Bloomberg News

Putin’s $48 Billion Olympic Legacy Faces 100-Day Sprint to Open

October 29, 2013

Putin’s $48 Billion Olympic Legacy Faces 100-Day Sprint to Open

Construction continues on the main stadium, hotels and athlete housing for the Feb. 7-23 Winter Games, which will cost about seven times more than any previous edition. Photographer: Dmitry Lovetsky/AP Photo

One hundred days before the start of the most expensive Winter Olympics, President Vladimir Putin’s $48 billion vision of a newly empowered Russia rests in the hands and shovels of laborers working around the clock.

Construction continues on the main stadium, hotels and athlete housing for the Feb. 7-23 Winter Games, which will cost about seven times more than any previous edition. Still, Dmitry Kozak, the deputy prime minister overseeing preparation, said in an Oct. 21 interview that 95 percent of the facilities are complete in Sochi. Organizers originally pledged to have all work done two years ahead of time, later saying they underestimated the task they faced.

Putin is transforming a Soviet-era Black Sea resort near Russia’s North Caucasus region, where Islamic extremists stage attacks almost daily, into a holiday spot for wealthy tourists. Spending has spiraled from a 2007 estimate of $12 billion. Sochi, a mild-weather town where Maria Sharapova picked up tennis, is building top-class hotels, rinks and ski slopes in an area once dominated by retreats for Communist factory workers.

“It’s symbolic,” said Tom Cannon, a University of Liverpool professor who studies the economic return from spending on sports facilities. “It’s about Russia signaling that we’re a large, rich country and we can do this kind of thing.”

Much of the money spent in Sochi, a subtropical city with a palm-lined esplanade that is sometimes called the “Russian Riviera,” has gone to longtime Putin associates. Berlin-based Transparency International’s 2012 Corruption Perceptions Index ranked Russia as the world’s most corrupt major economy.

Methods Questioned

Putin spokesman Dmitry Peskov said yesterday in a Kremlin interview that Transparency International’s methodology is unclear and declined to comment on how they reached their conclusion.

Putin met with International Olympic Committee President Thomas Bach in Sochi two days ago to open a station on a high-speed train route that connects the mountain cluster with the coast, where the stadiums are located.

During the last Winter Olympics in Vancouver -- which cost about $7 billion -- Sochi 2014 Organizing Committee President Dmitry Chernyshenko said construction would be complete two years before the opening ceremony.

Last week, at the coastal Olympic Village, dump trucks and diggers were working day and night on an apartment complex next to a half-finished swimming pool. In the mountains of Krasnaya Polyana, workers outside a Marriott Hotel under construction paved sidewalks, laid grass and painted the exterior.

Stadium Status

“About a hundred sites aren’t finished, but they aren’t Olympic facilities,” Kozak said. Fisht Stadium, where the opening and closing ceremonies will be held, will be complete by Nov. 30, he said.

Sochi was in need of massive infrastructure investment, including new roads and sewage treatment, according to Kozak, who said the original price estimates didn’t consider the full scope.

Kozak also said there haven’t been any major corruption scandals involving the Olympic project, with only three construction firms under investigation for price gouging.

“If they stole, as soon as it’s proven that anyone took as much as a kopeck from anyone among government officials, they’d go to jail immediately,” Kozak said.

Regional Venues

The ice-skating venues are located close to the pebbled beach of Sochi, a town of 345,000 in southern Russia. About 30 kilometers away, Vladimir Potanin, the billionaire chief executive officer of GMK Norilsk Nickel, is spending $2.2 billion on a resort for most of the skiing events in the Caucasus Mountains.

“These games are a big deal for Putin,” David Wallechinsky, president of the International Society of Olympic Historians, said in a phone interview from Santa Monica, California, on Oct. 24. “His ego is at stake. Putin’s real audience is domestic. He wants to say, ‘I brought the world to Sochi and we won a lot of medals.’”

The hosts limp into Sochi after winning three gold medals in Vancouver, the nation’s worst Winter Games championship showing. Competing as part of the Soviet Union or Unified Team since 1956, Russian Winter Olympians finished first or second in total medals at 10 straight Winter Games, until 1992.

