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Russian Sports Minister Says Sochi Games Were 'Social, Economic' Boon

Pavel Kolobkov

Pavel Kolobkov

Russian Minister of Sports

“We can say today with confidence that in Russia, a project with the most successful utilization of the Olympic heritage has been implemented. The games brought positive social and economic changes….”

Likely False
... report found Russia's games were the most expensive in history.

At a conference in Sochi on January 5 to discuss the use of facilities built for the 2014 Winter Olympics in the Russian Black Sea resort, Sports Minister Pavel Kolobkov made a few interesting assertions. With Prime Minister Dmitry Medvedev in attendance, Kolobkov highlighted the “positive social and economic changes” resulting from the event.

But news reports, and research paint a different picture.

A 2013 report co-written by Boris Nemtsov, the opposition leader assassinated in February 2013, found the 2014 Winter Olympics in Sochi would be the most expensive in history, with nearly $50 billion spent on constructing the Olympic village, sports facilities, and local infrastructure.

Using open sources such as records of bids and corporate financial reports, Nemtsov and his colleagues determined that while the Kremlin said that the event was financed mainly from private investment, in fact, much of the funds came from state coffers and companies that obtained favorable state loans. The Kremlin awarded President Vladimir Putin's close cronies -- such as Vladimir Potanin and the Rotenberg brothers, Boris and Arkady -- the most lucrative contracts. Actual costs exceeded estimates many times over, indicating kickbacks were made. The construction was performed poorly, repeatedly delayed, and came at a great human and environmental cost, the report found. Sochi blogger Aleksandr Valov, repeatedly called out the damage to the environment from changing water flows and hasty construction, which was believed to contribute later to floods.

After the Olympics, Russian Deputy Prime Minister Dmitry Kozak claimed the event had "put 1.5 billion rubles" into state coffers, mainly due to the high prices charged for food and lodging. But experts such as Dmitry Abzalov, president of the Center for Strategic Communications, told Kommersant in March 2014 that return on investment was doubtful with prospects only a bit brighter over the long-term.

Bloomberg calculated that the Russian government would have to spend another $7 billion to maintain all the infrastructure created for another three years.

Other Western media reported that a year after the Olympics, the site was a ghost town, with managers struggling to attract visitors amid an economic downturn, and tourists attracted by patriotic campaigns to vacation at home rather than abroad, and deeply-discounted hotel rates.

Official sources vary widely on the cost of the games but all agree it was over budget, in part due to differences in counting direct expenses of the Olympic facilities and program as separate from the costs of roads, trains and other infrastructure.

In an interview with TV Rain in February 2016, Mikhail Zadornov, chairman of the board of Vneshekonbank (VTB), admitted that the Games' funding, which he described as "quasi-budget," cost more than the officially declared 230 billion rubles (US $3.86 billion), and said the cost was in fact 1.5 trillion rubles ($25 billion).

Meanwhile, Kozak said the cost was 215 billion rubles, even as the Russian Accounts Chamber said the cost was 325 billion rubles ($5.56), with about 103.3 billion ($1.73 billion) received from the federal budget and 221.6 billion from private investors ($3.72 billion).

Every facet of construction had a cost overrun. The Fisht stadium, for example, built at a cost of $779 million, now requires a $46 million upgrade to remove the elaborate roof and bring it into compliance with FIFA standards for the 2018 World Cup which Russia is slated to host. Construction is behind schedule as was the case with all Olympic projects.

The Games can hardly be declared an economic success for Russia given that state loans have not been repaid. Reuters reported in June that Vneshekonbank (VEB), which is under Western sanctions, would extend Olympics loans and lower the interest rate, estimating it may need up to $18.7 billion in state support. Bloomberg reported that originally 241 billion rubles in loans were taken out (at least $7.5 billion at 2013 exchange rates).

State-run Russian Railways, which built the roughly $8.4 billion high-speed rail and highway to Krasnaya Polyana, is in a dispute with the regional government over the costs of running the expensive train, given the low number of customers.

Even immediately after the Olympics, Vedomosti reported that Colliers International had cautioned that hotels could not be kept full without ongoing investment and events.

Lenta has reported a rise in tourists to Sochi, but this figure is dwarfed by those attracted at the time of the Games, which reached a million in one two-day period. Recently, Sochi has resorted to opening casinos to bring cash into the region. To be sure, Russia has managed to stage other sports events to get the use out of Sochi, such as the Formula 1 Grand Prix. Whether such efforts will ever recoup the huge amount of money Russia sank into hosting the 2014 Winter Olympic Games is doubtful.