When pressed about the 2014 Sochi Olympics’ record $51 billion price tag — a sum that is five times the amount spent on the last Winter Games in Vancouver and that dwarves the GDP of three-fifths of the world’s countries — Vladimir Putin has shrugged off allegations of corruption, insisting that the eye-popping figure simply reflects the cost of doing business in his new Russia.
“If anyone has such information, give it to us, please. I repeat once again, we will be grateful,” Putin said this month, denying an International Olympic Committee member’s recent claim that a third of the cost was siphoned away. “But so far there has been nothing but talk.”
A new report on the construction process released Monday by leading anti-corruption campaigner and opposition firebrand Alexey Navalny, however, intends to make him face facts.
According to Navalny’s investigation, shared exclusively with BuzzFeed prior to publication, Russia handed out massive contracts with no real competition to contractors who overcharged them by hundreds of millions of dollars and, almost without exception, has failed to make them face consequences.
“It’s amazing how open they are about it,” Navalny, who rose to prominence exposing graft in state-run corporations before emerging as the leader of an anti-Putin protest movement in winter 2011, told BuzzFeed by phone from Moscow. “They start out with a low price, then drive it up once the contract is guaranteed. Prices go up several times, and they bring in their own subcontractors to do all the work.”
The cost of the Olympic Stadium alone may have gone up by as much as 14 times. A construction company owned by Siberian politicians with no experience building sports arenas built the hockey arena and bobsled course at $260 million over market price. The company building the IOC’s offices only put up 14% of the total cost and isn’t expected to pay back the rest in state loans, but will still inherit the building after the Games.
Working out how much has been spent on the Olympics was “really problematic,” Navalny said, because the Russian government has not published numbers since 2006. Putin has said that the Olympics themselves, as opposed to infrastructure projects he insists Russia would have built in Sochi anyway, only cost $6 billion, less than half of which comes from the state budget.
Navalny’s team of 23 people spent two months sifting through documents to calculate that the Kremlin, the province of Krasnodar that includes Sochi, state-run corporations, and Russia’s state development bank accounted for over 96% of total Olympic spending — 30% of which was given to offshore companies whose real owners are unknown. Many of the known contractors have close ties to the Kremlin, including Putin’s former judo sparring partner, Prime Minister Dmitry Medvedev’s ski coach, and the main sponsor of Putin’s flight with cranes on a dirigible in 2012.
The corruption and cronyism documented in the investigation is “the natural consequence of [Putin’s] manual control” of the political system, Navalny said, and the biggest threat to Putin’s goal of making the Olympics the crowning moment of his presidency. “For him, it’s a monument to himself, like Peter the Great building St. Petersburg,” Navalny said. “But for people a level below him, corruption is the goal. And since they know how super-important the project is to Putin, they knew they’d get the contracts at crazy prices, because he trusts them.”
The full investigation is available at sochi.fbk.info as an interactive map of the Sochi Olympic sites. Users can click on individual sites to explore price calculations in detail. Highlights from the report are below.
1. Russian taxpayers are picking up 96% of the tab.
The Kremlin has said that at least half of the money spent on the Olympics and surrounding construction comes from private investors: The state-run RIA Novosti news agency reported that total was at least $25 billion. But, according to Navalny’s report, almost none of that counts. Most of the projects not funded directly from the Russian budget were paid for through the Krasnodar provincial budget with federal funds, by state-run corporations, or through loans from VEB, Russia’s state development bank. About 75% of the $7 billion-plus in loans had to be restructured last fall, ensuring the government would lose most of its investment. Most of the $1.5 billion Navalny estimates oligarchs did spend — a mere 3.5% of total Olympic expenditure — was backed by those loans, often at up to 90% of the projects’ total cost.
2. The Olympic Stadium is two and a half times more expensive than similar stadiums in Europe; its cost may have gone up 14-fold in seven years.
