The tab for the Sochi Winter Olympics is now on the table. For Russian taxpayers, it’s not a pretty sight.
Olympstroy, the state-run company set up to oversee preparations for the games, confirms in a report on its website that some 1.5 trillion rubles ($45 billion) was spent, mainly by the government and state-owned enterprises. Although slightly below some earlier estimates, that still makes Sochi the most expensive Olympics ever, surpassing the $40 billion that China spent on the 2008 Summer Games in Beijing, which had more than three times as many events as Sochi.
And there may still be more to pay. State-controlled development bank VEB is now asking the government for almost $7 billion to offset expected losses on loans it made to companies that developed Sochi facilities. In a June 25 letter to Prime Minister Dmitry Medvedev, the bank asked for “special government support measures” over the next three years, according to a copy of the letter obtained by the newspaper Kommersant.
The bailout request “seems outrageous,” considering that $7 billion far exceeds the total cost of any past Winter Olympics, says Bent Flyvbjerg, a professor at Oxford University’s Saïd Business School who has researched the cost of Olympic games since the 1960s. Until Sochi, the most expensive Winter Olympics had been the 2006 Games in Turin, Italy, which cost about $4.5 billion, he says.
Kommersant said that VEB has already agreed to a moratorium on loan repayments until next year but fears that some borrowers could declare bankruptcy after that. Among the high-risk borrowers are companies associated with some of Russia’s richest businessmen, the newspaper said. They include metals magnate Vladimir Potanin, who has a company that built the Rosa Khutor alpine-ski venues, and aluminum tycoon Oleg Deripaska, who helped build the main Olympic Village. Potanin and Deripaska both have complained that VEB imposed unfair repayment terms on them.
Olympstroy’s annual report, though, makes clear that well more than half the financing for the games came from government entities. The single biggest contributor, at $10.5 billion, was the state-owned Russian Railways. Energy monopoly Gazprom (GAZP:RM) kicked in $6.5 billion, the government of the surrounding Krasnodar region spent $4.9 billion, and the federal road agency spent $4.7 billion.
Much of that money was spent on such infrastructure as a power-generating station and an $8.3 billion rail-and-highway link from Sochi to skiing venues in the Caucasus Mountains. Friends of President Vladimir Putin were awarded contracts worth billions on such projects. Previous Olympics haven’t involved such extensive nonsports-related construction, Flyvbjerg says, and therefore it’s difficult to compare Sochi’s costs with those of other games. But given the generally high level of corruption in Russia, he says, “it seems a fair assumption that corruption partly explains the uniquely high cost of Sochi.”
In 2007, the government predicted the games would cost some $9 billion, although officials have said more recently that the estimate didn’t include some expenses such as land acquisition. Sochi organizers have defended the high price tag, saying the investment will pay off by attracting tourism and economic development to the region. But Flyvbjerg says his research shows that Olympic facilities often “turn out to have very little or no use afterwards. You don’t usually get the revenues to cover the cost. That’s something that’s glossed over when the Olympics are first sold to the public.”