PUTIN INTERVENES TO MEET WORKERS' DEMANDS

UNCLAS ST PETERSBURG 000068


E.O. 12958: N/A
TAGS: RS PGOV ECON
SUBJECT: PUTIN INTERVENES TO MEET WORKERS' DEMANDS


1. (SBU) Summary. In a display of political drama broadcast on
national television, Prime Minister Putin rode into the small
town of Pikalyovo in Leningrad Oblast on June 4 and forced a
resolution to a simmering labor dispute, meeting workers'
demands and publicly humiliating the Leningrad Governor, local
officials, and even his friend Oleg Deripaska in the process
(although Deripaska ultimately emerged victorious in the
commercial dispute that lay at the root of the labor unrest).
Putin's surprise visit followed weeks of labor unrest that
culminated in a demonstration June 2 when several hundred
workers blocked a major highway in Leningrad Oblast for seven
hours to demand payment of their salaries and the reopening of
three enterprises in their single-industry town. The workers
also threatened to block the railroad if authorities fail to
fully resolve the situation by June 13. End Summary.


2. (SBU) Pikalyovo is a single-industry town of 20,000 residents
in Leningrad Oblast and is the home of three interconnected
enterprises. Two of the enterprises, Metakhim and Yevrotsement,
produce cement from byproducts of the third plant, BazelTsement.
BazelTsement is owned by billionaire Oleg Deripaska. The three
enterprises employ about 10,000 residents of Pikalyovo.


3. (SBU) Serious problems emerged in the town in January 2009,
when BazelTsement ceased operation, causing the other two
enterprises to also cease production. According to official
sources, there are now about 4,000 unemployed people in the
town, but the real unemployment rate is likely twice that
number. According to the leader of BazelTsement's labor union,
the total amount of salary arrears is about $1.3 million. By
the middle of May, social tensions intensified as a local hot
water plant shut down due to unpaid debts to the local gas
supplier, leaving residential buildings, social institutions,
and hospitals without hot water.


4. (SBU) Oblast and municipal authorities initially attempted to
reduce tensions in the town by providing Pikalyovo's unemployed
residents with jobs and housing in other oblast towns.
According to labor union leaders, however, the jobs were
low-paying and the housing consisted of single-occupant
dormitory rooms. Additionally, the labor union objected to the
authorities' efforts on the grounds that resettlement of people
to other towns was not a viable long-term solution for the
unemployed workers of Pikalyovo.


5. (SBU) On May 21, a group of residents stormed into a local
administration building and demanded that city officials state
what was being done to resolve the situation. On June 1, flyers
appeared in the town calling people to a demonstration, and the
message "Pikalyovo, Rise Up!" was painted on a factory chimney.
When the local administration ordered the message painted over,
workers at first refused to do so. According to press reports,
the police attempted to discover the source of the flyers as
well as the identity of the message's painters, but were
unsuccessful.


6. (SBU) On the morning of June 2, workers went to the entrance
of BazelTsement where they were met by town officials who were
concerned about a possible protest. About 400 workers,
indignant at the manner in which officials addressed them,
decided to walk to the Vologda-Volkhov highway (about four miles
away from Pikalyovo) and block traffic. Demonstrators blocked
the highway for about seven hours, refusing to leave despite
appeals from both city officials and company representatives.
In the early afternoon, the demonstrators received news that
Leningrad Oblast Governor Valeriy Serdyukov signed a decree
allocating about $160,000 to pay part of the salary arrears and
$50,000 in social welfare aid.


7. (SBU) At the end of the rally, protesters signed a petition
demanding renewed operation at all three factories in the town
and that all salary arrears be paid. The petition stated that
if their demands were not met by June 13, the workers would
block the railroad connecting St. Petersburg to Vologda.
Despite heavy police presence at the rally, nobody was detained.


8. (SBU) In a surprise development, Prime Minister Putin went to
the town on June 4, and called the situation "intolerable." In
front of the television cameras, Putin gathered the enterprise
owners, local officials, Leningrad Oblast officials, including
Governor Serdyukov and NW Russia PolPred Klebanov.
Energetically chewing out all in the room, Putin instructed the
owners to sign agreements to restart work and supply raw
materials to one another. Deripaska was shown on television
being summoned by Putin (who used the familiar form of the verb
and a crooked finger) to sign the agreement. Putin then turned
his ire onto the local and oblast officials present. While he
did not single anyone out by name, he said that all involved had
"run like cockroaches" when they heard the PM was on his way to
Pikalyovo. He chastised officials for letting workers go
without pay and instructed officials and factory owners to fix
the problem "or we'll fix it without you." The PM then went
outside into the crowd of cheering workers and told them that
their back wages would be paid by the end of the day. Back in
the meeting room, the cameras showed a clearly unhappy group of
officials, including Governor Serdyukov. St Petersburg media
reported rumors that Serdyukov had offered an undated letter of
resignation the same day that Putin went to Pikalyovo. The
oblast administration subsequently denied the rumors.


9. (SBU) To meet the wage arrearages, Deripaska reportedly had
to take out a large loan, using his company as collateral, from
the Russian bank VTB. Deripaska also signed an agreement with
Fosagro to supply the necessary raw materials to BazelTsement,
thereby ensuring its continued ability to operate.


10. (SBU) Comment. The PM's dramatic intervention and
resolution of Pikalyovo's labor problems both underscored the
government's sense of concern over the possible social unrest
sparked by the economic downturn - a theme we have heard in
travel across our consular district - and set up a sharp
contrast between the PM and the President, who was addressing
CEOs and senior government officials at the posh St Petersburg
International Economic Forum at the time. The message was
unmistakable, with the PM, dressed casually in jeans and a
sports jacket, publicly rebuking a room full of buttoned-up and
clearly chagrined oblast and local officials and businessmen,
including oligarch Deripaska, and then emerging to the cheers of
the workers, as a man of action. It was perfectly choreographed
political theater. End Comment.

GWALTNEY