Get breaking news alerts via email

Click here to manage your alerts
FILE - In this Wednesday, Jan, 2, 2008 file photo Russian President Vladimir Putin, right, listens to the state-controlled natural gas monopoly Gazprom CEO Alexei Miller as they tour the newly opened alpine ski center that will be used in the 2014 Olympics at Krasnaya Polyana in the southern Russian Black Sea resort of Sochi. The names of Russia’s business powerhouses have taken over the mountains of Sochi, now the home of Potanin’s slope, Gazprom’s gondola lift and Sberbank’s ski jump. These names, used by local residents and an army of construction workers, leave no doubt about who is paying for next year’s Winter Games. (AP Photo/ RIA Novosti, Dmitry Astakhov, Presidential Press Service, File)
Russian tycoons footing most of bill for Sochi Games
Olympics » Efforts by state-controlled companies make 2014 event most expensive ever.
First Published May 20 2013 01:00 pm • Last Updated Dec 07 2013 11:32 pm

Sochi, Russia • The mountains of Sochi are now home to Potanin’s slope, Gazprom’s gondola lift and Sberbank’s ski jump. The nicknames used by locals and an army of construction workers leave no doubt about who is paying for the 2014 Winter Games: Russia’s business powerhouses.

Other countries that have hosted the Olympics have overwhelmingly used public funds to pay for the construction of needed venues and new infrastructure. The Russian government, however, has gotten state-controlled companies and tycoons to foot more than half of the bill, which now stands at $51 billion and makes the 2014 Winter Games by far the most expensive Olympics in history. In contrast, the much-larger 2012 Summer Olympics in London cost about $14.3 billion and the 2008 Summer Games in Beijing cost about $40 billion.

At a glance

Who is building what in Sochi for the 2014 Olympic Games

The Russian government » It is building five of the six arenas that will host indoor competitions such as ice skating, for about $10 billion. The government will spend a total of about $18 billion before the games begin in February 2014.

Gazprom » The world’s largest natural gas producer, a publicly traded company, has many Olympic projects in Sochi, including building a cross-country skiing and biathlon center, one of the three Olympic villages and an Alpine ski resort. Gazprom is also building a power station in a Sochi suburb for $740 million and a pipeline to bring gas supplies to the Sochi area for $1 billion. The total price tag for Gazprom stands at roughly $3 billion.

Potanin » Metals tycoon Vladimir Potanin, whose fortune is estimated at $14.3 billion, started building the Roza Khutor ski resort before Sochi was picked to host the 2014 Olympics and has spent $2.5 billion. Interros also has built an Olympic village and a snowboarding and freestyle park.

Deripaska » Metals tycoon Oleg Deripaska, estimated to be worth $8.5 billion, is mainly involved in infrastructure development in Sochi. His holding company, Basic Element, is building an Olympic village, a sea port and has just finished revamping the Sochi airport. Basic Element expects to spend a total of $1.4 billion in Sochi.

Sberbank » The state-controlled bank is set to spend at least $1.3 billion building a media center in Sochi, as well as a ski jump complex.

Join the Discussion
Post a Comment

For President Vladimir Putin, the games have been a matter of pride. He has entrusted the country’s top businessmen with Sochi’s key projects. He himself is spending increasing amounts of time in the southern Russian city, hosting world leaders at his luxurious presidential palace.

Mikhail Kasyanov, a former prime minister under Putin, described the tycoons’ participation as a sort of tax imposed by the president.

"If you want to carry on doing business in Russia, here’s the tax you need to pay — the kind of a tax that he wants you to pay," Kasyanov, now an opposition leader, told The Associated Press.

This is particularly true of those like metals tycoons Vladimir Potanin and Oleg Deripaska, who made their fortunes in the rags-to-riches privatizations after the 1991 collapse of the Soviet Union. For others who have grown fabulously wealthy since Putin came to power in 2000, the 2014 Olympics have been a chance to reap the profits through lucrative state contracts.

Most of the projects the tycoons are involved in are not profitable — and many businessmen are making no secret of the losses they are incurring. But anyone who does business in Russia today is acutely aware of the importance of maintaining good relations with the government — and especially with Putin. The tycoons remember well how Putin in 2008, with one verbal attack, sent the stock of metals company Mechel tumbling 40 percent, cutting $6 billion from its shareholder value.

