Constructing the most expensive Games in history

It recently broke that the Sochi Games are expected to surpass the initial budget with 500% and the IOC now predicts the costs to amount to $50 billion, making the Sochi Games the most expensive Games ever. With less than one year to go, the construction of Olympic facilities in Sochi is behind schedule on 49 of 379 facilities, said Sergei Gaplikov, director of Olympstroy, the Russian state corporation responsible for coordinating Olympic-related construction in Sochi at a meeting in Sochi 8 February 2013.

According to Gaplikov, 153 facilities are completed leaving 226 facilities unfinished. More than 75.000 workers work around the clock on the many construction sites to finish in time. But still more workers are needed, said Gaplikov according to an Interfax article.

"Clearly this is in principle still insufficient, but work is continuing and the labor shortage at sites is decreasing steadily," Gaplikov said.

To ensure that the construction will finish on time, construction companies employ a high number of workers and on the day before this meeting, NGO Human Rights Watch published a report exposing the poor conditions under which many of these workers prepare Sochi for the Games.

The HRW report is entitled ‘Race to the bottom: Exploitation of Migrant Workers Ahead of Russia’s 2014 Winter Olympic Games in Sochi’ (download here) and tells the story of migrant workers who have come to Russia to work and often find themselves in miserable sheds, working 12 hour shifts at a minimum wage - if they get paid at all. Material in the report is gathered over a period of 6 months and through 66 interviews with both construction workers and local Sochi inhabitants, last of whom have been forced to relocate because of the Olympic construction needs.

“Athletes, journalists, and Olympic ticket holders in Sochi will watch the 2014 Winter Games in iconic modern sports venues, broadcast centers, and hotels,” said Jane Buchanan, associate Europe and Central Asia director at HRW in a press release on the report. “But many migrant workers have toiled in exploitative, abusive conditions to build these shimmering façades and luxurious interiors.”

According to HRW, Olympstroy is the main entity to blame but also stresses that both the Russian government and the IOC have an obligation to ensure the conditions under which the workers operate. 

Olympstroy has been at the centre of much of the criticism that has hit these Games preparations. The HRW report is not the first example of bad working conditions and there have been numerous accounts from local inhabitants feeling violated. 

Environmentally sustainable
The HRW report was published on the same day as Dmitry Kozak, Russian deputy prime minister in charge of the 2014 Sochi Games presented the financial status of the Sochi Games revealing a budget that has five-doubled since the original presented in the bid documents. 

One reason for the high cost in Sochi is that all venues and infrastructure have had to be built from scratch. The relatively small subtropical Black Sea city normally counts around 400.000 inhabitants and, when awarded the Games back in 2007, the city did not have anywhere near the infrastructure nor hotel capacity to host the more than 75.000 daily visitors expected in the city during the 17 days in February 2014. 

The construction in Sochi is divided into two ‘clusters’: one by the sea and one in the Krasnaya Polyana mountains rising behind the city of Sochi. The most extensive Olympic related construction is the 43 km combined road and railway leading from the sea cluster to the mountain cluster, a road that has been called the most expensive road in the world, budgeted at more than $150 million per kilometre.

The road runs through ecologically fragile areas in the Sochi National Park, an area that covers almost 2000 km2, and although the Sochi Games emphasise their ‘green standards’, eco-activist groups like World Wildlife Fund and Greenpeace have been objecting to the construction methods throughout process and claiming that the extensive work is severely damaging the nature reserve’s natural habitat. Also the UN environment programme (UNEP) has been following the construction process closely.

Especially the question of waste management has been largely discussed. One example is the pollution of the Mzymta river, a river that runs from the mountain cluster to the sea, through the national park providing drinking water to a large number of households in Sochi, and lately local communities have complained of illegal waste dumping in the near vicinity of their houses. 

Money flow
Reports about the financing of the construction claim that between 30-50% of the money spent in the preparation process is corruption related.

“Any project in Russia has a corruption component. Usually it runs about 30 percent of the cost, but in the case of the Sochi Olympic Games we estimate it’s much higher, probably around 50 percent,” says Yuli Nisnevich, chief researcher at the Transparency International Moscow office according to the Christian Science Monitor. The running of the Games’ construction sites is largely dominated by either state-owned companies or companies owned by some of the richest men in Russia, the Oligarchs, many of whom have a close relationship with President Vladimir Putin. But according to investors, the work volume demanded from the Olympstroy has changed and the investors are now complaining the rising costs to the Kremlin, writes Reuters. 

"We are carrying out talks with the government on the compensation of a part of these expenditures through interest rate subsidies," said Vladimir Potanin, one of the major investors in Sochi’s Games preparations speaking to Reuters.

"Many see this as a form of government support. But actually it is only compensation for expenditures, which are not characteristic of ... commercial projects.”

Another company, Transstroy, owed by Oleg Deripaska, has launched a suit against Olympstroy looking to recover a loss of $50 million in unexpected costs.

“We want to work out officially in the courts the difference between the volume of work in the initial project phase, which was put up for bidding, and the project that was changed by the customer during the process,” says a Transstroy statement writes Reuters.

According to the Kremlin, rising demands are a natural development of large-scale projects.  “All rises (in costs) there are justified,” says Putin spokesperson, Dimitry Peskov to Reuters.

“It is not possible to calculate everything in advance. New demands arise, including those from the International Olympic Committee, which require additional costs. There’s nothing extraordinary about that.”

The Sochi Games will, however, be extraordinarily expensive and seemingly hard to pull off, but Putin has pledged his personal prestige to a successful Games and observers seem convinced that Putin will manage in spite of bumps on the road.

“I think they’ll finish on time just because there’s so much at stake in the government,” says Maria Antonova, managing editor of Russian Life magazine to azcentral.com.

“Putin will do whatever it takes pretty much to make sure they do happen. What happens after or what’s going to happen with environment, nobody really thinks about that right now.”