by Jon Hellevig for The Saker Blog
It’s a two and a half hour flight from Moscow to Sochi and when you land you are in another world. Sochi is absolutely unique and like no place else in Russia, a gem in its own right. Sheltered by the Caucasian mountains from the severe northern winds which sweep over most of Russia in wintertime and tempered by the Black Sea breezes the summer, Sochi has a pleasant climate all year round. While the other resorts to the west on the same Russian Black Sea coast may get winter peak colds of -10 degrees and below, Sochi could see morning frosts but daily temperatures rarely drop below +10. There’s a reason the climate is characterized as subtropical.
Leaving Moscow birch trees and Siberian pines behind, the traveler when he emerges from the airport is amazed to be welcomed by swaying palm trees. And, above the palms, you will behold the snowcapped peaks of the guarding mountains lit by the sun.
It’s not only the nature and climate that make Sochi special, the man-made environment is also unique for Russia and at the highest global levels. Russia went through some rough times in the 20th century, which set a mark on most its cities, but in Sochi there is not a trace of bygone Soviet decay. Everything is as neat as we would think of countries like Switzerland. At the same time, we see stunning new Miami-style high-rise buildings perfectly placed among the lush scenery. A lot of that marvel came courtesy of Vladimir Putin’s bold decision to transform Sochi into a world-class all-year tourist destination in the run-up to the 2014 Winter Olympics.
The Sochi hoax just won’t go away
I was reminded of this just recently, when in my research on the Russian economy I plowed through a couple of grant-fueled Western accounts of the economic history of the Putin years. One was Chris Miller’s book (2018) with the ridiculous title “Putinomics” (as unfit as they come for a book purporting to be academic research). The other one, a 2019 book from the Atlantic Council’s fiction department hack Anders Aslund – of Russian shock therapy fame – with the no less bizarre title “Russia’s Crony Capitalism.” In the case of Aslund and his employer, I am sure nobody would have expected anything else.
Miller unilaterally declared: “What is clear, however, is that a significant share of the funds invested [in Sochi] were wasted or stolen.” For evidence he refers to Navalny’s fraudulent pamphlet in addition to all the other propaganda clichés. (*1). In his book, Aslund in turn returns time after time – without any justification – to Sochi as an alleged hotbed of corruption and waste and one of the alleged original sins of Putin.
As these fellows cannot in the real Russia detect, no matter how hard they try, any Putinomics and not much of crony capitalism either, they just make it up. One of the favorite clichés such sham analysts resort to in order to back up their agenda-driven narratives about Russia is the supposed corruption and lavish spending in connection with the Olympic Games, trying to convince their readers that it was all nothing but “Putin’s vanity project.”
This line of attack was first developed in a desperate attempt to destroy the reputation of the Russian Olympic games even before they were held. Another topic on the anti-Sochi black agenda centered around the fake claims that gay people were supposedly persecuted in the country. And everything culminated just a couple of days before the games started in the wacky claim going viral in Western media that the Russians had built “twin-seat toilets,” toilets designed to have two people doing their business next to each other in one cubicle. In reality, the photos were from work in progress just before the partition walls and cubicle doors were being installed.
The Nemtsov report
The original raw material for the corruption and overspending narrative was delivered by late rabid opposition activists – derailed presidential hopeful from the anarchy of the 90s – Boris Nemtsov. It was a shamelessly forged report titled “Winter Olympics in the Subtropics: Corruption and Abuse in Sochi” (2013). (*2). Nemtsov as a sworn nemesis of Putin was a totally unreliable witness to start with, it was clear that he would have no intention to render an honest and fair account of what was going on. All he wanted to do was to destroy the Games and deny millions of Russians, whose lives he had already conspired to wreck in the 1990s, to take pride in the Olympic Games which symbolized the national awakening and resurrected prosperity. – But the Western press sucked it all up – of course, because they were part of it.
Nemtsov’s report was rehashed in January 2014, just before the games were set to open, by another frenzied one-cause anti-Putin activist, Alexey Navalny, who basically plagiarized Nemtsov’s report with an added portion of hyperbole. (*3). This with the predictable and orchestrated knee-jerk reactions of the combined Western media.
The central claim and giant falsehood in these reports was the contention that the $50 billion dollar budget for the Sochi region in the run-up to the Olympics would have been event-based, that is, supposedly been spent on organizing the Games with a zero residual value. Following this blatantly false argument, the critics then pushed the meme that the Sochi Olympics would have been by far the most expensive in history. In reality, the actual organizing costs of hosting the Games, including the construction of all the sporting facilities was $10.6 billion, while the resting $39 billion were investments in the Sochi urban infrastructure. This infrastructure spending was related to the Games only insofar as Putin had wanted to take the chance of upgrading at one fell swoop Sochi into a modern urban area and world-class resort, a first for Russia. It was an investment for the future. Real experts never doubted the wisdom of that decision, but today only the most diehard lying propagandist could argue against it, as it is shown in the present report.