A ticket to the opening and closing ceremonies at the 40,000-seat Fisht stadium will set you back $12,500. But that’s nothing compared with the chunk it took out of the Russian budget. Nobody is sure how much it actually costs: Estimates range between $500 million and $665 million. That’s up to 14 times more than originally planned (and that original number was supposed to be the worst-case scenario). Even at the lowest estimate, the stadium is still two and a half times more expensive than similar soccer arenas built in Europe in the past decade, according to Navalny’s report.
The company building the stadium, Engeocom, has been embroiled in embezzlement proceedings for city-funded projects in Moscow and didn’t assess the environmental impact until a year and a half after it started building it, in violation of Russian law. Russia’s Audit Chamber has accused it of artificially jacking up the cost. An arbitration judge fined Engeocom for violating safety and technical regulations in November 2013, but the company doesn’t seem to have taken notice: Just over a week later, one worker died and two others were seriously injured in an onsite accident. Migrant laborers told Human Rights Watch that they were only promised two months’ pay and were threatened with having their entire salaries withheld.
3. Three of Putin’s old friends were awarded contracts totaling $15 billion.
Back in the 1990s, Vladimir Yakunin was a member of Ozero, a home construction cooperative in St. Petersburg, alongside Putin: Since Putin came to power, the members of Ozero have become billionaires and risen to prominent government posts. Yakunin is the head of Russia’s state railway monopoly, RZhD, which is the largest single direct recipient of state funds at the Olympics (about $7 billion) and in charge of nearly two dozen infrastructure projects. The most expensive of those, a 31-mile road linking the coastal cluster of Adler with the Krasnaya Polyana ski resort in the mountains, cost $8.7 billion — almost as much as Vancouver spent on the entire 2010 Olympics.
One of the two main contractors building the road is Stroi-Trest, part of the SK Most group, best known for a billion-dollar bridge to nowhere linking Vladivostok with an island whose 5,000 residents had no access to running water, electricity, or telephones. Most is part-owned by Gennady Timchenko, Russia’s ninth-richest man and a former judo sparring partner of Putin’s. Though Timchenko only bought his shares in 2012, the company has old links with RZhD through its majority stake in Millennium Bank, where Yakunin’s wife Natalia was a member of the board of directors and which partners with Yakunin on charity ventures. RZhD controls a third of the bank through subsidiaries, and its vice president, Oleg Toni, is chairman of the bank’s board.
Transyuzhstroi, a company linked to Ozero member and billionaire Nikolai Kovalchuk’s bank, contracted the Mostotrest firm to build first 14 kilometers of the road. Mostotrest is controlled by Arkady Rotenberg, another former judo sparring partner of Putin’s, and his brother Boris, both billionaires. Navalny’s investigation estimates that the road should have cost at most $3.7 billion less than what Russia spent on it, putting it at nearly double market price. During construction of the railway section, RZhD builders cut down 150 hectares of forest in a national park. A giant illegal dump near the reservoir supplying the village of Akhshtyr has smothered it in dust and exhaust fumes.
Arkady Rotenberg alone is responsible for over $7 billion in Olympic construction contracts. He once told the Financial Times that he thought Putin was “sent to our country from God.” Until late last year, Rotenberg was also the owner of Inzhtransstroi, which is building a Formula 1 track around the Olympic venues with $400 million of Olympic budget money — double the planned cost — even though it will not be used during the Games. Navalny calculates that Yakunin, Rotenberg, and Timchenko have together made $15 billion in state money from the Olympics.
4. A mafia-linked businessman with ties to Putin’s friends built the Shayba hockey arena for $33 million over market price.
The 7,000-seat Shayba hockey arena is one of the few privately financed Olympic projects, but that’s splitting hairs. Iskander Makhmudov, CEO of the UGMK company building it, is one of the largest government contractors: 70% of his business comes from Russia’s state railway monopoly, run by longtime Putin pal Vladimir Yakunin. The company admitted early on it expected to make a loss from the project and considered it part of its philanthropy program.
