The European Commission competition authorities have issued an ultimatum to Alrosa on November 20, 2005 to stop sales to De Beers under the trade agreement by December 31, 2007. The move follows proposed commitments by Alrosa and De Beers for a gradual reduction in Alrosa�s sales to De Beers to an annual $275 million by 2010, in response to an EC investigation into possible violation of EC treaty competition laws which started in 2003.

�The Company was recently informed by the EC competition authorities that the majority of third party comments they received with regard to the proposed commitments for gradual reductions of the trade agreement were negative. A brief written summary of the comments were sent both to Alrosa and De Beers,� said an Alrosa source. �Alrosa is currently reviewing the situation and considering all its options, particularly in view of the legally unprecedented potential restriction on its commercial freedom to sell to any customer of its choice if the commitment proposed by the EC Commission services were interpreted as barring, without time limitation, any sales by Alrosa to De Beers after December 31, 2007, regardless of the mechanisms used for such sales and regardless of any contractual restrictions accompanying such sales. Alrosa therefore intends to ask for additional information from the European Commission on the third party comments received in order to enable it to hold a constructive discussion with the European Commission services concerning the appropriate response to the third party comments received,� he added.

Currently, Alrosa sells its rough diamonds to De Beers on a willing-buyer, willing-seller basis. Since the agreed changes, the Russian diamond company has increased its sales to the open market, both domestic and international. �There is nothing to report. We are still in discussions with the Commission,� said De Beers.