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Viewing cable 09VLADIVOSTOK85, CEMENT BUSINESS RECEIVES GENEROUS GOVERMENT SUBSIDIES

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Reference ID Created Released Classification Origin
09VLADIVOSTOK85 2009-08-10 05:14 2011-08-24 01:00 UNCLASSIFIED Consulate Vladivostok
VZCZCXRO8400
RR RUEHCHI RUEHDBU RUEHFK RUEHHM RUEHKSO RUEHLN RUEHNAG RUEHPB RUEHPOD
RUEHYG
DE RUEHVK #0085 2220514
ZNR UUUUU ZZH
R 100514Z AUG 09
FM AMCONSUL VLADIVOSTOK
INFO RUEHC/SECSTATE WASHDC 1181
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION COLLECTIVE
RUEHVK/AMCONSUL VLADIVOSTOK 1286
UNCLAS VLADIVOSTOK 000085 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV
SUBJECT: CEMENT BUSINESS RECEIVES GENEROUS GOVERMENT SUBSIDIES 
 
1.  Summary:   In the SpasskCement Co. Inc., the line between 
public and private is blurred.  Although the company is part of 
the privately owned VostokCement LLC, SpasskCement has regularly 
received financial assistance from the Primorskiy Krai 
government, including over 560 million rubles during the last 
five years.  In 2009 alone, the regional government granted 
SpasskCement a reduced 20 percent tax on profit and a 92 million 
ruble subsidy.  These favors are not unexplainable: Igor 
Pushkarev, the current mayor of Vladivostok, started his 
political career in Spassk-Dalniy in 2001 as the Director of 
VostokCement.  Moreover, Igor's younger brother, Andrey, who 
recently succeeded Igor as the Director General, is the main 
shareholder of the Cyprus-based Lymex Holdings LTD, the owner of 
92.14% of VostokCement. 
 
DESPITE SUPPORT, SPASSKCEMENT FLOUNDERING 
 
2.  Government support has not helped the company or 
Spassk-Dalniy, where it is located.  In Soviet times, 
SpasskCement was an honorable place to work.  The Novospasskiy 
Cement Plant, one of the company's two plants, was the largest 
manufacturer of construction materials in the Russian Far East, 
producing an annual output of over 3.7 million tons of cement. 
The plant was also the largest employer in the city, with more 
than 5,000 employees. 
 
3.  More recently, SpasskCement's two plants have faced numerous 
difficulties.  The Novospasskiy cement plant suspended 
operations in the 1990's, but reopened after 2000. In late 2008, 
Rosprirodnadzor ordered the 100-year old Spasskiy cement plant 
closed because of inadequate air filtration and obsolete 
equipment.  The plant had exposed Spassk-Dalniy's residents to 
dangerous amounts of cement dust. 
 
4.  SpasskCement has not grown during the last two decades. 
Although the company's annual output of cement in 2008 was 65 
percent higher than in 2007, its output in 2008 was just over 
half of 1988 production.  SpasskCement stopped operating and put 
all of its workers on indefinite enforced leave in late 2008. 
The company resumed operations in late spring of 2009. 
 
SUBSIDIES HAVE NOT BENEFITTED THE TOWN OF SPASSK-DALNIY 
 
5.  Spassk-Dalniy has also faced its share of hardships.  In 
Soviet times, it was one of the most comfortable cities in 
Primorye, with a population of over 60,000 people.  Currently, 
Spassk-Dalniy's population is declining and most of the 
residents are pensioners with limited incomes.  In spite of 
development projects, living conditions remain poor.  The 
Pushkarev brothers recently renovated a polyclinic and a cinema, 
and Igor Pushkarev donated an ultrasound unit to the municipal 
polyclinic.  However, the city is unable to purchase 
SpasskCement's concrete at preferential prices to repair 
dilapidated roads. 
 
SPASSKCEMENT HAS NOT ECONOMICALLY USED ITS RESOURCES 
 
6.  Analysts argue that SpasskCement has poorly allocated both 
its income and its state subsidies.  Although VostokCement 
representatives claim that their LLC uses money from 
preferential tax treatment to renovate and upgrade VostokCement 
assets, a review of SpasskCement's investments suggests 
otherwise.  Of the company's 2007 income, SpasskCement invested 
526 million rubles in the securities of other businesses and 
distributed 152 million rubles as shareholder dividends.  In 
decisions that benefited neither the company nor the community, 
SpasskCement also granted a 58 million ruble, 7% interest, 
three-year loan to VostokCement and a 100 million ruble, 7%, 
ten-year loan to Vladimir Pushkarev, Deputy Director of 
VostokCement.   Since SpasskCement spent only 1.3 million rubles 
on industrial needs, signs of renovation at the company are 
rare.  Instead of modernizing SpasskCement's equipment, the 
VostokCement Board of Directors closed the old factory in 2008. 
Moreover, the equipment at the 33-year-old Novospasskiy plant 
needs to be replaced. 
 
7.  Comment:   SpasskCement's status as the official 
manufacturer of cement products for the 2012 APEC Summit-related 
construction may assure the future for the Pushkarevs and their 
family empire; however, living conditions in Spassk-Dalniy are 
unlikely to improve. 
 
MILLER