"Russian big business is heavily dependent on the government and often has to follow Putin’s requests and take on projects that are important for top officials," said Vladimir Milov, an economist and former deputy energy minister who also is now part of the anti-Putin opposition.

What pressure? • The tycoons and state-owned companies dismiss claims that they were pressured to invest in Sochi or that they did so in exchange for promises of preferential treatment.

story continues below
story continues below

Gazprom, the world’s largest natural gas producer and a publicly traded company, said in a written statement to the AP that its work in Sochi is "both a business project and serious social responsibility." Gazprom’s Sochi projects are vast. It is building a pipeline to bring gas supplies to the Sochi area, a power station in a Sochi suburb, an Alpine ski resort, one of the three Olympic villages and a cross-country skiing and biathlon center. Its total costs run to $3 billion.

Andrei Elinson, deputy general director at Deripaska’s Basic Element investment vehicle, insists its Sochi projects were all designed to be profitable. The company is building an Olympic village and a seaport and has just finished revamping the Sochi airport, for a combined cost of $1.4 billion.

"We are a strategic investor in the area. We believe in the development of the area on the whole," Elinson said. After the games, Basic Element plans to convert the Olympic village into apartments and the sea port into a marina.

Even so, some tycoons are grumbling that they have been hit up with unexpected demands that are stretching their funds more than anticipated. Their balance sheets have been dragged down by a flow of requests from the state contractor Olimpstroi to build more infrastructure than originally planned.

Potanin started building his Roza Khutor ski resort even before Sochi was picked in 2007 to host the 2014 games. He is spending $2.5 billion, including $500 million on infrastructure required by the International Olympic Committee. In addition, the Alpine resort had to close to tourists for months at a time while hosting Olympic tests events during the past two winter seasons, costing it $3.2 million in lost revenue each month it was closed, according to Roza Khutor general director Sergei Bachin.

When Potanin’s Interros holding company first committed to the games, "we had no idea what exactly would be required from us," Bachin said. Now delivering everything on time has become "a matter of honor," he said. Still, looking back, Bachin said Roza Khutor should not have been so compliant.

"When we were asked to build this or that, we were probably too yielding in taking up those requests," he said.

Potanin was the first to raise his voice. Last year he said he expected the Russian government to compensate him for at least the $500 million he is spending doing work that he said should have been the government’s responsibility.

Roza Khutor has asked the government to create a special economic zone in the Sochi area. Tax rebates would allow the resort to be "operationally sound" and help it repay loans to the state-owned VEB bank more quickly, Bachin said.

Mounting costs • The frustrations have been shared by Deripaska’s Basic Element, which is suing Olimpstroi for about $50 million, the amount it had to fork out when Olimpstroi questioned the quality of the gravel used to protect the coast at the sea port. Deripaska’s company also complained that the sea port it built is receiving only 20 percent of the cargo load that had been promised by the government, leaving revenues far lower than expected.

Next Page >

Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Top Reader Comments Read All Comments Post a Comment
Click here to read all comments   Click here to post a comment

About Reader Comments

Reader comments on sltrib.com are the opinions of the writer, not The Salt Lake Tribune. We will delete comments containing obscenities, personal attacks and inappropriate or offensive remarks. Flagrant or repeat violators will be banned. If you see an objectionable comment, please alert us by clicking the arrow on the upper right side of the comment and selecting "Flag comment as inappropriate". If you've recently registered with Disqus or aren't seeing your comments immediately, you may need to verify your email address. To do so, visit disqus.com/account.
See more about comments here.
Staying Connected
Contests and Promotions
  • Search Obituaries
  • Place an Obituary

  • Search Cars
  • Search Homes
  • Search Jobs
  • Search Marketplace
  • Search Legal Notices

  • Other Services
  • Advertise With Us
  • Subscribe to the Newspaper
  • Access your e-Edition
  • Frequently Asked Questions
  • Contact a newsroom staff member
  • Access the Trib Archives
  • Privacy Policy
  • Missing your paper? Need to place your paper on vacation hold? For this and any other subscription related needs, click here or call 801.204.6100.