The Cobbler’s Children Have No Shoes: Who’s Processing Amber Extracted in
Kaliningrad Province
Amber Monopoly
In Kaliningrad Province there are three deposits of amber that have been prospected and
eight more possible fields of it have been explored. The largest deposits are
Palmnikenskoye and Primorskoye, where the total reserves of the mineral are 173,600
tons. Both these deposits are controlled by the state unitary enterprise “Kaliningrad
Amber Factory.” The factory is the only enterprise that has the license to mine this stone
from the deposits.
The strategic development project of the amber sector, created by the regional
government in June 2012, contains data on legal and illegal mining of the mineral. In
Kaliningrad Province they legally extract 340 tons of amber in a year (77% of the
worldwide production). Neighboring Poland extracts roughly 20 tons of amber, which
covers about 15-17% of the demand from the national amber industry, the volume of
which is not less than 200 tons a year. In our country, alongside the legal extraction of
340 tons, people illegally mine roughly 150 tons.
“Kaliningrad Amber Factory” is located under the control of the Ministry of Finance of
the Government of the Russian Federation. The factory is fully consistent with the status
of a “state enterprise”: this structure is extremely closed. Additionally, the factory is a
monopolist, and the entire sphere depends on the politics of the enterprise in pricing and
distribution.
The assumption that the export of amber outside Kaliningrad Province includes “illegal
trafficking” is completely justified. One of the arguments for this is the difference
between the average selling price of the “Kaliningrad Amber Factory” and the customs
service data on the value of the export of amber (according to the data of the regional
government, more than 96% of the extracted mineral is exported from Kaliningrad
Province). There is similar data from 2008 and 2010: in 2008, the average price of the
factory exceeded the export customs value by 23% (70.8 dollars and 57.7 dollars for one
kilogram, respectively). In 2010, the difference increased to 54% (69.5 dollars and 45.1
dollars for one kilogram).
Yet another interesting point: during the last few years, the export of amber from
Kaliningrad Province has significantly exceeded the mining output. In 2011, 342 tons of
amber were officially extracted. Additionally, the export of this mineral for the year was
422 tons, 23.4% greater than the volume of mining output. In 2010, amber export was
396.1 tons, whereas mining output stood at 323 tons. In 2009, 696 tons were exported,
and 340 were extracted. And in 2008, 407 tons were exported and 323 extracted. The rise
of exports over legal extraction could occur for two reasons: either because of the sale of
inventories held in the amber factory warehouse or because of the export of illegally
mined amber.
Public-Private Partnership
The sale of raw materials from the “Kaliningrad Amber Factory” is carried out through
an “official dealer”: Amber Plus LLC. According to the data of the Unified State Register
of Legal Entities, this company is owned by the Kaliningrad businessman Victor Bogdan.
One statistic is particularly revealing: in 2010, out of 396.1 tons of amber, the closed
joint-stock company “Payurio Gintaras” (Klaipeda, Lituhania) got 350 of them. So, 41
tons of amber were received by this company from the “Kaliningrad Amber Factory,” 31
tons were received from the factory’s subsidiary, public company “Amber Yuvelirprom.”
Additionally, Amber Plus LLC delivered 273 tons. In Lithuania, raw amber is sorted and
transported around the world.
The strategic development project of the amber sector worked out by the regional
Ministry of Industry states that Lithuania’s share of amber exports from the province
remains practically unchanged over the course of the past four years and makes up about
90-95%. Also, since the best pieces of amber are sent to intermediaries, the purchase of
raw amber by ordinary processors in Kaliningrad becomes problematic.
In addition, the results of a comparative analysis of prices declared by the amber factory
and prices at which one can realistically buy amber inside the province through an
intermediary shows that the latter price is, on average, 1.5 times greater than the former.
