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 
 
 
¶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