Identifier
Created
Classification
Origin
09VLADIVOSTOK71
2009-06-25 06:52:00
UNCLASSIFIED
Consulate Vladivostok
Cable title:  

KREMLIN TO DARKIN: PROVIDE JOBS OR LOSE YOUR OWN

Tags:  ECON PGOV RS 
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VZCZCXRO8434
RR RUEHCHI RUEHDBU RUEHFK RUEHHM RUEHKSO RUEHLN RUEHNAG RUEHPB RUEHPOD
RUEHYG
DE RUEHVK #0071/01 1760652
ZNR UUUUU ZZH
R 250652Z JUN 09
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1164
INFO RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION COLLECTIVE
RUEHVK/AMCONSUL VLADIVOSTOK 1268
UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000071 

SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV RS
SUBJECT: KREMLIN TO DARKIN: PROVIDE JOBS OR LOSE YOUR OWN

VLADIVOSTO 00000071 001.2 OF 002


UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000071

SIPDIS

E.O. 12958: N/A
TAGS: ECON PGOV RS
SUBJECT: KREMLIN TO DARKIN: PROVIDE JOBS OR LOSE YOUR OWN

VLADIVOSTO 00000071 001.2 OF 002



1. President Dmitriy Medvedev recently tasked governors in the
Russian Far East with settling unemployment and wage arrears
locally without Kremlin help, and those who fail to control
economic problems and related social unrest will be fired.
Demonstrations resulting from the likely demise of the Russkiy
Wolfram tungsten mining and processing plant in Primorye have
brought new urgency to Governor Darkin's assignment of
revitalizing the area's industrial base.


2. After the public unrest and demonstrations in the town of
Pikalyovo in Leningradskaya Oblast over salary arrears and
increasing unemployment in early June, President Dmitriy
Medvedev warned governors that he would fire those who did not
effectively deal with such situations. Following the worker
protests in Pikalyovo, workers of the Russkiy Wolfram Company in
Svetlogorie just north of Vladivostok sent a letter to Prime
Minister Putin last week asking "do we need to block a federal
highway to receive our salaries? We won't survive another hungry
winter." Russkiy Wolfram is the only significant employer in
the town of Svetlogorie, and its 240 workers have not been paid
since last winter. In early June, employees received letters
warning about imminent bankruptcy-induced layoffs. About 100
locals have been surviving on USD 95 to USD 125 monthly that
they receive for performing community works.


3. Medvedev mentioned the problems in Russkiy Wolfram during a
video conference with his Polpreds a week ago, saying he was
concerned and had appointed Far East Polpred Victor Ishayev to
monitor the situation. Ishayev in turn confirmed that "the
situation in Svetlogorie is not easy" and that near-term
profitability for Wolfram is extremely unlikely due to unusually
low world market prices for tungsten. Tungsten producers
throughout the country expected the federal government to
purchase otherwise unsold inventory to create a stockpile for
future machinery and defense production, but were disappointed
by the Kremlin's recent decision not to do so.


4. In April, Prime Minister Putin roundly rebuked Primorye
Governor Sergey Darkin at a meeting in Moscow for "not paying
due attention to the Russkiy Wolfram mining complex in
Svetlogorie," ordered him to improve living conditions in the
town, and pushed him to finally locate the factory's owner,

whose whereabouts had been unknown for several months. Darkin
did indeed track down the owner and persuaded him to pay half of
the back wages owed to workers. Darkin also authorized a loan
of 6.5 million rubles for the company to pay the rest of the
wages arrears. Each of the factory's workers received about USD
150 in additional aid from the regional budget. The krai also
sponsored forty children from the town to spend a month at a
summer camp.


5. Darkin later announced an agreement signed by Russkiy
Wolfram's owner to allow government-owned heating supplier
Primteploenergo to lease Wolfram's assets for a period of five
years and restart factory operations. Primteploenergo has
significant problems of its own. A consulate contact said that
the company barely has the funds to maintain its own assets and
carries significant debt, not to mention a lack of experience in
tungsten processing. Previous director, Sergey Vakhnin,
abruptly abandoned his position and moved overseas -- presumably
to escape impending charges for financial irregularities. Our
contact also reported that Primteploenergo has been having its
own troubles paying wages.


6. Darkin proposed establishing an additional processing
facility at the Russkiy Wolfram factory -- an enterprise that
would provide 50 to 80 jobs and produce 1,200 tons of tungsten
trioxide annually -- and build two or three sawmills. These
projects, according to Darkin, could be put into operation
within two months. The main question is funding for the
projects -- Primteploenergo has little liquidity and the
Primorye government has no mandate to invest public funds into
private enterprises.


7. Another obstacle to the quick resuscitation of the company
is that the Federal Agency for Mineral Resources Management
canceled the factory's extracting license in February because it
had not extracted any ore from their concession since mid-2008.
Russkiy Wolfram in turn filed an appeal in the Arbitration
Court, but a new license cannot be issued until the case is
adjudicated and a new auction for the tungsten deposit is held,
which may take a year or more.


8. COMMENT. Governor Darkin's Kremlin-ordered strategy to save
Svetlogorie includes such projects as geological prospecting in
the field, and attracting more investments both from Western
Russia and abroad "to build huge mining-extracting and timber
processing complexes in the town." All these strategies are
long-term and high-priced and are unlikely to bring relief to
the residents of Svetlogorie any time soon. Moreover, not only
did the company lose its permit to mine the local tungsten vein,
known tungsten deposits in the area are nearing depletion.

VLADIVOSTO 00000071 002.2 OF 002


While the governor is expending effort and significant funds to
keep the town afloat, Svetlogorie will likely not be able to
rely on its tungsten production to keep residents employed. The
company's troubles may be the weight that finally drags down
Governor Darkin, a politician who has seemed to be unsinkable
until now.
ARMBRUSTER