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Cablegate: Nizhniy Novgorod: Vertical Control Insufficient?

VZCZCXRO2469
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHMO #3071/01 3561132
ZNR UUUUU ZZH
R 221132Z DEC 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6042
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 MOSCOW 013071

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EUR/RUS

E.O. 12958: N/A
TAGS: PGOV PREL KDEM PINR RS
SUBJECT: NIZHNIY NOVGOROD: VERTICAL CONTROL INSUFFICIENT?

REF: A. (A) MOSCOW 12901
B. (B) MOSCOW 12916

1. (SBU) SUMMARY. With President Putin's appointment of
Governor Valeriy Shantsev in August 2005, a United Russia
political elite with strong business interests now firmly
controls Nizhniy Novgorod and its region. The establishment
of the regional branch of the second Kremlin-sponsored party,
"A Just Russia (SR)" in Nizhniy has been delayed by
infighting among its new leadership (ref A). Despite its
historical significance as a military research and scientific
center, some foreign investment, and its current position as
the capital of the Volga Federal District (VFD), Emboff found
during a December trip that economic development and job
growth are anemic. The region tightly oversees investment
projects and corruption is allegedly rife. The region has
received extensive National Project funds for healthcare.
The demographic crisis concerns the political establishment.
END SUMMARY.

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---------------------------------
UNITED RUSSIA: ONLY GAME IN TOWN?
---------------------------------

2. (SBU) Regional Governor Valeriy Shantsev had little
familiarity with the Nizhniy Novgorod region before becoming
governor in August 2005. Shantsev was a Communist Party
(KPRF) member who switched to United Russia before being
appointed by President Putin. He succeeded Gennadiy
Khodyrev, a KPRF member who ran for governor, reportedly
against the will of the Kremlin, and won 60 percent of the
vote in 2001.

3. (U) Legislative Assembly elections in March 2006 saw
United Russia (YR) win 44 percent of the vote. KPRF won 18
percent of the vote, the Party of Pensioners 17 percent, and
LDPR 6 percent.

4. (SBU) In a December 14 meeting, United Russia Regional
Faction Leader Aleksandr Vaynberg bragged that no other party
would be able to compete with United Russia for the
foreseeable future. KPRF Regional Deputy Vladislav Yegorov
was less impressed with United Russia's governing skills,
labeling YR regional deputies "submissive."

----------------------------------
KPRF: CLAIMS GROWING URBAN SUPPORT
----------------------------------

5. (SBU) Countering Vaynberg's assertion that the KPRF,
which "still waved posters of Stalin," was in decline,
Yegorov said that in the March elections, the KPRF had a
strong showing in urban areas, winning approximately 25
percent of the vote in Nizhniy Novgorod, Dzerzhinsk, and
Sarov (formerly Arzamas-16). He buttressed his claims of
increasing KPRF support by underscoring that the 18 percent
vote in March 2006 was 5 percent higher than KPRF's 13
percent showing in the 2003 State Duma election.

------------------------------------
A JUST RUSSIA: TRYING TO GET STARTED
------------------------------------

6. (SBU) Nizhniy's regional branch of A Just Russia has
still not been established, reportedly because of infighting
within the leadership. Both Vaynberg and Yegorov were
dubious about A Just Russia's chances of melding its three
constituent parties into an effective coalition. Deputy
Chair of the Party of Life's (one of the three constituent
parties of A Just Russia) regional committee Svetlana
Cheromina, however, attributed the disarray to time
constraints and predicted it would be resolved by the end of
the year. Alluding to the fact that the leaders of all three
parties merging into A Just Russia were strong personalities
with powerful business interests, she suggested that power
might be shared by instituting a rotating leadership.
Nonetheless, she was sure that A Just Russia would win seats
in the next Duma election.

---------------------------------
YABLOKO: WAITING FOR THEIR MOMENT
---------------------------------

7. (SBU) With no likely representation in the regional or
State Duma in the near future, Mikhail Yevdokimov, the
Nizhniy representative of the liberal democratic party
Yabloko despaired at voter apathy and expressed amazement at
the GOR's "paranoia." (NOTE: Emboff's meeting occurred the
day after United Civic Front Garry Kasparov's Moscow office

MOSCOW 00013071 002 OF 003


had been raided by plain clothes security officers (ref B).)
Saying that democratic forces had been unprepared in 1991 and
"missed their chance", Yevdokimov confidently asserted that
there would be another opportunity in the future. He
unenthusiastically agreed with KPRF's Yegorov that in the
meantime "right" and "left" forces could work together in
areas of mutual interest.