Three months after a subcontractor won the rights from Olympstroy and started building it, it was pushed aside in favor of the Baltic Construction Company. Back in the 1990s, the chairman of its board, St. Petersburg businessman Igor Naivalt, lived in the same building as Putin friend Nikolai Shamalov, who allegedly built a $1 billion “palace” for the president near Sochi, and Putin’s chief of staff, Vladimir Kozhin, who allegedly signed the original contract for the palace when he was presidential property manager. Another neighbor, Elena Petrova, is the wife of feared Petersburg mafia boss Gennady Petrov, who was arrested in Spain in 2008. The independent Russian newspaper Novaya Gazeta has reported that Petrov and Naivalt were business partners. Putin’s nephew Mikhail Shelomov was head of a BCC subdivision for six months in 2007 and has held shares in the Putin-linked Bank Rossiya. Navalny’s report estimates that the hockey arena cost $33 million more than market price.
5. Prime Minister Dmitry Medvedev’s ski instructor was awarded contracts totaling $2.5 billion.
Gazprom, Russia’s giant gas monopoly, began building a ski resort in Krasnaya Polyana in 2000 and decided to add biathlon facilities after Sochi won the rights to host the Olympics. The Kremlin added the project to the budget in 2010. The sole subcontractor on both projects is Rosengineering, whose founder and president, Dmitry Novikov, is a director of the Russian ski and snowboard federation: Andrei Kostin, head of the state VTB bank, and Timchenko, Putin’s old judo buddy, are members of its board of governors. Novikov reportedly helped teach Prime Minister Dmitry Medvedev, who kept Putin’s presidency warm for him from 2008 to 2012, to ski. Novikov’s firm built a road to the Olympic sites in 2010 through a UNESCO world natural heritage site. About 200 hectares of forest were destroyed in the process, wiping out the entire local population of bears and deer.
6. The IOC’s offices were built at least 30% over market price by the son of a VP at Russia’s Olympic company and the sponsor of Putin’s infamous 2012 flight with cranes.
Six weeks after former Moscow city construction chief Leonid Monosov became a vice president at Olympstroy, Russia’s state Olympic company, a Moscow construction firm called Monarch won a contract to build the International Olympic Commitee’s office building. Monarch is part owned by Monosov’s son Andrei, who also runs its development subsidiary, and has been on the company’s board of directors.
Itera-SportStroi, the company that hired Monarch, paid for only 14% of its $145 million price tag, but will inherit the building after the Games. The company belongs to an offshore firm registered in Cyprus but was previously owned by Itera, the main sponsor of the program to save the cranes with whom Putin flew on a hang glider in 2012. Russia’s state-owned VEB bank, which lent it the rest, doesn’t expect to get the money back. Navalny estimates that the office costs 30% more than similar projects in Moscow, which has some of the world’s highest real estate prices, and three and a half times more than a business center in Rostov-na-Donu, near Sochi.
7. A construction company owned by Siberian politicians with no experience building sports arenas has spent $500 million on projects up to 2.3 times over market price.
There will be two hockey arenas in Sochi, which is actually common practice at Winter Olympics. But Mostovik, the company building the 12,000-seat Bolshoy hockey stadium and Sanki bobsled track, had no experience building sports arenas before Sochi: Its best-known project to date is the $1 billion bridge it built in Vladivostok with SK Most (see above). The place it is associated with most closely, however, is the Western Siberian town of Omsk. Mayor Viacheslav Dvorakovsky is a part owner, local lawmaker Oleg Shilov is the CEO, and longtime provincial governor Leonid Polezhayev once called the company his “baby.” In total, Mostovik has over $2 billion in Olympic contracts — reportedly finalized by Leonid Monosov, the Olympstroy official whose son’s company built the IOC offices.