For example, the selling price of a kilogram of ornamental amber weighing between 200
and 300 grams is 15.5 thousand rubles for a processor. However, the real market price of
this mineral for the average processor in Kaliningrad Province stands at 23.5 rubles—
50.3% greater. Lithuanian processors purchase amber for 24.8 thousand rubles for a
kilogram, while Polish processors buy the same kilogram for 27.9 thousand rubles, and
Chinese get it 31 thousand rubles.
The intermediaries make even more money from unique stones. For example, the amber
factory declares the price of unique amber weighing from 500 to 1000 grams at 39
thousand rubles for a kilogram. In the regional market one can realistically buy a
kilogram of such amber for 58.5 thousands rubles. A Lithuanian entrepreneur can buy it
for 62.3 thousands rubles, a Polish one for 74.1 thousand rubles, and a Chinese one for
77.9 thousand rubles.
As for processing the raw material, at the present day significant sales of amber without
the development of processing are profitable for the factory. According to the data of the
Kaliningrad Provincial Government, foreign refiners are ready to buy the raw material at
a price 30-40% higher than Russian processors. Additionally, it is possible to make
money by avoiding payment of the value added tax on the product (domestic prices are
higher than export prices plus the tax rate), having increased the mark-up.
The Flip Side
Today’s amber processors in Kaliningrad Province don’t consider concern for them
necessary. In their interviews, they talk about the stabilization of amber distribution
system in the last few years, and feel the proposals to introduce duties on amber, in their
opinion, will only make matters worse for the existing enterprises.
It is noted that there are enough raw materials to fulfill all orders sent to the factory by
processors. In addition to this, there is a degree of competition for large pieces of amber,
very few of which are extracted (according to factory data, large pieces of amber
weighing more than 100 grams make up only one percent of the structure of production).
Moreover, Victor Bogdan’s intermediation in the export of amber does not bother the
majority of processors in Kaliningrad Province: the entrepreneurs are certain that the
system built by the factory is intended to protect their interests. At the present moment,
there is a list of processors who actually produce the product. They have no big problems
with the purchase of raw amber. But, if anyone wants to purchase raw amber from the
factory and sell it abroad, he will not find common ground with the “Kaliningrad Amber
Factory”—export sales can only go through the structures controlled by Victor Bogdan.
The Role of the Individual in History
The previously mentioned Amber Plus LLC, owned by Victor Bogdan, not only has a
special role in the export trade, but is also the province’s largest processing firm, with
about 200 employees. Moreover, the company has the ability to process amber “without
leaving the cash register”: Amber Plus leases a significant portion of the production area
public company Amber Yuvelirprom.
In 2006, the state unitary enterprise “Kaliningrad Amber Factory” went bankrupt (the
company emerged from bankruptcy in the second half of 2008). At that time, the scope of
the enterprise was divided into mining and processing, the latter being carried out by
Amber Yuvilerprom. Eighty-six percent of the assets of the factory were transferred into
the share capital of Amber Yulvilirprom. Another subsidiary, public company
“Kaliningrad Amber Factory,” carried out mining, and during this time mining grew and
the volume of processing simultaneously decreased. At the same time, the processorcompany was weighed down by the expenses of the mining company, and, as a result, the
number of employees of the unprofitable processing structure decreased from 520 to 180
people from 2005 to the first half of 2008. The corresponding data comes from the results
of an inspection of the enterprise by the Account Chamber of the Russian Federation at
that time. In fact, the state processing that was previously imposed on “Amber
Yuvelirprom” has long been taken over by the business of Victor Bogdan.
According to participants in the amber market, Victor Bogdan has plans for the vertical
integration of production, and specifically plans to receive a license and begin privately
mining amber. The idea is to build the second modern private factory and give himself
the ability to compete with the “Kaliningrad Amber Factory.”