-------------------------------------
INVESTMENT CLIMATE: REGION-CONTROLLED
-------------------------------------

8. (SBU) Head of the Nizhniy Novgorod Region's International
Cooperation Division Olga Guseva was upbeat about investment
in Nizhniy. She spoke in glowing terms about the efficiency
of the committee charged with approving investment projects.
Presenting a glossy package outlining the region's
legislative support and tax incentives, Guseva reported that
an investor conference last summer had been greeted
positively, although she declined to discuss particulars.
(Intel has had a presence in the region since 1992, when it
contracted software developers from Sarov.)

9. (SBU) On a less cheery note, a brand-new IKEA was closed
for two weeks this December due to alleged fire code
violations. Vadim Nosov, head of the Union of Retailers
bluntly told us that it was because bribes had not been paid.

10. (SBU) Interlocutors unanimously reported that loans are
difficult to get without collateral and that rates are
prohibitively high, thereby discouraging the development of
business start-ups. While niche market low-profile
entrepreneurs operate with little support or interference
from the local government, entrepreneurs in more competitive
industries are more susceptible to abrupt playing field
changes. Nosov pointed to the decision to close small street
kiosks by January 1, 2007, made at the behest of businesses
with close ties to the local government, as evidence that
Nizhniy was a riskier place for small businesses.

----------------------------
FEDERAL MONEY FOR HEALTHCARE
----------------------------

11. (SBU) In the healthcare sector, Sergei Krivatkin, a
physician, marveled at the federal money that was pouring
into the region. Linking Moscow's largesse to Shantsev's
appointment, Krivatkin noted that the monies were not only
going into salaries for doctors and improving hospitals, but
also for purchasing state-of-the-art medical equipment.
KPRF's Yegorov predicted that the money would stop after the
2008 presidential election.

------------------
FEW DESIRABLE JOBS
------------------

12. (U) Beyond the medical sector though, progress is less
visible. When VFD's Presidential Representative Sergei
Kirienko was appointed head of Rosatom in November 2005, the
press reported that Putin expected Kirienko to revitalize
Russia's decaying nuclear power research sector, much of
which is heavily centered in the Nizhniy Novgorod region. In
a December 13 meeting, Nataliya Gladkova, a Medical Professor
and Russian Academy of Sciences research physicist, conceded
that while she considered life in Nizhniy vastly improved,
many young people, including her students at the Medical
Academy, were leaving for Moscow or abroad. While Putin had
stressed increased investment in the science sector, funding
had not yet increased.

13. (SBU) Per Vaynberg, the demographic crisis was the
region's main problem. He suggested that improving the
environment could increase the birth rate. Other sources
cited the lack of housing as a difficult issue in the region.
United Russia Regional Deputy Aleksandr Serikov of the
Housing Problems Committee told us that it would take at
least twenty years to meet the housing demand using current
methods. Valeriy, a taxi driver, complained that while there
was plenty of housing available, no one could afford it.

14. (SBU) University students fretted that jobs were very
difficult to get after graduation, even with an
"indispensable" second language. While there is an
unemployment rate of two percent in the region, Guseva
clarified that many of the jobs were minimum wage. Party of
Life's Cheromina thought university students had unrealistic
expectations.


MOSCOW 00013071 003 OF 003


---------------------------
YOUNG POLITICALLY APATHETIC
---------------------------

15. (U) Students seem to be apolitical. In a university
outreach session, students backed Putin, but had little to
say about United Russia. The KPRF was a dinosaur and no one
had heard of A Just Russia. A straw poll revealed that none
of them had voted in the last election.

-------
COMMENT
-------

16. (SBU) Despite its control of the regional government and
cash injections from Moscow, United Russia's leadership has
not yet achieved meaningful success in addressing several key
issues in Nizhniy Novgorod. Although there does not yet seem
to be a credible challenger, A Just Russia and the KPRF could
make inroads during the next election if United Russia
continues to rely on its ties to Moscow instead of addressing
local problems.
RUSSELL

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