BLOG: PUTIN'S BIG BET ON SOCHI 2014

http://i1143.photobucket.com/albums/n626/prospectjournal/sochi_zps9f0b151d.jpgBy Logan MaSenior EditorBack in the summer of 2007, all signs pointed towards the selection of Pyeongchang, South Korea as the site of the 2014 Winter Olympics. Indeed, through the first round of voting at the International Olympic Committee’s (IOC) Host City Election, Pyeongchang was the frontrunner, followed closely Sochi in second and Salzburg in third. But the Russians made an offer that simply could not be refused. President Vladimir Putin not only personally traveled to the IOC session in Guatemala to make the case for Sochi, but he also promised to spend a whopping $12 billion on the project. Sochi handily secured the hosting rights to the Olympics in the final round of voting, paving the way for Russia to host the Olympics for the first time since the 1980 Summer Olympics in Moscow. For Putin, the Winter Olympics are part of his efforts to force Russia back into the company of prominent nations. However, money, the factor that swung the vote in favor of Sochi, has now become a source of headache that threatens to derail his designs.Eight years after Putin put forth the original $12 billion estimate, the costs of hosting the Olympics have ballooned almost fivefold to more than $50 billion, making Sochi the most expensive Olympics to date. To put things in perspective, the total costs of the last 21 Winter Olympics combined hardly come close to exceeding that figure. The expenditures also exceed those of the last two Summer Olympics. Preparations for the 2012 Summer Olympics in London totaled a mere $19 billion, while costs for the 2008 Summer Olympics in Beijing rang in at around $40 billion.Several factors contribute to the enormity of the expenditures. For one, everything has to be built from scratch, including stadiums, ski jumps, five-star hotels and miles upon miles of new roads to link the various venues. Sochi also lies at the same latitude as the French Riviera. For decades, it has been a favorite summer haunt of Russian leaders. It is better known as a sub-tropical paradise than a winter wonderland. In fact, it is the warmest city to ever host the Winter Olympics. Given these conditions, organizers for the events face challenges of Olympic proportions. One also has to wonder about the sustainability of these games. All too often, Olympic venues fall into disuse, putting billions in investments to waste.The danger of a terrorist attack during the Olympics also inflates costs. Sochi straddles Russia’s volatile Caucasus. For decades, places like Chechnya and Dagestan played host to a violent insurgency intent on creating an Islamic state in the region. Last December, two explosions ripped through the city of Volgograd’s transit system, killing 34 people. A militant group from the North Caucasus claimed responsibility for the attack and threatened to bring violence to Sochi during the Olympics. In response to this and other security threats, Russian authorities have put the area surrounding Sochi on lockdown and deployed tens of thousands of security forces to patrol the area. Unfortunately, that hasn’t prevented an alleged female suicide bomber from infiltrating the heavily guarded city.But perhaps the largest source of Sochi’s hefty price tag lies in something much less observable but widely acknowledged to exist in Russia—corruption. Although Putin himself has vehemently denied that corruption pervaded the preparations for the Olympics, some of his critics beg to differ. Last July, opposition leader Boris Nemstov and Solidarity activist Leonid Martynyuk released a damning report alleging that over a third of the multi-billion dollar expenditures were embezzled. Gian-Franco Kasper, a Swiss member of the IOC, agreed with their findings. Part of the report highlighted the nearly $8.7 billion cost of a 31-mile roadway linking the coast with Krasnaya Polyana, the planned site for the ski and snowboard events. An article in Russian Esquire quipped that with that much money, the road could have been paved with a centimeter-thick layer of beluga caviar. Nemstov and Martynyuk compared the costs of similar construction projects around the world and found that the Sochi projects were on average three times more expensive than their counterparts.The fact that those close to Putin benefited disproportionately from lucrative contracts raises questions of the integrity of the bidding process. The wealthy brothers Arkady and Boris Rotenburg, childhood friends of Putin, received 21 contracts worth $7 billion, or nearly 15 percent of the total amount allotted for the Olympics. Russian Railroads, a state-owned enterprise headed by Putin’s friend Vladimir Yakunin, was handed responsibility for over 20 percent of total expenditures, including the aforementioned Krasnaya Polyana roadway. What is truly bothersome about these contracts is that they were awarded without being public tender, a bidding process open to all interested firms. A monopolistic hold on Sochi’s construction projects by a select few firms closely associated with Russian leadership ensued. This, coupled with the lack of oversight by regulatory institutions such as Accounts Chamber, opens the door for unscrupulous actions on the part of businesses and their counterparts in the state.In two weeks’ time, Russia will harvest the fruits of its labors. But whether or not these games will catapult Russia to new heights remains to be seen. With so much invested into the Olympics, Putin has made an audacious gamble that could very well become his greatest folly.Photo by Stefan Krasowski