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To save or to ignore: Governors’ role in wage arrears settlement

19:02 25/12/2019

A decade-long conflict around wage arrears at Inskoy coal mine raises a question of what prospects employees of enterprises have to cause their earned money to be paid without participation of a head of a region. 

RAPSI has analyzed the details of similar conflicts, in which Governors directly intervened seeking to achieve settlement. The results allow for the conclusion that participation of a region’s head was as a rule of key importance for the settlement of a crisis, whereas mechanisms used varied across regions.  


Testimony given by ex-Governor of the Kemerovo Region Aman Tuleyev during the hearing of a case over alleged extortion of the controlling interest in Inskoy mine has been published by media outlets. It demonstrates that the former Kuzbass head strived to prevent social instability in the region through payments from a charity existing at the expense of donations from owners of key regional businesses. 

In the framework of this system the priority was to repay wage arrears related to employees of large enterprises. Although there is a question as to the voluntary nature of these donations, the system worked, and entrepreneurs did not allege pressure even after Tuleyev had resigned. 

Earlier, RAPSI put forward a hypothesis that the Inskoy precedent affected the policies pursued by the current Kuzbass authorities, which were aware about a strange fact that Tuleyev’s deputies had been put on trial as a result of the help provided to miners. Remembering that, the present administration is cautious and skeptical when commenting protests of miners demanding the payment of wage arrears. 

In this context, experience of other regions when settling similar problems is of special importance. 

Waiting for personal address of the President. Nizhny Tagil Factory of Thermal Insulation Products (NZTI)

Since mid-2000s the Nizhny Tagil Factory of Thermal Insulation Products was owned by Vyacheslav Kokorin, a figure well known in crime environment, and his business partner. After the crisis of 2008, the factory started to accumulate debts, including those resulting from questionable deals. 

By summer of 2017, wage arrears at the enterprise made over 13 million rubles (about $210,000 at the current exchange rate); nevertheless, the manager of the factory, when asked about the situation, answered that “until Putin personally approaches” him, nobody is to be paid salary. The workers appealed to the President of Russia via a direct conference connection. 

A year earlier, a peace court justice ruled to enforce wage arrears totaling to 7.5 million rubles ($113,000). A criminal case over nonpayment of wages for financial gain (Article 145.1 of Russia’s Criminal Code) was opened. Notwithstanding numerous notices of violation issued by prosecutors, wage arrears concerning 196 employees continued to grow. 

Only personal intervention of Vladimir Putin could change this situation. On the following meeting with acting Governor of the Sverdlovsk Region Yevgeny Kuyvashev he asked  to see to this case personally. Later, Chairman of Russia’s Investigative Committee Alexander Bastrykin ordered to have the case materials sent up to the central office of the Investigative Committee for examination stating that he was personally take part in it.  

The regional authorities reacted immediately. The next day after the meeting with the President the Governor said that he stood with the workers and visited the enterprise with a delegation of the regional administration, Investigative Committee, Prosecutor’s Office and bailiffs. 

A day later Kokorin was summoned to the Prosecutor’s Office where it emerged that he formally had no relation to the factory by that day as the assets had been transferred to his son. Already by that evening the pseudo-manager could “find” 12 million rubles ($193,000) to pay wages; soon the workers began to receive money. The payments were transferred to bank cards under personal control of a prosecutor, who was present at the bank with a sheaf of enforcement orders. 

A chief of the Sverdlovsk Regional Investigative Committee Directorate was suspended, and a head of the District Directorate of the Regional Investigative Committee Directorate was discharged from the post for bureaucratic foot-dragging; there was launched an internal agency check. 

Thus, this “solution by force” ensured only by the personal intervention of the country’s President could settle the wage arrears problem within the shortest possible time. 

Subway construction workers strike. Subcontractors of Metrostroy company 

In early 2018, 30 workers of the St. Petersburg SMU-11 Metrostroy company, a subcontractor of Metrostroy, went on strike. Wage arrears made no less than 76 million rubles (about $1.2 million). The management of the company promised a prosecutor’s office and a labor inspectorate to pay the debts within a month but failed to meet this obligation. 

A new strike resulted in the second prosecutor’s probe and partial repayment of the arrears. SMU-11 Metrostroy cited frozen accounts as a reason why payments could not be made. As a result, the payments were made after the bailiffs’ interference. 

In October and December 2018, more than 100 employees of four subcontractors went on strike as they did not receive wages for over two months (Article 142 of Russia’s Labor Code). In the course of prosecutors’ investigations, Metrostroy justified the arrears by protracted acceptance of work by an ordering customer.  

However, the situation changed only by the end of the year, when debts to 900 employees exceeded 400 million rubles (about $6.5 million). Acting Governor of St. Petersburg Alexander Beglov had to personally micromanage the situation; large payments were started the next day after the December strike. 

