The European Union agreed on Tuesday to lift sanctions on a Zimbabwean diamond-mining firm despite concerns over alleged fraud in a July election that kept President Robert Mugabe in power.
The 28-nation bloc has begun the process of removing Zimbabwe Mining Development Corporation (ZMDC) from the sanctions list, EU foreign affairs spokesman Michael Mann said.
The decision gives a boost to Mugabe, whose ZANU-PF party calls EU sanctions illegal, and will allow the mining firm to sell its diamonds in Europe, potentially raising its revenues.
Belgium, centre of the global diamond trade, had pushed hard for the EU to lift sanctions on ZMDC, in line with an earlier agreement. Britain, Zimbabwe's former colonial power, resisted the step so as not to be seen to be rewarding Mugabe.
The EU had targeted ZMDC with an asset freeze, alleging it was "associated with the ZANU-PF faction of government".
The decision to remove ZMDC from the sanctions list must be endorsed by EU ministers. That is expected to be a formality and to happen quickly, an EU diplomat said.
Mugabe overwhelmingly won the July 31 vote but his main rival, Morgan Tsvangirai, denounced it as a "huge fraud". The EU expressed serious concerns over alleged irregularities.
ZMDC operates five joint-venture mines in the rich Marange diamond fields, producing eight million carats last year and generating $685 million in exports, the state-owned Herald newspaper reported earlier this year.
Belgium says lifting EU sanctions on ZMDC would increase Zimbabwe's tax revenues by $400 million a year.
Anti-corruption watchdog Global Witness, citing links between mining companies, insiders in Mugabe's ZANU-PF party and Zimbabwe's pro-Mugabe military, has alleged that state diamond revenues may have been directly spent on securing Mugabe's re-election through intimidation of voters and vote-rigging.
The EU suspended most sanctions on Zimbabwe in March to encourage free elections. However, sanctions on Mugabe and nine others remain in place.
ZANU-PF spokesman Rugare Gumbo said lifting the sanctions on ZMDC was "too late and too little".
"They want to help their commercial enterprises, the diamond-cutting companies (in Belgium). That's the reason. They do not care about the suffering people of Zimbabwe," he said.
EU diplomats concluded there was no indication that ZMDC's activities were linked to violence during the election period, Mann said.
But he said the EU remained very concerned about the issues highlighted by election observers which raised "serious questions about the fairness and credibility of the process".
A British diplomat said London had made clear to its EU partners that remaining sanctions on Zimbabwe were justified.
"In the months ahead we'll keep working with our partners to ensure that the EU maintains a robust approach," he said.