RUSSIA POWER DRIVE: Vladimir Putin, here driving a snowmobile at Russia’s ski resort of Krasnaya Polyana near Sochi in early 2010, sees the Olympics as a chance for Russia to reassert itself on the world stage. REUTERS/RIA NOVOsti/KREMLIN/DMITRY AstakHOV Putin’s $50 billion Olympic gamble As the price tag soars for the winter games in Russia, wealthy private investors are pushing back over costs BY THOMAS Grove SOCHI, FebruarY 21, 2013 SPECIAL REPORT 1 RUSSIA PUTIn’S $50 BILLION OLYMPIC GAMBLE bove the Black Sea city of Sochi, one The bargaining power is said Bower. The Russian president may of Russia’s richest men is spending with the oligarchs until 2014, hope to recoup a return on the investment Abillions of roubles to turn a patch because they can come to the later. Whether the oligarchs will as well is of mountainside into a global showpiece. state for money or threaten that far from clear. Metals magnate Vladimir Potanin has paid the construction won’t get done “All (rises in costs) there are justified. for new buildings, new lifts and hundreds It is not possible to calculate everything of snow canons in the hope of transforming in time. in advance. New demands arise, includ- slopes not far from sub-tropical Sochi into Bruce Bower ing those from the International Olympic a world-class ski resort. Verno Capital Committee, which require additional costs. Like most of the plans to host the There’s nothing extraordinary about it,” Winter Olympic Games next year, Russia’s said Putin’s spokesman, Dmitry Peskov. ambitions for the ski village and other “Regarding possible disputes (between venues are outsized in scale and ambition. investors and developers), they are inevi- Total investment to make the sleepy region table when large-scale projects like this one fit to welcome thousands of competitors are being developed.” and the world’s media is expected to exceed A ‘SOCIAL PROJECT’ $50 billion, according to Russia’s interna- tional news agency RIA Novosti. In the eyes of many Russians, it was Putin’s That would make it the most expen- BIG FIGURES: Vladimir Potanin, left, and Oleg barnstorming style that won the country sive games, summer or winter, ever staged. Deripaska are unhappy with escalating costs and the right to stage the 2014 games. In 2007 The 2010 Winter Olympics in Vancouver, lack of support from Moscow. REUTERS/DENIS Putin flew to Guatemala where he wooed Canada, cost a mere $3.6 billion, according SINYAKOV (L) REUTERS/MICK Tsikas (R) the International Olympic Committee in a to an estimate by PricewaterhouseCoopers, speech in English, French and Spanish. He though others put the bill closer to $6 billion. presented an ambitious plan of public and While Russia’s President Vladimir Putin bank Vnesheconombank of up to $750 private partnerships to create the necessary has not flinched at Sochi’s eye-popping ex- million. Olympic infrastructure from scratch in what pense, some private investors and wealthy “We are carrying out talks with the was one of Russia’s least developed areas. oligarchs, recruited by Putin to help foot government on the compensation of a Russia’s wealthy were always going to the bill, are chafing at how much they are part of these expenditures through inter- be part of the plan, said Bower, adding that expected to do. In a rare challenge to the est rate subsidies,” said Potanin, speaking to they were encouraged by the prospect of Kremlin they are demanding that the state Reuters. “Many see this as a form of govern- gaining other high-profile state contracts help with the rising costs. ment support. But actually it is only com- in the future. Though precise figures on who is paying pensation for expenditures, which are not Infrastructure is expected to remain for what in Sochi are hard to obtain, RIA characteristic of ... commercial projects.” a growing market as Moscow and re- Novosti says private investors have spent Oleg Deripaska, another billionaire oli- gional governments look to replace crum- nearly $25 billion. Federal and regional garch, has similar complaints, reflecting the bling Soviet-era facilities for the football budgets have accounted for some $13 bil- complex, symbiotic relationship Putin has World Cup to be staged in Russia in 2018. lion of the costs incurred to date, according with Russia’s rich elite. Morgan Stanley says infrastructure spend- to Deputy Prime Minister Dmitry Kozak. “The bargaining power is with the oli- ing is expected to account for 7 percent of Potanin, whose estimated fortune of garchs until 2014, because they can come Russia’s rising GDP at least until 2018. $14.5 billion makes him Russia’s fourth to the state for money or threaten that the Many Russia watchers believe the coun- richest man, according to Forbes, is com- construction