YOU ARE HERE: LAT HomeCollections

Storm clouds hang over Sochi Olympics

October 26, 2008|Catrina Stewart and Stephen Wilson | Stewart and Wilson are reporters for the Associated Press.

MOSCOW AND LONDON — With Russia mired in its worst financial crisis in a decade, the Kremlin is throwing boom-time profits at its problems. But as the coffers empty out, concerns are mounting for the government's pet project -- the Winter Olympics in Sochi just six years from now.

Recent tenders for key Olympic facilities have failed for lack of interest. The country's debt-laden construction industry is putting projects on hold. And, wealthy Russians brought on board to spearhead flagship developments are showing signs of financial pain.

All this as the price of oil -- the backbone of Russia's economy -- is heading down. Since peaking in July, oil prices have more than halved to hover around $60, dipping below the critical $70 level at which the government balances its budget.

Few in the Olympic movement doubt that the Kremlin has the commitment and the will to see the 2014 Games go on -- at any cost. But the cost looks increasingly steep.

Vladimir Putin, when he was president, traveled to Guatemala last year to personally lobby International Olympic Committee members. There he delivered his first-ever address in English -- a sign of just how important these Games are to Russia.

"No way," said Jean-Claude Killy, the Frenchman who heads the IOC panel coordinating the Sochi Games, when asked whether the issue of moving the games had been raised. "I'm totally firm on this. Never was it discussed."

But Russia has been battered.

Crumbling oil prices and mounting woes over the global economy have driven its stock markets down by nearly 80 percent since their May peaks to a nearly four-year low, and lending to the real economy has all but dried up. The Kremlin has pledged upward of $200 billion to bail out troubled banks and corporations. The Central Bank has spent several billion dollars a week defending the flagging national currency. In the last three weeks, reserves have been whittled down by some $45 billion.

Even before the financial crisis hit, the Olympic project was running into problems. There were reports of delays and huge cost overruns. In recognition of the issues, the Kremlin recently appointed troubleshooter Dmitry Kozak as a deputy prime minister to oversee preparations for the Sochi Games.

Organizers, meanwhile, insist that the projects are running to time, and that the government will cough up the cash to ensure there are no hitches. But the Kommersant newspaper recently reported that state-run corporation Olympstroi's tender for facilities had attracted no bidders. In a peculiarity, the organizers had bundled both hotels and sports facilities into single lots, and appeared to deny the developers ownership of the land.

The government conservatively estimates the Sochi Olympics will cost $12 billion. Most of that -- $7.5 billion -- will come from the public pocket. Private investors are expected to put up the remainder, but it may be the Kremlin that eventually foots the bill.

While the government still sits on the world's third-largest foreign exchange reserves of some $515 billion, that money is fast evaporating.

Sochi is not the only Olympic host city under heavy financial pressure. Organizers of the 2012 Summer Games in London are struggling to secure private funding for key projects and keep within their 9.3 billion pound ($17 billion) budget, which includes regenerating a derelict east London site into the Olympic Park.

London has already scaled back the $1.62 billion athletes' village because the Australian developers, Lend Lease, have failed to raise their share of the costs. The government has been forced to release $165 million in contingency funding so far for the village.

While construction in Sochi's alpine areas is well under way, a tour Friday of the main sites on the Black Sea coast shows there is much work to be done.

A vivid blue fence, which local residents say was put up just two weeks ago, encircles a vast area of trees, shrubbery, villagers' crops and derelict buildings. Abandoned tractors linger on the site, located about 25 miles from Sochi.

The area will be the heartbeat of the Olympics, with two ice arenas, curling and skating rinks, along with an Olympic Village with luxurious hotels and a top-end residential zone.

A rail link that will connect Sochi with the mountain resort is further advanced, and the IOC's Killy welcomed Putin's decision to have one line instead of two, noting that "it is saving a lot of money and a lot of time."

But not everybody is happy. Many villagers are to be uprooted from their homes to make way for a slew of Olympic developments, including a park that will cut across a swathe of residences. Authorities have ordered the villagers to leave by the end of 2009.

The government has enlisted the support of a number of loyal billionaire businessmen to lead construction of key facilities: Interros, owned by metals magnate and keen skier Vladimir Potanin, is building the Rosa Khutor downhill ski area, Oleg Deripaska's Basic Element is building the Olympic Village, media center and a new airport, while state-controlled Gazprom is in charge of the cross-country ski areas.

But these companies have been among the worst hit by the financial crisis.

"One worry could be the state of the private sector financing," Killy said. "There is no red light at this point, but it could become a worry."


Stewart reported from Moscow, Wilson from London. Associated Press writers Nataliya Vasilyeva in Moscow and Oksana Ivankova in Sochi contributed to this report.

Los Angeles Times Articles