My Police Protect Me
Let’s return to the illegal extraction of amber. Kaliningrad amber processors are certain
that illegal business is not possible without the corresponding protection of the power
structures. At the beginning of 2012, a commotion arose around the monopolism of the
“Kaliningrad Amber Factory” and Victor Bogdan’s proximity to it. People expressed the
opinion that it is beneficial to those who illegally extract amber and try to remove
themselves from the spotlight, shifting attention away from themselves. After Account
Chamber Chairman Sergey Stepashin’s visit to Kaliningrad Province, the St. Petersburg
newspaper “Nevskoye Vremya” published the statement of a senior officer of the
regional branch of the Ministry of Internal Affairs: “Now the management of the factory,
for whatever their reasons, has decided that sorting amber is not economically profitable
and has entrusted it to the owner of the company Amber Plus, Victor Bogdan, more
famous in some circles by the nickname ‘Ballet.’ By the way, previously he served in the
police force, reaching the rank of sergeant. Then he wound up in pretrial detention under
suspicion of theft. His connections helped him get out earlier, but it seems that, after a
year behind bars, he came to the conclusion that working on a small scale was
dangerous.”
According to a different point of view, the processors themselves are interested in the
illegal extraction of amber. They say that the intensification of the fight against illegal
mining will deal a serious blow to the processors, as it will get rid of the factory’s
(illegal) competitors, and make it a de facto (although not de jure) monopolist.
The Kaliningrad Province Office of the Federal Security Service estimates that the
volume of illegal amber extraction and export from the region stands at approximately
100-150 tons a year, or up to 40 percent of the legal extraction. The regional government
is certain that today there is a single most effective way to stop illegal amber mining—
increase the fines and allow for the confiscation of the tools of “production,” even if they
are being rented or leased.
At the present moment, the law punishes the illegal extraction and sale of amber with a
fine of 3000 to 5000 rubles for a individual, which is out of proportion with the profit
extracted by the “black diggers.” In the middle of last year, a project of amendments to
the Russian Federation law on administrative offenses was prepared. The amendments
would provide for the confiscation of tools and equipment that “serve as instruments for
carrying out administrative offenses.” The Provincial Duma sent the project to the
Government of the Russian Federation and the State Duma. However, since then no
decisions have been made. The Ministry of Internal Affairs gave a negative opinion on
the proposed amendments. Similarly, the Committee on Constitutional Legislation and
State-Building of the State Duma thought that the bill required serious reworking.
The realities are such that, when police carry out a raid, they find one or two diggers with
a bucket of amber. The rest was carried off and hidden earlier. Proving that a person with
an organized plan was extracting this over a long period of time is a drawn-out and timeconsuming process. And, even when using the best investigative practices, it is not
always possible to achieve the desired result—proving the guilt of the responsible
organization and people, uncovering the scope of the crime, the place it occurred, and the
episodes involved. In the end, it will only be legally possible to prosecute this as an
administrative violation. Nonetheless, announcements from the Ministry of Internal
Affiars and the Federal Security Service about the arrest of x “black diggers” with y raw
amber valued at a sum of z million rubles are not rare.
It’s All in the President’s Hands.
At the end of August of 2012, the President of Russia, Vladimir Putin, approved a set of
instructions on the situation in the country’s amber industry. Thus, until December 1st, the
Government of the Russian Federation and the Government of Kaliningrad Province
should work out a policy paper aimed at the development of this industry. Also, the
leadership of the Ministry of Internal Affairs and the Federal Security Service of Russia
were authorized to take action to restore order in the amber mining and trade sphere; in
other words, identifying possible corruption ties in the supplying of amber to foreign
markets, the reimbursement of the value added tax to exporters of raw amber, and also
bringing order to the operations on land where amber deposits are discovered. The
Finance Ministry of Russia was authorized to work out and adopt a plan for improving
the effectiveness of the state unitary enterprise “Kaliningrad Amber Factory.”
Well, December 1st has come and gone, and we know nothing about the execution of the
president’s orders.
Nikita Kuzmin
This publication was prepared with the support of the association of investigative
journalists SCOOP-Russia.