Translator’s Note: On Wednesday LR carried a fairly negative report from Der Spiegel about the forthcoming Olympic fiasco. However, it was bouncy upbeat European in comparison to what I had just been reading in Novaya Gazeta. See below.
Oligarchs Aren’t “Go”
25 February 2009
Translated from the Russian by Dave Essel
Is the state going to have to rescue Potanin and Deripaska’s businesses in order for the Sochi Olympics to happen?
Construction costs for the Sochi sports venues have gone down by 15%, declared deputy-premier for the Olympics Dmitri Kozak at a meeting with prime minister Vladimir Putin. According to the deputy minister, an expert review of the project documentation was able to find ways to make the saving. However, given that food, transport, and utility prices are rising, making the Olympics cheaper seems a rather doubtful proposition. Especially if one takes into account that construction of the venues has not started and building workers are not getting paid. One gets the impression that Olympic optimism is directly but inversely proportional to the depth of the economic crisis. Especially at the venues that Russia’s former Forbes-list billionaires and business giants are responsible for. Novaya Gazeta’s correspondent visited Sochi to see for himself how preparations for the Olympics were going. No venues were to be seen and he was left only with questions.
At Nizhneimeretinsky Bay, the Olympic venue consists of an enormous field surrounded by a blue fence topped with barbed wire. This is where state-owned Olimpstroi is supposed to be building the Ice Palace sports hall, a curling arena, and a smaller ice rink. Also planned for the bay site are the covered ice rink for skating races, the international television centre, and a 12-thousand seat press centre. The fence was put up three months ago, in time for the arrival of the International Olympic Committee. The visitors left and the fence stayed put. And that was that. No building work as such has taken place. To take a look at the Olympic field I had to pass through Anna Yeremeyevna Vishnevskaya’s yard. Anna Yeremeyevna has lived on the bay for over 70 years.
“Over there, by the cemetery, is where the Old Believers’ new village will be,” says Anna Yeremeyevna. “If they’d just leave us in peace, but no – they’re forcing us to move.”
The Sochi authorities promised to build architect-designed houses for the villagers and to provide proper infrastructure. Yet the spot is still a marsh spotted with bamboo thickets. A little past the village, two building yards have been marked out and a railway sideline run to them. The operator for this part of the project is OAO RZhD, the Railways of Russia.
Oleg Derispaska’s Bazovy Element corporation has been allocated the building projects on the southern side of the Imeretinka. Progress is evident: in October last year, I saw that a mountain of gravel had been deposited by the roadside; now bulldozers have spread it out. Besides that, the land to be developed by Bazovy Element has been cordoned off and remains a vacant lot.
True, construction of the first freight port has begun: some piles have driven into the seabed. Another project Deripaska is building is a 3-thousand bed Olympic village. This is supposedly being built by one of the oligarch’s subsidiary companies, RogSibAl. But it isn’t happening. Hardly surprising: if one looks at the company’s website, one learns that RogSibAl’s core business is “growing potatoes, root crops, and tubers”.
What amazes me most are the loud claims being made about the Olympic building projects. A year ago, Altis Development, part of Bazovy Element, announced that it would be building about 200 thousand square metres of housing in the Blinovo district of Sochi and in the village of Mirny and that this would include housing for people forced to move because of the Olympics projects. Building work was to start in May 2008. Today in Blinovo all I could see were two sites that had been flattened somewhat by a grader and strewn with gravel. That was really all. No building equipment was to be seen. In Mirny, I was unable to find even a shred of evidence that any building work was being planned. Ditto in Tuapse, where Oleg Deripaska has been allocated 50 hectares (125 acres) for the erection of a cement factory, supposedly to supply cement to all the Olympic building projects. But there was not a soul to be seen on the site, which was just a wilderness.
On the other hand, activity was to be observed at Sochi airport: 4 men were unloading something onto the roadside. In theory, the airport will have a capacity of 5 million passengers a year. However, ever since the terminal was built in 1991, it has mainly been used as an exhibition hall. We were promised it would be opening for passenger traffic in October 2008 when the Ministry of Transport signed a preliminary contract with the owner, Bazovy Element once again. This date was later put back – deputy premier Dmitri Kozak announced that new terminal would open on 1 January 2009. However, today the airport remains a vast shell in which no signs of life are to be seen.
