Russian oligarchs foot most of 2014 Sochi Olympics
NATALIYA VASILYEVA,AP Business WriterAssociated Press
May 20, 2013 | 0 views | 0 | 1 | |
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)
SOCHI, Russia (AP) — 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.
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.
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.
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.
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.
"It's pretty frustrating," Elinson said. "But we think it's curable if the government takes certain responsibly for those actions and comes up with a solution that would allow the project and the investor to recover."
He said at this stage all investors are concerned about the additional costs they have faced in Sochi.
Last month, Basic Element, Interros, Gazprom and state-owned Sberbank asked the government for help in covering some of their losses. Although there has not been an official response to the plea, the government has said in the past that investors bear full responsibility for any losses.
"Those are the risks of those who made the decision," Deputy Prime Minister Dmitry Kozak, who is overseeing the Sochi preparation, said in response to complaints last year.
In contrast to the Boris Yeltsin-era oligarchs like Deripaska and Potanin who are involved in capital-consuming projects with uncertain commercial prospects, the new generation of billionaires with close ties to Putin seems actually to be making money in Sochi.
One man who stands to profit from the games is Arkady Rotenberg, who has known Putin since he was 12.
Through a majority-owned subsidiary, Rotenberg holds nearly 39 percent of the Mostotrest company, which has amassed a dozen Olympics-related state contracts to build nearly all of the highways in the area. Its projects include a $1.6 billion bypass for Sochi, as well as tunnels, bridges and railroads for a total of at least $3.4 billion.
"Those who became billionaires before Putin's rise to power now have to pay the price, and that's why they're being forced to invest and build," Kasyanov said. "Those of Putin's generation are out there to make money. They use public funds. They don't invest their own money but simply work on state contracts."
One Russian businessman in charge of an Olympic project was publicly disgraced when he failed to deliver. On a tour of Olympic sites in February, Putin harshly scolded officials for the huge delays and cost overruns in building the ski jump, a project run by real estate developer Akhmed Bilalov, who had once owned 90 percent of it. The state-controlled Sberbank had taken a controlling stake in 2012 when it was clear the project was in trouble, and Bilalov's younger brother handed over the remaining 40 percent stake after Putin's televised dressing down.
Bilalov was immediately stripped of his position as a vice president of the Russian Olympic Committee, but Putin still was not done with him. In April, prosecutors charged Bilalov with abuse of office in relation to his work as chairman of a state company that is building ski resorts elsewhere in the Caucasus Mountains of southern Russia. Facing up to four years in prison if convicted, Bilalov left Russia.
At least one company has already acknowledged the futility of its investment in Sochi.
During his inspection tour in February, Putin asked the chairman of mining giant UGMK, Andrei Bokarev, whether he would give the new $100 million hockey arena that UGMK has built to the state after the games.
"There's nothing standing in the way of you doing it," Putin commented.
That was not a direct order but its intent was clear.
Putting aside previous pledges that the stadium would be dismantled after the Sochi games and moved near an UGMK facility to benefit the company's workers, Bokarev responded with gusto to the suggestion.
"We're ready!" he said.
Update: Officials say a tornado hit a small hospital in suburban Oklahoma City, but all the 30 patients inside survived.
Moore Medical Center spokeswoman Kelly Wells says the hospital was "pretty much destroyed" after Monday's tornado.
She said all of the 30 patients survived, as did all of the staff members at the 46-bed acute care hospital, which is southwest of Oklahoma City.
Wells says 13 patients were transferred to other facilities, though it wasn't clear if they were moved because of injuries sustained in the tornado or because of existing medical conditions.
Wells said all of the patients "amazingly" survived, but the rest of the building didn't.
A monstrous tornado at least a half-mile wide roared through the Oklahoma City suburbs Monday, flattening entire neighborhoods and destroying an elementary school with a direct blow as children and teachers huddled against winds up to 200 mph. At least 51 people were killed, and officials said the death toll was expected to rise. The storm laid waste to scores of buildings in Moore, a community of 41,000 people south of the city. Block after block lay in ruins. Homes were crushed into piles of broken wood. Cars and trucks were left crumpled on the roadside. The National Weather Service issued an initial finding that the tornado was an EF-4 on the enhanced Fujita scale, the second most-powerful type of twister. More than 120 people were being treated at hospitals, including about 70 children. Rescuers launched a desperate rescue effort at the school, pulling children from heaps of debris and carrying them to a triage center. Oklahoma Gov. Mary Fallin deployed 80 National Guard members to assist with search-and-rescue operations and activated extra highway patrol officers. Fallin also spoke with President Barack Obama, who offered the nation's help and gave Fallin a direct line to his office. Many land lines to stricken areas were down and cellphone traffic was congested. The storm was so massive that it will take time to establish communications between rescuers and state officials, the governor said. In video of the storm, the dark funnel cloud could be seen marching slowly across the green landscape. As it churned through the community, the twister scattered shards of wood, pieces of insulation, awnings, shingles and glass all over the streets. Volunteers and first responders raced to search the debris for survivors. At Plaza Towers Elementary School, the storm tore off the roof, knocked down walls and turned the playground into a mass of twisted plastic and metal. Children from the school were among the dead, but several students were pulled alive from the rubble. Rescue workers passed the survivors down a human chain to the triage center in the parking lot. James Rushing, who lives across the street from the school, heard reports of the approaching tornado and ran to the school, where his 5-year-old foster son, Aiden, attends classes. Rushing believed he would be safer the "About two minutes after I got there, the school started coming apart," he said. The students were placed in the restroom. Douglas Sherman drove two blocks from his home to help rescue survivors. "Just having those kids trapped in that school, that really turns the table on a lot of things," he said. Tiffany Thronesberry said she got an alarming call from her mother, Barbara Jarrell, after the tornado. "I got a phone call from her screaming, 'Help! Help! I can't breathe. My house is on top of me!'" Thronesberry said. Thronesberry hurried to her mother's house, where first responders had already pulled her out. Her mother was hospitalized for treatment for cuts and bruises. Search and rescue efforts were to continue throughout the night. Oklahoma City Police Capt. Dexter Nelson said downed power lines and open gas lines posed a risk in the aftermath of the system. Monday's powerful tornado loosely followed the path of a killer twister that slammed the region in May 1999. The weather service estimated that the storm that Monday's tornado was at least a half-mile wide. The 1999 storm had winds clocked at 300 mph. Kelsey Angle, a weather service meteorologist in Kansas City, Mo., said it's unusual for two such powerful tornadoes to track roughly the same path. It was the fourth tornado to hit Moore since 1998. A twister also struck in 2003. Monday's devastation in Oklahoma came almost exactly two years after an enormous twister ripped through the city of Joplin, Mo., killing 158 people and injuring hundreds more. That May 22, 2011, tornado was the deadliest in the United States since modern tornado record keeping began in 1950, according to the National Oceanic and Atmospheric Administration. Before Joplin, the deadliest modern tornado was June 1953 in Flint, Mich., when 116 people died.