ST. PETERSBURG CITY GOVERNMENT INTERVENES TO RESOLVE PAY

UNCLAS ST PETERSBURG 000092


E.O. 12958: N/A
TAGS: RS PGOV ECON ELAB
SUBJECT: ST. PETERSBURG CITY GOVERNMENT INTERVENES TO RESOLVE PAY
ISSUE SURROUNDING WORKERS' STRIKE

REF: ST. PETERSBURG 68, ST. PETERSBURG 89


1. (SBU) Summary. Workers at one of St. Petersburg's oldest and
largest construction materials production companies - DSK-3 --
went on strike in early July after the firm failed to pay full
staff salaries for five consecutive months. The company had
blamed the salaries shortfall on non- payment of amounts owed it
from city-budget-funded subcontractors. The city government
quickly responded by helping DSK-3 recover the amounts due from
the sub-contractors, which the company then used to pay its
workers in full. This development illustrates both the
continuing deleterious effect the economic crisis is having on
local government budgets, as well as the local government's
desire to avert any situation that could give the appearance of
social/political instability. End Summary


2. (SBU) DSK-3 is one of St. Petersburg's oldest and largest
construction materials production companies and is an
influential player in the city's construction industry. The
company's main plant in St Petersburg specializes in producing
concrete panels which are used in the construction of
approximately 2,000 low-cost apartments per year in the city and
in Leningrad oblast.


3. (SBU) DSK-3 has continued to produce and deliver its products
over the course of this year, but its cash flow has been sharply
reduced due to the economic crisis, according to press. This
cash-flow shortfall eventually resulted in the company being
unable to pay the staff at its main plant their full salaries
for five months this year. By early summer, the salary arrears
owed to DSK-3's 1,500 employees totaled $2.5 million. The
company's management claimed the company's financial
difficulties were due to the city government's failure to pay
the $3.4 million it owed DSK-3 sub-contractors for various
government contracts.


4. (SBU) By early July, the frustrated employees of DSK-3 took
action and held a two-day strike on July 1 and 2, protesting
their salary arrears. The strikers gathered near the entrance
of the company's office building and demanded the company pay
its debts to its employees. According to press accounts, the
strike concluded peaceful.


5. (SBU) The St. Petersburg city government took immediate
action to address the situation. On July 6, St. Petersburg
vice-governor Roman Filimonov met with the DSK-3 management to
discuss the strike. Speaking with journalists afterwards,
Filimonov said that, although the city itself had no direct
debts to DSK-3, the city government would help recover $2.3
million owed to the company by subcontractors. DSK-3, for its
part, agreed to provide from its own resources an additional
$1.3 million. According to Filimonov, all salary arrears owed
the company's staff would be cleared by July 15.


6. (SBU) Since the July 6 meeting with Filimonov, press reports
that DSK-3 has in fact paid its employees salary arrears through
May. DSK-3 was able to do so in large part because one of its
largest debtors on July 10 paid off what it owed the company,
and this money was used to pay the back wages as well as the
back payroll taxes owed to the city. Even so, DSK-3 still owes
its staff about $600,000 in unpaid salaries that accumulated in
June.


7. (SBU) Comment. The DSK-3 development demonstrates
anecdotally the impact the economic crisis is having on St.
Petersburg and the city's budget. The St. Petersburg city
government's public commitment not to cut social spending during
the crisis, coupled with declining local revenues (which have
dropped by 30% from their 2008 projections),led the government
to delay paying its contractors for various construction
projects, with the downstream effect being that companies such
as DSK-3 were unable to pay their employees.


8. (SBU) Comment continued. It is likely that the city
government took the action it deemed necessary to resolve the
DSK-3 development in order to prevent a Pikalyovo-type incident
(reftels). This follows what we recently heard during a meeting
with a well-informed local professor that President Medvedev, in
a meeting of the extended State Council held in Archangelsk and
attended by all Northwestern Russian governors, had said that
they all should work to prevent a repetition of what happened in
the Pikalyovo situation. At another meeting with several local
political analysts, the consensus was that PM Putin had set a
worrisome precedent in Pikalyovo by personally intervening to
correct the situation, because now that sort of government
intervention would be expected elsewhere as well, as reflected
in the DSK-3 situation.

GWALTNEY