The only encouraging signs are a few partial start-ups by two other major contractors. The Gornaya Karusel cable car – contractor Krasnaya Polyana – on another site began running last December. Graceful silver cars glide up the mountainside and disappear in the distance. A ski slope has been opened here and even received a visit from Medvedev in January. Krasnaya Polyana is also due to build 5 ski jumps. Gazprom is supposed to build another cable car run. A well-known cellphone operator’s logo has appeared on some blue cars. This cable car will travel up along the Psekhako ridge where another ski run is being constructed and spectator viewing stands are to erected. A row of smart 5-storey villas stands along the banks of the Achipse and only a concrete multi-storey car parks remains to be built. This, however, is not going to save the Olympics if work does not start on the rest. All eyes are now on Roza Khutor. Interross head Vladimir Potanin wanted to create a resort complex there. When Russia won its bid to hold the 2014 Winter Olympics, the Olympic committee publicly stated that it did so largely thanks to the massive PR campaign organised by the head of Interross. Said Olympics-2014 planning committee head Dmitri Chernyshenko immediately after Russia’s victory in Guatemala: “Potanin conceived the idea of building a world-class ski resort in Sochi back in 2001. Now thanks to Putin’s support, we have a wonderful federal programme to combine the efforts of the Olympic movement and the people”. In sunny July 2007 Potanin himself replied : “The main thing now is to let no one down”. Little did Russia’s richest billionaire guess of the problems that he would be having in the crisis yet to come. Promises may be promises but it looks like the even former titans will have trouble keeping theirs. The Roza Khutor resort is supposed to include the ski centre, a snowboard park, a freestyle centre, and the high-mountain Olympic village. It was planned to hold one of the stages of the European downhill skiing championship there in 2011. This is most unlikely to happen given the sad and empty look of the building site.
Last December, the local directorate of Rosimushchestva (the state land committee) brought a suit against Roza Khutor, the Interross company leading the project. Rosimushchestva wanted the lease on the site declared invalid because it had not been concluded with itself but with the Sochi National Park. This was seriously strange: the contract had been signed 4 years previously and Rosimushchestva had had no complaints. Rosimushchestva won its case nonetheless. Work stopped. Cruel tongues said that this turn of events rather suited Interross since it was feeling the crisis and the oligarchs had bigger fish to fry – like saving what assets they could without worrying about Olympic projects. Popular belief in the success of the Olympics was shaken but Olimpstroi head Viktor Kolodyazhny hastily announced that work was continuing. In early February Roza Khutor signed a settlement with Rosimushchestva, under which it relinquished 429 hectares (1100 acres) to it.
Last summer it was announced that Roza Khutor would have the lower base station and three cable car runs built by October. However, back in October I could see nothing there except for a hangar with scaffolding still attached to it. Two decent little houses have since been built on the site. However, the resort is supposed to accommodate 12 thousand visitors and they certainly won’t fit into what has been built so far and at the current rate…. It was also announced that the first descent down the ski slope would take place early this year. I would have willingly kitted myself up and done a run but there was no sign of a slope. I would also have been happy to ride the cable car – but the cars were parked on the ground behind the hangar and not yet mounted on their cable, which was not in place anyway. It would therefore seem that nothing will happen without a major injection of cash (read taxpayers’ money).
Now to the building workers. Andrei Zadelnikov, who lives in the village on Nizhneimeretinsky Bay, described to me how he had worked on an electrical installation team employed by Olimpstroi.
“We didn’t get a signed contract of employment. We worked for one day but we there ordered to do an evening shift as well if we wanted to be paid. So we did the shift. Next they told us to work another day, which we did but still didn’t get paid. We’ve been waiting for our money for a month now.”
Albert Georgiyev, who had recently done some work for one of the sub-contractors, told me that the work is being led by a Turkish company which evidently does not feel obliged to follow Russian labour laws:
“Drivers have to present themselves for work long before the shift starts and finish their day only when they’re told it’s over. You have to work for as long as the foreman says.”