According to the Navalny report, the hockey stadium was built for $167 million over market price — more than double the going rate for similar arenas in Europe. The bobsled track sounds like a comparative steal at $93 million (60%) over market price, but is one of the few Olympic sites to have attracted the attention of law enforcement. That said, no suspects have been named in the year and a half since investigators announced they were looking into price-raising.
8. The local governor spent $15 million in Olympic funds on a helicopter for himself.
A year ago, officials from Krasnodar province, which includes Sochi, announced plans to buy a foreign medical helicopter able to work in the mountains during the Olympics — double the price of an equivalent Russian helicopter. The tender, however, made no mention of medical equipment or loading stretcher-bound patients onto it. Instead, it called for leather seats, air conditioning, and an iPhone holder, as well as for the Krasnodar provincial seal to replace red crosses on the fuselage. Despite legal appeals from Navalny’s foundation, who accused Tkachev of wanting the helicopter for himself, and and helicopter manufacturer Agusta, which claimed the tender specifically entailed buying a EuroCopter E 145, the contract was issued.
9. His 28-year-old son-in-law is building a “Russian Disneyland” that won’t even be ready until 2020.
A bizarre medieval-themed Russian “Disneyland” complete with opportunities to meet your favorite characters from medieval folklore, this amusement park and hotel complex says its main theme is “Russian national pride.” But the builder is Turkish, the attractions were all made in Europe, and the owner is a mysterious offshore company registered in St. Kitts and Nevis, whose owners are as yet unknown. The project is set to cost $238 million, but its listed sources of financing from state banks and from its offshore owner — which bought up the shares from the Krasnodar provincial government — total less than half that.
Deputy director Roman Batalov, 28, is the son-in-law of Krasnodar governor Alexander Tkachev and deputy chair of the land and property committee in the provincial legislature. During that time, he has run 65 different companies, including many in the same field that he regulates. Batalov’s secretary, Olga Konnova, appears to be a member of the board of directors.
Until June 2012, the company was run by Ruslan Gorelov, also once the director of the Tkachev family agriculture firm, Agrokompleks, and their charitable foundation, Vozrozhdenie. Gorelov remains a member of the Sochi Park board. Tkachev and Batalov gave Putin the honorary first ticket to the park in 2010, but it’s not even slated to be finished until 2020.
10. A power station built at nearly double market price still can’t supply Sochi with enough electricity for the Olympics.
Faced with the problem of supplying enough electricity for the Olympics in a town of only 343,000, Russia hired Gazprom to build a new power plant in nearby Adler. The gas giant contracted Arkady Rotenberg’s Mosenergo to build it for just under $1 billion — $453 million over market price, according to Navalny’s estimate, or double what Russia should have paid for it. Putin and Medvedev hailed the power station as the solution to Sochi’s energy problems when it opened in January last year, but the lights still regularly go out for hours at a time, usually during Olympic test events. Local journalists suspect the station doesn’t have the capacity to power the city and the Olympic facilities at the same time.
11. Officials put on a fake opening ceremony at Sochi’s new airport for IOC dignitaries in 2007, three years before it actually opened.
Sochi began building a new airport in 1989, but, with work unfinished by the time the USSR collapsed two years later, it lay abandoned until Russia bid for the Olympics over a decade later. In late 2006, the contract was awarded to oligarch Oleg Deripaska, who carried out more than $676 million of work on it, though the state picked up two-thirds and financed the vast majority of Deripaska’s ostensible share. Viktor Kolodyazhny, then Sochi’s mayor, demanded to have it open within a year and the first phase completed by the following February.
When IOC officials flew in, they were the first and last people to do so for another three years, when the airport was actually finished. Local residents were bused in, holding suitcases, and ordered to mimic signs of life in the terminal. Neon letters spelling out “Sochi” were put up on a mountain facing the airport but burned out three days before the IOC delegation flew in. They even gave an old Russian propeller plane a fresh coat of paint and tried to park it at the gate before realizing it was too broken down to move.
