Olympics: Corruption and Waste Send Sochi Spending Spiraling
The 2014 Sochi Olympic games have been steeped in money from day one. Russia’s bid for the winter games included a promise to spend $12 billion on the event — a price that far exceeded proposals placed by other countries like South Korea and Austria. Estimates of the actual cost have swelled since then, and are well over $5o billion by some calculations.
That places the 2014 games as the landslide winner of Olympic costs, surpassing the 2008 Beijing price of $40 billion. Bloomberg reports that $520 million is being spent per event in Sochi, versus $132 million per event in Beijing. The 2014 games have only 98 events compared to the 302 events, which occurred in 2008.
Asked about the billion dollar ballooning at a press conference, Russian President Vladimir Putin brushed the figures aside. “The overall cost of the Olympics has been announced; it is 214 billion rubles,” Putin stated. “You can calculate the dollar amount by dividing this figure by 33, which is the current exchange rate.” Putin’s statement of 214 billion rubles translates to roughly $6 billion.
Putin went on to explain what needed to be done in order to prepare for the Sochi games. In 2006/2007, the Russian President said, the country adopted a Sochi Development Master Plan to revitalize the area. Olympics or no Olympics, the area needed assistance. In all, Putin outlined three broad areas where money was spent, which correspond with charges of corruption, waste, and out-of-control spending that have been levied against the state.
The costs in this realm are staggering. A viable transportation option was desperately needed to link the mountains and coast for Sochi to have a successful bid. Russian Railways oversees 52,000 miles of rail track, including the railway connecting the coastal Adler to the ski resorts of Krasnaya Polyana.
Paul Mathews, an American originally hired to help develop first-class ski resorts in Russia, but went on to assist with Olympic planning, saw early proposals by the Russians. Although an existing road connected the coast to the mountains, it would not hold up against Olympic traffic. “They had a gondola running for 50 miles across the sky,” Mathews told Vanity Fair of the initial plans. “It looked like a child had drawn them.”
But the Russians sensed they needed a serious plan in order to win the games. So, planned tracks and roads were prepared, originally estimated to cost $2.85 billion. Estimates for the current cost of the project vary from the high end of $9.4 billion to a slightly lower $8.7 billion. Travel by air and sea have not been neglected either. The Washington Post reports that Russian company Basic Elements has invested $186 million in transforming a cargo port into a yacht marina, and $440 on upgrades to the Sochi International Airport. For the airport, two VIP terminals were included, one exclusively for the President and other governmental officials.
In his press conference, Putin marked overhauling the nation’s infrastructure as the “first and the most important” goal. It was necessary for the development of the south and for the creation of world class resorts. Most of the money, Putin admits, was spent on infrastructure, but he denies this should be involved in the calculation of Olympic costs, because it is not directly related to the games.
2. Training Bases for Athletes
It was shameful to Putin that with the collapse of the Soviet Union came the collapse of athletic centers. He cited that, “Ice skating professionals had to hold the Russian national championship in Berlin due to the lack of adequate skating rinks,” and the loss of ski jumps as problems needing to be remedied.
Vanity Fair reports that the Bolshoy Ice Dome has a price tag of $302.9 million, the RussSki Gorki Jumping Center cost $265 million, and the Iceberg Skating Palace was $277.7 million. The Jumping Center, in particular, garnered unwanted media attention for Putin. Preliminary estimates pegged the cost for the ski facility at 1.2 billion Rubles, which then grossly enlarged to the cost of about 8 billion Rubles, or around $228 million.
The state allegedly lost $170 million for the stadium, and another $75 million on the bobsledding site. Businessweek states that equipment has been damaged, and destroyed. Materials have been severely delayed in reaching the building sites, causing delays and racking up further expenses. Alexander Popkov, a lawyer in Sochi, described scenes of further waste. “The road gets sealed today, then dug up tomorrow. They put down asphalt and then in a week rip it up all over again. It would be funny if it wasn’t happening with our money.”
3. Resort Development
It wasn’t only the means of transportation that had to be built from the ground up. Yulia Naberezhnaya, the deputy scientific secretary of the Sochi branch of the Russian Geographic Society, told Bloomberg that, “No integration of the scientific approach” for constructing buildings and roads took place. She claims the officials’ thought process was “we have a lot of money, we’ll build it somehow.”
If true, the slapdash approach was applied to buildings and resorts — structures that did not previously exist. Again, cost calculations vary by source. Vanity Fair’s figures pin the Coastal Olympic Village at $778 million, and $2.6 billion for the Rosa Khutor Resort. The latter is meant to be styled after an early 19th century German spa. A shocking approach that does not mesh with how Putin viewed the matter.
“Finally, the third task was to create a new mountain cluster in order to transform this part of the Russian Federation into a resort, which can be used in any season, in winter or in summer,” he said in the January press conference. “I think that we have accomplished this task as well.”
Footing the upfront colossal financial bill are Russian billionaires, with the help of Vnesheconombank (or, VEB), a state development bank. Bloomberg says that 70 percent of the investments made by the oligarchs came from VEB. Sergei Aleksashenko, a former deputy chair of Russia’s Central Bank now a fellow at Georgetown University, says that, “VEB is used by the government as a second budget,” which allows the state not to think of money from that source as part of the budget, even though it is. Twenty-one of the contracts handed out for the games went to close friends of Putin.
The Christian Science Monitor recently reported that Gian-Franco Kasper, president of the International Ski Federation and a Swiss member of the International Olympic Committee (or, IOC), said that Russian corruption is an ”everyday matter.” Kasper added it is possible that $18 billion of the Sochi budget was embezzled.
Boris Nemtsov, former Russian deputy prime minister, agrees. He is the author of a study about Olympic corruption in Russia. “We’ve been trying to interest the IOC in this issue for quite awhile, but to no avail,” Nemtsov said. “Until now, there’s been no clear acknowledgement of the issue, even though the facts are widely available. The attitude is that ‘all is well’ and if there’s any corruption it’s a problem for the host country and not the IOC.”