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State And De Beers Battle Over Stockpile
The Mail & Guardian (Johannesburg)
July 9, 1999
By Mungo Soggot
Johannesburg - The location of De Beers's South African diamonds is now a major stumbling block
in talks between the state and the giant to resolve the deadlock over gem exports. Mungo Soggot
reports
The battle between De Beers and the government has intensified amid accusations by state
diamond officials that De Beers has backed out of an agreement to return to South Africa its huge
stockpile of local diamonds.
The government's new diamond valuator says it wants the stockpile in South Africa so that it can
have jurisdiction over it. De Beers took its stockpile, believed to be worth hundreds of millions of
rands, to its Central Selling Organisation (CSO) in London a year before the 1994 elections. The
diamonds are kept in sealed cases that are only supposed to be opened in the presence of the
valuator.
The proposed return of the stockpile was part of a deal aimed at resolving a stand- off over the way
the valuator evaluates De Beers's diamonds before the company ships them to the CSO, the
organisation through which De Beers controls its worldwide diamond cartel. The location of the
stockpile is one of several points of contention that have arisen between the government and De
Beers since the confrontation began in March.
The battle started when the new valuator - whose appointment has caused a significant
deterioration in relations between the state and De Beers - held back a consignment of De Beers
diamonds on the grounds that the diamond giant had valued them at less than their true market
value.
De Beers argues that it itself is effectively the diamond market - a reasonable contention where
South Africa is concerned, considering the company accounts for 95% of diamond exports. The
valuator, meanwhile, has argued that the company has been undervaluing its goods for, among
other reasons, tax purposes.
There still appears to be no end in sight to the dispute, which has already caused considerable
disruption. Not only has De Beers been unable to export, but its joint venture partners on its South
African mines have had their profits hit by the hold-up.
The head of the valuator, Claude Nobels, confirmed that De Beers had refused last week to return
the stockpile after initially agreeing to do so in a recent round of negotiations. Sources close to the
valuator signalled it was unlikely a permanent agreement would be struck without the return of the
stockpile. "We have now unilaterally demanded that the stockpile be returned. It is a condition they
will have to meet," one official said.
De Beers said this week: "The question of the stockpile and its valuation has been part and parcel of
our difficulties with the GDV [government diamond valuator] since March. The subject matter is
therefore not new, but in view of the fact that discussions are ongoing at this stage it would be
discourteous of us to our negotiating partners in government to discuss the matter in any great detail
until a solution has been found."
Sources close to the government valuator have accused De Beers of trying to "wear out" the state in
the negotiations, and point to the latest twist over the stockpile as evidence.
Officials said the two sides had settled on a temporary agreement in terms of which about 75% of
the De Beers diamonds held up would be exported at the prices set by De Beers, with the remaining
25% to be exported later, on terms set by the valuator. A source said this agreement had several
other legs - including the return of the stockpile. The official said that after the deal had been struck,
De Beers had said it wanted to split the agreement and take more time assessing the implications of
the return of the stockpile from London. Nobels confirmed this.
State officials also said that in the wake of the latest clash, the valuator told De Beers it would put
out to tender a portion of the company's diamonds that it had held back from export - a move aimed
at testing De Beers's prices against the market.
Tracey Peterson, De Beers's senior communications officer, confirmed that about 70% of the
held-up gems had been exported, but said no tender order had been delivered to De Beers for the
remainder of the goods.
Meanwhile, Nobels said he was concerned "by De Beers's tactic" of trying to discredit him and his
company.
De Beers has never publicly attacked Nobels or his company, DVIC. But some of its associates in the
diamond industry have raised concerns about them, and expressed fears that Nobels is motivated by
an unreasonable antagonism towards the diamond giant.
One independent analyst said this week that the latest insistence on the part of Nobels that the
stockpile be returned was unreasonable, considering the stockpile diamonds could in any case only
be opened in the presence of the valuator.
The former minister of minerals and energy, Penuell Maduna, intervened in the dispute in April by
appointing an inquiry into the confrontation. In his findings, he criticised De Beers for suggesting
that the valuator was supposed to merely rubberstamp the company's gem pricing structure.
Maduna was coy about whether the government planned to hit De Beers with a retrospective extra
tax bill if it concluded its product had been consistently undervalued.
PHIL |