I am shown a job sheet bearing the rubber stamp of Hazinedaroglu Ozkan Inshaat Anonim Shirketi [TN: Turkish company name transliterated from Cyrillic]. It shows that the driver left the depot at 0700 and returned at 2300. The building workers tell me that they are not paid proper overtime and sometimes even do not get any. They complain that Turkish workers are paid between half as much again and twice as much as they are. For example, a Russian driver has to take 25000 roubles for a trip to Moscow ($690) while the rate for a Turkish driver is $1500. Another item of note is that the Russian building workers sign a contract of employment with OOO Varyusha, a Russian company registered in Sochi. However, when they are paid, they have to sign for the money in two ledgers. One of these is the Varyusha ledger, which does shows the actual amount they are being paid but another amount. This, they are told, is necessary in order to reduce tax. The other ledger is that of the Turkish company named above; this shows the actual amount they are paid. An employee of Varyusha insistently instructed the builders not to complain about this anywhere. One worker, however, reported the matter to the Sochi prosecutor’s office. Life is hard for the Turkish workers as well and recently they went on strike because no wages had been credited to their accounts for 4 months.
Clearly the official Olympic line differs radically from the situation on the ground. It is easy to understand why. One good example is the fact thatr not a single company responded to the August invitation to tender to build the ice arenas and the sports hall. Any return on such investments takes 10 years or more and potential investors do not find that too attractive. Business may like the idea of getting hold of land in Sochi but the Sochi General Plan of Development has still not been approved and no one wants to buy a pig in a poke. Unsurprisingly, the time given to respond to the tender was extended last week, with Dmitri Kozak saying that “the government will use all possible means to attract private investment in Olympic projects”. But private investors expect something back in exchange for agreeing to invest. State-owned Vneshekonombank has already signed an agreement to extend a 15-year $750 million line of credit to Potanin’s Rosa Khutor. At the same time Vneshekonombank is providing Deripaska with a credit to complete works on the airport. A worry remains, however: work is proceeding too slowly. And that leads to another question: just what are these Olympic credits being spent on?
According to the Law on the Support of the Financial System passed last October, Interross and Bazovy Element amongst others ( Potanin’s Norilsk Nickel and Polyus Zoloto; Oleg Deripaska’s Glavstroi, Evrosibenergo, RUSAL, Soyuzmetallresurs, Russkie Mashiny, and Sochi International Airport) are to receive state money to services their debts. All in all, Vneshekonombank has been instructed to distribute $50 billion to Russian companies, money which will save their businesses. This means that Olympic construction projects can be used as blackmail: the Russian government needs the building work to continue and the oligarchs need state money to save their financial empires. No money – no Olympics?
Another painful issue is that of the cost of the Olympics. According to the federal programme for the development of Sochi, this amounts to 314 billion roubles. However, just a year ago, Sergei Stepashin, the chairman of the Accounts Chamber of the Russian Federation, said that actual expenditure on the Olympics would be over twice that amount. It has been said this is why Semyon Vainshtok resigned from his post of head of Olimpstroi, explaining in a note to the president that there were insufficient funds to buy needed land and that an impossible situation resulted from the absence of a general plan for the development of Sochi. Transport minister Igor Levitin has spoken of lack of funding for the creation of a transport infrastructure. So Dmitri Kozak takes on the post of head of the Olympic project and suddenly its costs are going down – at least in public statements, notably in Peking last September. Now he has actually put a figure to his statements: 15%. However, one only need do a quick back-of-an-envelope calculation for doubts to arise. One year ago, 314 billion roubles were worth (approximately) $12.6 billion. At today’s exchange rate, $12.6 billion is 441 billion roubles. Reduce the cost by Kozak’s 15% and we get Olympics that are going to cost us 374.8 billion roubles? That’s still more than 314 billion. Of course, the easiest thing to do is blame it all on the economic crisis. And a people crisis on top of that. Sochi is already under its fourth mayor of the year. The Kuban region is desperately looking for someone who meets Moscow’s requirement but is also loyal to Governor Tkachev’s. And the same sort of thing is going on in Olimpstroi itself which has just seen its third – in a year – deputy head resign….