Terror Threat

While construction and the hunt for medals is the focus in Sochi, Putin and Russia’s leadership also work to ensure that the Winter Games aren’t disrupted by terrorism.

Putin is turning to the U.S. and other countries to help protect the Olympics by identifying Islamic extremists, including hundreds of jihadists now fighting in Syria. About 400 Russian nationals, mainly from the North Caucasus, are battling Syrian President Bashar al-Assad’s forces.

Russian security forces face almost daily attacks by extremists in the North Caucasus. One of the poorest regions of the country, it stretches from just east of Sochi across Chechnya to Dagestan on the Caspian. More than 1,000 civilians, militants and law-enforcement officials have been killed in bombings and firefights in the region since the start of 2012, according to Caucasian Knot, a Moscow-based research group.

A suicide bomber from Dagestan killed six people on a bus on Oct. 21 in the southern Russian city of Volgograd, less than 700 kilometers (430 miles) from Sochi and about 430 kilometers from the border with Dagestan.

The coastal stadiums are four kilometers from the border of the breakaway Georgian region of Abkhazia. Russia routed Georgia’s army in an August 2008 war, then recognized Abkhazia and another region, South Ossetia, as independent countries. Georgia maintains that Russia occupied the regions after the conflict.

Security Force

About 30,000 police officers and soldiers will be deployed in and around Sochi for the Winter Games, Interior Minister Vladimir Kolokoltsev told reporters in Washington in May after meeting with U.S. Attorney General Eric Holder.

Spending on roads, airports and train lines helps boost the local economy and offers residents ties to the central government, said Cannon, the Liverpool professor who visited Sochi last month.

Tourists may struggle to get to the city, which is more than 800 miles away from Moscow and has few international flights from hubs such as London. Some groups have called for a boycott after Russia’s parliament passed an anti-gay law.

Transport and tourism questions have raised concerns that the mountains and Sochi won’t get much use as a winter resort once the three-week competition is completed and the eyes of the world move to Brazil, first for soccer’s World Cup in June and July and then the summer Olympics in 2016.

Russian Vegas?

Sochi’s best opportunity to succeed after the Winter Games depends on Russia giving it a regional gambling license, according to Chris Weafer, a senior partner at Moscow-based Macro Advisory.

“Whether the massive price tag is worth it depends on whether Sochi can attract domestic tourists,” Weafer, who was named the best Russia investment strategist in 2013 by Institutional Investor magazine, said two days ago. “If it merges the Las Vegas model with winter sports, it might remain busy 365 days a year.”

The billions spent on the Olympic project include contracts with Putin allies, such as Arkady Rotenberg, a boyhood friend and former judo partner of the president, who holds a black belt in the sport. Rotenberg’s companies have been awarded at least 227 billion rubles ($7.1 billion) 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 Winter Olympics and just 15 percent of Russia’s latest estimate for the Sochi event. Last year’s summer Olympics in London cost about 8.8 billion pounds ($13.4 billion), according to organizers.

Debt Leftovers

“The No. 1 legacy of the Olympics is often debt,” Wallechinsky said. “The Sochi Olympics appear to be winning a gold medal in corruption. It has set the bar a bit higher.”

Peskov, the presidential spokesman, said yesterday that Rotenberg’s relationship with Putin had no influence on the Olympic contracts.

“He does his business independently,” Peskov said.

Rotenberg said his company won the contracts “completely without competition because nobody else could take them.”

“In order to get those contracts, you need to have a company that can fulfill them, but also that has never failed to deliver,” Rotenberg said in a Kremlin interview yesterday. “That’s the entire trick -- it’s simple.”

Weather

Even if the construction projects are completed before the opening ceremony, there are questions about the weather. Sochi’s temperatures average around 10 degrees Celsius (50 degrees Fahrenheit) in February, raising concerns about snow levels on the ski slopes. Organizers stored several hundred thousand metric tons of snow from last winter to ensure that courses will be covered.

“It’s obvious that there is still a lot of work to be done to get the facilities ready by the opening ceremony,” said Weafer, who visited Sochi last week. “The sense of urgency is palpable and the local motto is, ‘Failure is not an option.’”

To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


We Almost Lost the Nasdaq
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus