confidential passages are deleted
and are if necessary replaced by a non-confidential
summary or by the words ‘[business secrets]’ or ‘[confi-
dential]’.

(18) Comments can be sent to the Commission by e-mail
(COMP-GREFFE-ANTITRUST@cec.eu.int), by fax ((32-
the address below,
2) 295 01 28) or by post at
mentioning
‘COMP/B-2/38.381/De
the
Beers–Alrosa’:

reference

European Commission
Directorate-General for Competition
Antitrust Registry
B-1049 Brussels