Winter Olympics 2014

Sir Tokyo Sexwale · July 18, 2013

It may take a while, but it's all going to end very ugly for Russia. This is mental, $50bn? In a subtropical climate? FIFA should pitch in

WITH seven months to go before the 2014 winter Olympics, Sochi is a gigantic construction site. Lorries run up and down dusty roads, excavators turn earth inside out, and 70,000 workers from every corner of the old Soviet Union dig, lift, pull and churn day and night. Imagining the finished venue is hard. “This is where bird lakes are supposed to be,” says Svetlana, a local activist, pointing to a pile of dirt.

The whole place resembles nothing so much as a Communist-era construction project. Cost, efficiency, nature and human lives never stood in the way of Soviet rulers who reversed Siberian rivers, built cities in permafrost and planted corn in virgin land—often to ruinous effect. In scale, Sochi 2014 is similar, yet the amount of public money it will cost makes Soviet projects pale in comparison.

In many ways Sochi is an odd choice for the winter games. It has a subtropical climate and is one of the very few places in Russia where snow is scarce. The opening and closing ceremonies will be held close to the Black Sea on swampy ground, once infested by malarial mosquitoes. Temperatures there rarely fall below zero. The lower slopes of the Caucasus Mountains are not guaranteed snow, so the organisers have stored last winter’s.

Sochi is also worryingly close to the north Caucasus, a predominantly Muslim part of Russia that has been immersed in a bloody civil conflict for two decades. Last year Russia lost 296 soldiers and civilians in the north Caucasus, according to Caucasian Knot, a monitoring organisation, almost as many soldiers as America lost in Afghanistan. “Imagine holding the games in Kabul,” one American official says.

Yet President Vladimir Putin sees Sochi 2014 as his own pet project: a sign of his power over people and nature, and of his international legitimacy. That Mr Putin spends a lot of time in Sochi adds a personal touch. Yet, as Boris Nemtsov, a former deputy prime minister and opposition leader who has written several reports on Sochi, argues, far from being a model of fair play, Sochi has emerged as a model of crony capitalism, lawlessness, inefficiency and disregard for nature and people. “The Sochi Olympics are an unprecedented thieves’ caper in which representatives of Putin’s government are mixed up along with the oligarchs close to the government,” Mr Nemtsov writes.

Olympic gold
Sochi has already set one record. At an estimated cost of $50 billion, these will be the most expensive games in history. When Russia placed its bid in 2007 it proposed to spend $12 billion, already more than any other country. Within a year the budget had been replaced by a seven-year plan to develop Sochi as a mountain resort. Most of the money is coming from the public purse or from state-owned banks.

Allison Stewart, of the SAID Business School at Oxford, says that Olympics tend to have cost overruns of about 180% on average. For Sochi the overrun is now 500%. But Russia made clear that money was not an issue, says Ms Stewart. She also notes that relations between the government and construction companies appear closer in Sochi than in other games. Large construction projects often have a side-effect of corruption. But in Russia corruption is not a side-effect: it is a product almost as important as the sporting event itself.

The quality of the work is patchy. The ski jump has been redone many times, and the cost has risen sevenfold. Newly laid sewage pipes have burst, so a nasty smell drifts over a kindergarten playground. Sea-coast fortifications cracked soon after installation. The work has been carried out with little concern for the environment. The river flowing into the Black Sea has been polluted by construction waste and protected forests have been cut down. A green whistle-blower was prosecuted and chased out of Russia.

The attitude towards workers is little better. Low-skilled migrants get $500 a month, working 12-hour shifts with no contracts, safety training or insurance. Even so, wages are not always paid in full, are often delayed and sometimes not paid at all, according to Human Rights Watch. Some employers withhold workers’ passports, so they cannot leave the site. Last year at least 25 people died in accidents and many more were injured. “Perhaps I would be more enthusiastic about the Olympic games if they treated me better,” comments one worker.

Most of the construction is overseen by Olympstroy, one of Russia’s state corporations. Alexander Sokolov, who wrote a doctoral thesis on these opaque bodies, argues that they are run under the informal influence of a rent-seeking group of people for whom the extraction of government funds is the main purpose. Many of Olympstroy’s employees appear to be selected on the basis of their relations with powerful officials and paid above market rates. Over the past six years Olympstroy has had four bosses. Changes at the top have been accompanied by criminal investigations, yet nobody has been brought to trial. Attempts by Communist deputies to bring Olympstroy under parliamentary control were blocked by United Russia, the ruling party. The Audit Chamber, a government watchdog, said the bosses of Olympstroy had created conditions for unjustified cost increases. Yet its own reports are marked as “classified information”.

One of the biggest private beneficiaries of Sochi is Arkady Rotenberg, a boyhood friend and former judo partner of Mr Putin, who got rich by selling pipes to Gazprom, another state company. According to Bloomberg, Mr Rotenberg’s companies have won contracts worth $7.4 billion, more than the budget of the 2010 Vancouver Olympics. Dmitry Peskov, Mr Putin’s spokesman, insists that “no friendship can grant you access to Olympics projects.”

A contract for the most expensive bit of the Olympics—a road connecting seaside venues with the mountains and costing nearly $9 billion—went to Russian Railways, the state rail monopoly headed by Vladimir Yakunin, a former KGB general and comrade of Mr Putin’s. Russian Railways also awarded a subcontract for the road to a private company, SK Most, with close links to Mr Yakunin. SK Most has a controlling stake in Millennium Bank, where the board of directors at one point included Mr Yakunin’s wife, and which supports his church activities. According to its website, the bank is now jointly owned by Russia Railways and its subcontractors, and is chaired by Mr Yakunin’s vice-president. Last year 25% of SK Most was bought by Gennady Timchenko, another of Mr Putin’s old acquaintances.

Russian Railways says the cost overruns were caused by the complexity of the road. It insists that the contracts were properly tendered. But Mr Nemtsov says the crucial early contracts were awarded without tenders. This week Russian Railways said Mr Nemtsov was not qualified to offer an opinion on the infrastructure project and called his report politically motivated.

The Sochi contractors have followed the example of BAM, the 4,300km (2,700-mile) railway across Siberia that cost the Soviet Union $14 billion and took 36 years to build. BAM was one of the projects that crippled the Soviet economy, as Yegor Gaidar, a former prime minister and architect of Russian reforms in the 1990s, wrote in an article published as long ago as 1988. He argued that the Soviet Union had wasted its money on construction projects whose main purpose was to “utilise” government funds. This was made possible only by a political culture which deprived people of any say and substituted the narrow corporatist interest for the country’s.

In 1988 Gaidar could not have imagined how a similar culture could come to be embedded in today’s builders of state capitalism in Russia. In its bid for the games, the Russian government said it provides “a stable political and economic environment in order to improve and enhance [the people’s] quality of life. The government is based on free and open elections, freedom of expression and a constitutionally guaranteed balance of power.”

muleskinner · July 18, 2013

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