Russian Companies Fret Over Cost Of Sochi Games

In the rush to the Winter Olympics opening, Russian President Putin is bracing for a fight. His government will demand the country's biggest companies stand firm on commitments to the bankroll the games, according to an upcoming issue of Bloomberg Markets Magazine. David Greene talks to Bloomberg's Stephanie Baker about why some of Russia's wealthiest industrialists are concerned.

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RENEE MONTAGNE, HOST:

In just a couple of months, the Russian Black Sea resort of Sochi will host the Winter Olympics. Russia is reportedly spending nearly $50 billion on those games, which would be an Olympic record. To finance venues and housing, one of Russia's state-owned banks lent about $7.5 billion to an elite group of industrialists who are helping bankroll the games. Now, those investors are getting a little nervous.

David Greene talked with reporter Stephanie Baker, who writes about President Vladimir Putin's invitation to Russia's biggest corporations in the current issue of Bloomberg Markets magazine.

STEPHANIE BAKER: As everyone calls it, it was an invitation to take part. Perhaps it was an invitation they could not refuse. In order to finance the massive infrastructure investment, the massive transformation that has happened, he enlisted a host of Russia's top elite, the biggest companies to go and build ski resorts, to build the Olympic Village for athletes. And I think there was such a huge push to get everything done on time. There was a run-up in the cost of labor, the cost of construction materials. And I think for some of the Russian companies and billionaires who committed to doing projects, the whole Sochi 2014 became a much bigger gamble than they perhaps were expecting at the outset.

DAVID GREENE, HOST:

Well, when you say something like invitation you can't refuse, that can mean something very different in Russia than in other countries. What do you mean by that?

BAKER: Well, they were invited to participate. There were no open tenders for any of these contracts. Here's the odd thing, there's been a lot of private investors and billionaires who have gone in and built things for the Olympics, but they've done it primarily with public money. They borrowed a huge amount of money from the state-owned development bank called Vnesheconombank.

GREENE: Mm-hmm.

BAKER: And Vnesheconombank is expecting to get paid back. Now a lot of these major billionaires and investors are saying we can't afford to pay these loans back. We need government help in the form of tax breaks and subsidies on the interest in order to make these venues viable commercially long term. Now, the government is saying they got a good deal from the outset. They've got all the infrastructure built for them, electricity, networks, roads, etcetera, and that they should be prepared to pay back the debt.

GREENE: There was one plot line in your story, Stephanie Baker, that almost played out like a spy movie. It involved an official who was in charge of the ski jump and lost his job. Can you tell me what happened there?

BAKER: Yes. It was a deputy head of the Russian Olympic Committee, whose name is Akhmed Bilalov. He and his brother were connected to a company that was building the ski jump complex, as well as a complex of hotels nearby. Now in February, Putin arrived in Sochi for an inspection on how the construction projects were doing across all the Olympic venues. And he noted somewhat sarcastically that the ski jump complex had gone something like seven times over budget and was massively delayed. Soon after that he was fired from the Russian Olympic Committee. The general prosecutor's office filed criminal charges against him, accusing him of misusing government funds. He fled to Germany and went to a doctor there and discovered he had elevated levels of mercury in his bloodstream.

GREENE: Wow.

BAKER: He had his office tested in Moscow and found mercury in the carpets. Now he doesn't know who was responsible for that, but he is not going back to Russia, as I understand it. And the criminal case is still open.

GREENE: Some of what we're talking about sounds like what you hear with any Olympics. I mean cost overruns, the risk that you're going to build a lot of this infrastructure and then much of it will be perhaps useless once the games are over. What strikes you here as especially Russian about the story you followed?

BAKER: Well, I think it's that he has encouraged so many of Russia's biggest businessman to get involved. And...

GREENE: Putin.

BAKER: Yes. And to put their time and energy and investments on the line to make this happen as a sort of grand coming out party for the Russian state. That is unique. And debt is an inevitable legacy of Olympic Games. But in this case, you got a lot of other actors who are involved and who are on the hook. And it's a matter of how is that all going to play out once the games are over.

GREENE: Stephanie Baker, thanks so much for talking to us about this.

BAKER: Thanks for having me.

MONTAGNE: Stephanie Baker is with Bloomberg Markets magazine and talking to David Greene.

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