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Viewing cable 09STPETERSBURG92, ST. PETERSBURG CITY GOVERNMENT INTERVENES TO RESOLVE PAY

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Reference ID Created Released Classification Origin
09STPETERSBURG92 2009-07-24 13:58 2011-08-24 01:00 UNCLASSIFIED Consulate St Petersburg
R 241358Z JUL 09
FM AMCONSUL ST PETERSBURG
TO SECSTATE WASHDC 2806
INFO AMEMBASSY MOSCOW 
AMCONSUL ST PETERSBURG 
AMCONSUL VLADIVOSTOK 
AMCONSUL YEKATERINBURG 
EUROPEAN POLITICAL COLLECTIVE
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