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Viewing cable 09STPETERSBURG116, PIKALYOVO'S DILEMMA UNRESOLVED: COMPANIES KICK THE CAN

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Reference ID Created Released Classification Origin
09STPETERSBURG116 2009-09-02 09:54 2011-08-24 01:00 UNCLASSIFIED Consulate St Petersburg
R 020954Z SEP 09
FM AMCONSUL ST PETERSBURG
TO SECSTATE WASHDC 2834
INFO AMEMBASSY MOSCOW 
AMCONSUL ST PETERSBURG 
AMCONSUL VLADIVOSTOK 
AMCONSUL YEKATERINBURG 
EUROPEAN POLITICAL COLLECTIVE
UNCLAS ST PETERSBURG 000116 
 
 
E.O. 12958: N/A 
TAGS: RS PGOV ECON EIND
SUBJECT: PIKALYOVO'S DILEMMA UNRESOLVED: COMPANIES KICK THE CAN 
FURTHER DOWN THE ROAD 
 
REF: ST PETERSBURG 68, ST PETERSBURG 89 
 
 
1. (U) Summary.  Companies involved in the controversy 
surrounding the industrial complex in the town of Pikalyovo, 
Leningrad oblast, have agreed to extend until the end of 2009 
the agreements PM Putin forcefully persuaded them to sign in 
June during a visit there.  The extension will allow the 
industrial complex to continue working over the next four 
months, keeping a lid on social tensions there for the time 
being.  However, the stop-gap solution fails to resolve the 
underlying challenge of how to restructure the town's industry 
in order to make it competitive and self-sustaining in the 
absence of state intervention . End Summary 
 
2. (U) According to the press service of the federal Ministry of 
Industry and Trade, the companies involved in the controversy 
surrounding the industrial complex in Pikalyovo in Leningrad 
Oblast (reftels) decided to prolong until the end of the current 
year the agreements PM Putin forcefullly persuaded them to sign 
in June during his visit to the town.   That decision was 
adopted on August 28 at a meeting of the federal "Pikalyovo Task 
Force" led by Deputy Minister of Industry and Trade Denis 
Manturov.  Based on the Federal Antimonopoly Service's (FAS) 
recommendations, prices for raw materials used in Pikalyovo's 
industrial production have been slightly revised under the 
extended agreement. 
 
3. (U) According to the FAS, the slight revision in raw 
materials prices will allow the production complex in Pikalyovo 
to operate through the end of the year without incurring losses. 
 However, the local press has reported that outside experts 
claim that the agreement saddles Apatit, the Murmansk 
Oblast-based supplier of raw materials for Pikalyovo's 
BazelTsement industrial firm, with the bulk of the burden of the 
agreement, since it will have to continue selling materials to 
BazelTsement at cut-rate prices.  (Note: Despite the public 
hammering oligarch Oleg Deripaska - a Putin confidant and owner 
of one of the factories in the Pikalyovo complex - took from 
Putin during the PM's visit there in June, the price revisions 
give Deripaska's company a continued artificial edge over the 
competition, which does not enjoy the same pricing advantages. 
End note.) 
 
4. (U) Murmansk-based Apatit has not yet signed onto the new 
agreement, claiming that the new price of 850 rubles per ton of 
output is still far below its production cost.  It has agreed to 
accept the 850 ruble price only for the next two months, and has 
proposed adding a penalty cost of another 350 rubles per ton if 
BazelTsement fails to consume the agreed-upon volumes of the 
product.  Press reports that although both Evrotsement and 
Metahim, the other two plants in Pikalyovo, have signed the new 
agreement, they have also submitted letters of protest to 
BazelTsement and to the Ministry of Industry and Trade stating 
their disagreement with some of the contracts' conditions. 
 
5. (U) Comment: In the meantime, the companies concerned are 
required by the new agreement to continue negotiations aimed at 
producing a new organizational structure and sustainable 
long-term pricing system for Pikalyovo's industrial complex.  A 
new round of talks on that subject has been scheduled for the 
end of September.  In the absence of such a solution, we are 
likely to see continued stop-gap measures meant to prevent a 
production stoppage which could threaten social stability in 
Pikalyovo, an outcome the government seems determined to prevent 
at any cost.  End comment. 
 
GWALTNEY