12. The speed skating arena is seven times over budget and $130 million over market price.
Back in 2010, Olympic construction chief Taimuraz Bolloev said the 8,000-seat Adler Arena, which is to host speed skating events, was being financed by private investors. But the company building it, OMEGA Center, is funded solely by Krasnodar province to the tune of $2 billion. Since 2006, the price of the skating arena has gone up seven times. Navalny’s report estimates that it cost $130 million, or 2.4 times, more than arenas at previous Olympics.
13. The Iceberg Skating Palace cost more than double the equivalent arena built for the 2006 Olympics in Turin.
At $283 million, the arena set to host figure skating and short track events costs more than six times original projections. But nobody knows why: Olympstroy has spent over a year in arbitration court with the contractor, Engeocom, for not filing construction documentation. The Iceberg costs a whopping 2.3 times more than the ice palace built for the 2006 Olympics in Turin. That didn’t stop Olympstroy president Sergei Gaplikov from saying that “together we’ve got a result we can be proud to present” at its opening in 2012.
14. The state company in charge of the Olympics has had four directors in six years and is the subject of numerous criminal investigations.
In the six years since the Kremlin founded Olympstroy to oversee construction in Sochi, the lavishly funded state corporation has changed directors four times and barely managed to finish the sites in time for the Games. The corporation is shrouded in an almost complete lack of transparency: Government audit reports are not made available to the public, and parliamentary attempts to gain access to its books were blocked by the pro-Putin majority. Its first boss, Semyon Vainshtok, managed to increase costs by 50% in six months without spending all the money the company already had or even starting to build any Olympic sites before fleeing the country. His successor, former Sochi Mayor Viktor Kolodyazhny, was quietly ushered aside after failing to cope with the scale of the project. The third boss, longtime Putin associate Taimuraz Bolloyev, falsely claimed that private investors had put up what was actually taxpayer money and left after reports he had conflicted with Dmitry Kozak, deputy prime minister in charge of the Olympics. Shortly afterwards, investigators launched six separate investigations into no-show hirings at Olympstroy. Current boss Sergei Gaplikov is thought of as a loyal civil servant with no great personal ambition or desire to enrich himself — which, Navalny assumes, is why he was hired to do whatever it took to finish the job in time.
15. One of the biggest Olympic contractors has his own coat of arms.
Former construction minister Efim Basin’s company Engtransstroy has over $2 billion in contracts for 11 different Olympic sites. A former Soviet engineer, Basin was in charge of the last Russian “megaproject” before Sochi, the Baikal-Amur Mainline railway across the desolate stretches of the Far East, where he met Viktor Levitin, then a commander at a remote military outpost. Two decades later, when Levitin became Russia’s transport minister, Basin’s company quickly became one of Russia’s leading road builders.
Basin even has his own coat of arms, which reads “Endeavor. Inspiration” and has some of the many state awards he has won — including the Hero of Socialist Labor — hanging down from the bottom of it. A Russian heraldry website interpreted it as follows: “The scarlet shield and pyramid of gold bricks bespeak of the state-level scale in the bearer’s construction activity. The state and church orders hovering alongside the star bear witness to the diversity of the bearer’s good deeds.”
16. Putin spent Russian Orthodox Christmas in a new $15 million church paid for out of the Olympic budget.
Church and state are theoretically still separate in Russia, despite Putin’s increasing attempts to build a “moral majority” by mobilizing religious believers against the likes of Pussy Riot and LGBT people. But the Holy Face of Christ the Savior Church in Sochi, just a few minutes’ walk away from the Olympic venues on the coast, seems to disprove that. Putin’s longtime chief of staff, Vladimir Kozhin, is the head of the charitable foundation tasked with building it. Though the foundation’s executive director claimed the church would be built on donations, the tender listed Krasnodar’s local government as the commissioner; it was included in the province’s Olympic investment program as a “cultural-historical center.” Priests hurriedly consecrated the church three days before Putin celebrated Russian Orthodox Christmas there earlier this year.
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