won’t get done in time,” said try’s most powerful businessmen keep their plaining of at least $530 million of extra Bruce Bower, a partner at the investment wealth at the pleasure of the Kremlin. For work his company was required to do. Now firm Verno Capital, who has lived in Russia Sochi, many of the biggest ventures were he wants the government to boost its con- since 2005. split up between Russia’s oligarchs, most tribution to his projects by cutting interest Putin wants the Games to project a pos- of whom, like Potanin and Deripaska, are rates on his debt, which includes money itive image of Russia to the world and may close to Putin. borrowed through a line of credit with state endure the rising bills with a fixed smile, “It wasn’t a question of either of them SPECIAL REPORT 2 RUSSIA PUTIn’S $50 BILLION OLYMPIC GAMBLE SLIPPERY SLOPE: Snowboarders practice in the half pipe at Extreme Park, a Sochi 2014 Winter Olympics venue, this month. REUTERS/KAI PFAFFENBACH making business decisions to join in with of a number of roads and traffic junctions. Olympics preparation. They were essen- Deripaska’s projects include the $760 tially told it would be a good idea for them million Olympic village, which will host to help out,” said one contractor. Another $50 billion 3,000 people in 47 buildings, and a 42-km source, who bid for a contract in Sochi but Estimate of total investment in road around the venues. He is also spend- was eliminated on a technicality, said that Olympic-related infrastructure ing nearly $300 million to expand Sochi the Kremlin had suggested its continued International Airport, according to his support for their business ventures depend- website. The construction of a new termi- ed on oligarchs getting involved. biggest nickel producer. nal will allow the airport to handle 2,500 Deripaska’s construction firm Basic Deripaska, a former physicist who came passengers per hour - up from a previous Element declined to comment on whether to control RUSAL, the world’s largest alu- capacity of 900 passengers per hour. his participation in the Olympics was a re- minium company, will hold a 27.8 percent LOYAL SHOWING sult of political pressure. Potanin has said stake in Norilsk Nickel. the idea was born after he skiied with Putin. In Sochi, Potanin’s projects include ho- In general, Russia’s super-rich elite dare not But in an interview on Ren TV he said his tels and chalets as well as the ski slopes at defy Putin, according to Maria Lipman, participation in the Games was altruistic. the resort of Rosa Khutor in the nearby an analyst at think tank Carnegie Moscow “I look at this project like a regular social mountains. Another investor is Arkady Centre. “They may be more demanding be- project coming from a person who has the Rotenburg, a construction billionaire who hind the scenes, but for now the show of ability to realise such a project for the coun- in his youth was a judo sparring partner loyalty is all part of the informal deals that try,” he said. of Putin. Stroygazmontazh, the pipeline Russia is based on,” she said. Well-connected Russians grew rich in company that he owns, has built a 177-km But there can be occasional discord. the chaotic years after the fall of the Soviet (110-mile) on and off-shore gas pipeline The soaring costs of Olympic projects have Union by acquiring some of the country’s around Sochi. driven officials at Deripaska’s company most valuable assets at well below market Rotenburg also has a stake in Russia’s Transstroy to pursue an arbitration battle values. Potanin made his first fortune as largest bridge builder, Mostotrest, with Olympstroy, the state-owned compa- a banker handling high-profile state ac- through investment vehicle Marco Polo ny coordinating construction of the venues. counts. Under a current deal, he will own Investments, where he is a main share- Transstroy says costs crept up after it had a 30.3 percent share in the former state- holder. Mostotrest is carrying out extensive taken on the project. owned company Norilsk Nickel, the world’s work in Sochi, including the construction “At the beginning of the project a SPECIAL REPORT 3 RUSSIA PUTIn’S $50 BILLION OLYMPIC GAMBLE UNDER CONSTRUCTION: Builders are hard at work to turn Moscow’s vision for Sochi, top Sochi’s blizzard of money right, into reality. A photo taken in December The 2014 Winter Games in Sochi will be the most expensive Olympics shows mountains, but little snow. REUTERS/GK ever. Russia is spending $50 billion to prepare venues on the Black Sea OLYMpstrOY/HANDOUT coast and in nearby mountains. Belarus RUSSIA RUSSIA number of errors and inaccuracies were Mountain allowed, which had to be worked out dur- Ukraine cluster Kazakhstan ing construction,” the company said in a statement.