Olympics

Putin Friend Bags at Least 21 Russian Olympic Contracts


Putin: “The main issue is to be sure nobody steals anything”

Photograph by Jock Fistick/Bloomberg

Putin: “The main issue is to be sure nobody steals anything”

(This story has been updated and corrected to reflect that SK Most was awarded its Sochi contract prior to Timchenko's purchase)

Arkady Rotenberg, the boyhood friend and former judo partner of black-belt President Vladimir Putin, already is collecting his winnings from 2014’s Winter Olympics. Rotenberg’s companies have been awarded at least 227 billion rubles ($7.4 billion) worth of contracts for the Sochi Games, according to figures compiled from corporate and government filings. That’s more than the entire budget for the 2010 Vancouver Olympics, though it represents just 15 percent of Russia’s latest estimate for the event, which promises to be the most expensive ever.

His contracts, which number at least 21, include a share of an $8.3 billion transport link between Sochi and ski resorts in the Caucasus Mountains, a $2.1 billion highway along the Black Sea, a $387 million media center, and a $133 million stretch of tarmac that will link various venues and double as Russia’s first Formula 1 track. “This is a monumental waste of public money,” says Stefan Szymanski, a sports economist at the University of Michigan who tracks Olympic spending. “A small number of people at the top have control of resources, and there’s no accountability.” Russia is the most corrupt of the Group of 20 economies, according to Berlin-based Transparency International.

The bulk of Rotenberg’s Olympic contracts are held by Mostotrest, a Moscow-based company set up under Josef Stalin in 1930 to build bridges, according to its website. Rotenberg and partners, including his son Igor, gained control of Mostotrest in 2010, just before the company raised $388 million in an initial public offering. Rotenberg’s aide said he was unable to comment on his work on the Olympics. Officials at Mostotrest didn’t respond to requests for comment by e-mail and phone.

Rotenberg told the Financial Times in November that while he values Putin’s friendship, he’d never abuse it for personal gain. “I have great respect for this person, and I consider that this is a person sent to our country from God,” said Rotenberg. Dmitry Peskov, Putin’s spokesman, says Rotenberg’s success is unrelated to his ties with Putin. “No friendship can grant you access to Olympics projects, which are very difficult to get because they’re hard to implement and aren’t as profitable as many other construction contracts,” Peskov says.

Rotenberg gained his fortune by selling pipes and building pipelines for state-run Gazprom, the world’s largest gas producer. Stroygazmontazh, which Rotenberg owns with his brother Boris, built a gas link to boost supplies to Sochi for 32.6 billion rubles, five times more than first budgeted, according to Olympstroy, the state company overseeing Sochi’s transformation, and government data. The Rotenberg brothers are now worth $2.97 billion each, Moscow-based CEO Magazine estimated last month. Stroygazmontazh did not respond to requests for comment.

The largest single Olympic contract for the $8.3 billion rail-highway link went to state-run Russian Railways, which then hired Mostotrest, among other contractors, and SK MOST, a company now minority-owned by Putin ally Gennady Timchenko, co-founder of oil trader Guvnor. SK Most was awarded the contract prior to Timchenko’s purchase of his stake. Russian Railways’ pension fund owns 25 percent of Mostotrest.

Putin, 60, has fought to host global events, such as last year’s Asia-Pacific Economic Cooperation summit in Vladivostok, to raise Russia’s profile. The Audit Chamber, Russia’s budget watchdog, last November said it found that about $490 million of the $20 billion Russia allocated for the summit was “improperly spent.” About $506 million has been misspent in Sochi thus far, the watchdog said this month, declining to cite specifics.

Putin last month fired the vice president of the Olympic Committee, Akhmed Bilalov, saying his brother’s company, which was building the ski-jumping complex, was over budget by a factor of seven and behind schedule. “The main issue is to be sure nobody steals anything,” Putin said on Feb. 6 before the announcement of Bilalov’s dismissal. Bilalov, who has left Russia, says costs increased only 60 percent, according to his representative in Moscow, who asked not to be identified because of the sensitivity of the matter. A few days earlier, Rotenberg’s Mostotrest said it would seek to sell its Engtransstroy unit, which has at least four unfinished Olympic contracts.

Last August, the Interior Ministry issued a statement saying it had foiled a plot to embezzle 8 billion rubles from the Olympic effort. No details were provided. The ministry and the Prosecutor General’s Office didn’t respond to requests for comment on corruption in Sochi. “The cost overruns are due to corruption, the clan system, and a lack of competition,” says Sochi native Boris Nemtsov, a deputy prime minister under Boris Yeltsin and an opposition leader who tracks government spending. “All the main contractors in the Olympics are people close to Putin.”

Sochi Mayor Anatoly Pakhomov, who handily defeated Nemtsov in the 2009 election, says spending concerns are unfounded because any “wrongdoing” is quickly discovered. “Some have latched onto the rising costs, but that can happen because of unforeseen circumstances,” he says. “There won’t be any witch hunts after the Olympics.”

The bottom line: The Audit Chamber, Russia’s budget watchdog, says that $506 million has been misspent already in the runup to the Sochi Games.

Arkhipov is a reporter for Bloomberg News in Moscow.
Meyer is a reporter for Bloomberg News in Moscow.

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