In early January 2019, Beglov established a working group to ensure the repayment of wage arrears due to the workers of Metrostroy. As a result, part of arrears accumulated for September through November 2018 could be liquidated. On January 25, more than 1,700 employees of several subcontracting organizations of Metrostroy jointly appealed to the acting Governor for assistance in the repayment of wage arrears for December and January. 

Strikes, pickets and rallies continued throughout February 2019 until Metrostroy could secure new governmental contracts. 

In this case, the problems encountered by employees of the company engaged in the construction of important city projects in St. Petersburg were also finally settled only after the personal intervention of the region’s head in spite of the active efforts on the part of prosecutors and the labor inspectorate. 

Malicious Intent or Incompetence. Kingcoal South Company

However, the most actual example in the Inskoy case context is a conflict involving Kingcoal South company located in the Rostov Region. 

In 2012, Kingcoal company established its subsidiary to manage four mines it purchased in the area of the town of Gudkovo. CEO of the controlling company Vladimir Pozhidayev promised to invest enormous money in coalmining. Nevertheless, since 2014 the operations practically stopped, there accumulated wage arrears. 

The regional administration learned about the problems at Kingcoal at about the same time. There was founded a working group headed by a Vice-Governor; there was launched a discussion on the issue of stabilization of operations at enterprises. The administration proposed an anti-crisis plan envisaging a settlement with minimal losses. Nevertheless, the company continued to pursue an investment program, which had very uncertain perspectives. 

In September 2015, the first strike involving 40 employees occurred. As a result, the enterprise was subjected to the monitoring procedure and external management for six months. Nevertheless, the wages were not paid. 

Throughout second half of 2016, Kingcoal workers repeatedly organized rallies, hunger strikes and pickets demanding to repay wage arrears totaling to 300 million rubles (about $5 million). As activists of Russia’s Communist Party and federal mass media outlets intervened in the conflict, it attracted attention of Vasily Golubev, the Governor of the Rostov Region. 

Three days after the most massive protest event, which took place in August 2016, Regional Development Corporation of the Rostov Region controlled by the authorities purchased the debts of three Kingcoal enterprises and started to repay them. 

According to prosecutors, as of the summer of 2019, the employees could not yet receive the debts in the amount of 86 million rubles ($1.4 million) plus a 2 million-ruble ($32,000) compensation, ordered to be paid to them. Strikes persist up to this day; the last report on miners’ actions was published in December 2019. As concerns the mines, two of them were purchased by Czech company E.CONNECT ASSETS with intention to reinvest coal production. 

Two criminal cases were opened against Pozhidayev. The first one was on charges of abuse of power and failure to pay wages to 156 employees for a year, whereas funds were spent for other purposes. It was also established that Pozhidayev drove two mines controlled by him into bankruptcy, what resulted in redundancy of 1,936 employees and wage arrears totaling over 200 million rubles ($3.2 million). The second case was opened on allegations that 15 partners of the company were caused damages in the total amount of more than one billion rubles ($16 million) by the actions of the Kingcoal management.

Some experts believe in Pozhidayev’s incompetence rather than any malicious intent on his part. Media outlets quote Ruben Badalov, Deputy Chairman of the Russian Independent Trade Union of Coalminers (Rosugleprof), as saying that the situation at the Gukovo mines had been dire yet before Pozhidayev took control, and he came at a problem-ridden enterprise. Although at various meetings of all levels up to that held in the office of the Minister of Fuel and Energy of Russia Pozhdayev swore to settle all the problems, it was in a way immediately clear, where we were going, the citation goes on. I would not call Pozhidayev a fraudster, Badalov said according to the reports, if anything he is rather an unsuccessful businessman. He has lost his company and is now in prison. Could the mines be saved? In my opinion the answer is yes, Badalov is quoted as saying.    

Inskoy as a precedent 

Intervention of regional authorities in the settlement of crises at enterprises of significant social importance is not an infrequent development. However, in each situation their involvement depends on the means available. 

Nizhny Tagil workers could get through to the President, Metrostroy employees could attract attention of their Governor, whereas Kingcoal miners could cause public outcry thus making the region’s head to develop a unique anti-crisis plan. In this row, Inskoy stands out as in other cases no representatives of regional administrations have been brought to criminal responsibility. 

Now, public servants and officers of the Investigative Committee are on trial. Apparently, the sentence will directly affect the conclusions, which the heads of regions are to draw: is it worth it to intervene in conflicts and seek any means to settle them, or to care about their careers? 

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To save or to ignore: Governors’ role in wage arrears settlement

19:02 25/12/2019 A decade-long conflict around wage arrears at Inskoy coal mine raises a question of what prospects employees of enterprises have to cause their earned money to be paid without participation of a head of a region. RAPSI has analyzed the details of similar conflicts, in which Governors directly intervened seeking to achieve settlement. The results allow for the conclusion that participation of a region’s head was as a rule of key importance for the settlement of a crisis, whereas mechanisms used varied across regions.
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