The $10.6 billion spent on Sochi is perfectly in line with other recent Games. The cost of London 2012 Olympics was $13.9bn, and that is a city which even from before had all the sporting infrastructure you could wish for. Sochi had none. Vancouver in 2010 coughed up $8.9bn. Pyeongchang 2018 had a cost of $13.1bn.
With the $40 billion, which did not form part of the organizational costs, Sochi has indeed been transformed into a top destination for both winter and summer tourism as well as business travel with amazing congress facilities and a solid offering of high-class hotels.
This is what Sochi in reality got with that money
Let’s see what Sochi in reality got for that money in addition to the amazing sports facilities:
- A state-of-the art modern airport
- A new seaport for cargo, passenger liners, ferries and personal boats
- Several new railway stations, among them the Adler station which is one of the biggest in Russia (not known for its miniscule rail stations
- 367 km of roads and bridges
- 967,400 square meters of road surface and pavements
- 200 km of railways, with 22 tunnels, 54 bridges and several multi-level junctions
- Two thermal power plants and one gas power plant with a combined capacity of 1200 MW, and four electric substations
- 480 km of low-pressure gas pipelines
- 550 km of high voltage power lines
- A new water and wastewater treatment facility
- Three new sewage treatment plants
- A new graduate-level Russian International Olympic University
- 60 new educational, cultural and health facilities
- Two hospitals
- A fascinating cluster of mountain villages built from scratch in the Krasnaya Polyana area (Gorky Gorod, Rosa Khutor, and others)
- 25,000 additional hotel rooms, with 56 hotels rated four-star and above
- A new theme park (Sochi Park)
- A Formula 1 racing track (not an Olympic sport)
- Renovation of a huge number of residential houses and public space
- Barrier-free accessibility to public and commercial buildings for disabled persons
- A 7-kilometer pedestrian and bicycle seaside boardwalk, Russia’s coolest along the newly created impressive beach down at the Olympic Village in the Imereti Lowlands
Most of the details for the above list were derived from Oleg Golubchikov’s marvelous report on the actual costs of the Sochi investments. (*4). Golubchikov provides transparent and detailed costs on each investment category with a division of the costs on organizational costs and investments in sporting facilities, and the Sochi urban infrastructure. Incidentally, he reaches the same grand total of $50 billion ($49.5bn, to be precise) for the combined costs as the propagandists announced, but with the difference that he shows where the funds in reality went. According to Golubchikov, the direct costs for holding the Games amounted to $10.75bn, whereas the infrastructure costs were $38.76bn. There is a break-down of both cost groups in his report, while the below table focuses on the infrastructure costs, which were the objects of the fabricated scandal.
This data on the costs and the infrastructure investments that they went into should convince anybody who is interested in the truth that there has absolutely been no squandering of funds and that $39 billion of the alleged “most expensive Olympics ever” in fact were investments in the Sochi urban infrastructure. Nevertheless, we will proceed below with exposing some more details, which should finally put the Nemtsov hoax to rest.
Nemtsov’s calculations just don’t hold water – and were never meant to
Nemtsov’s and Navalny’s propaganda pamphlets were masquerading as sound economic analysis based on global comparisons of alternative costs. Their findings then purported to show that Russia had built the Sochi objects significantly more expensively than global best practices would have it. As those reports are nothing but blatant propaganda and the calculations without merit, it would not make any sense to try to decipher them in detail. Just one example, concerning road and railroad works, the most expensive objects, will suffice more than enough.
I remind, 367 km of roads and bridges and 200 km of railways were constructed with 22 tunnels, 54 bridges and several multi-level junctions. These included, among other things, a new elevated road passing through the whole city of Sochi (the Kurortny Avenue bypass road), an extension of the Sochi ring road, and the combined railroad and highway connecting the sporting cluster down at the Adler coastal area with the skiing cluster up in the mountains at Krasnaya Polyana. The latter was by far the most expensive individual investment. The railroad and highway are each 48-kilometer long and include 10.3 km of railroad tunnels, 6.7 km of highway tunnels and 6.7km of escape tunnels, in addition to 40 highway and 37 railway bridges and overpasses with a combined length of 35 km.
The total cost for these were $10.3. In Nemtsov’s account the cost was $9.404. The difference may be explained by the additional stretch of railroad going from the Adler railway station to the airport. Nemtsov claimed that the expenditure on the road would normally buy 940 kilometers of highway. That is a highly dubious claim in itself, but most importantly, Nemtsov is here cutting corners and straightening the bends by comparing flatland highway with a mountainous road with tunnels, bridges and underpasses. But those were precisely the challenging and costly parts of the entire combined highway and railroad.
Instead of minding the Nemtsov antics, we can just look at a very transparent comparative project cost from the United States. In 2013, construction began on the Alaskan Way Viaduct replacement tunnel, a bored highway tunnel in the city of Seattle, Washington. It is a 2-mile (3.2 km) tunnel under Downtown Seattle. The construction cost was estimated at $3.3 billion. (*5).
Once again, this is a 3.2 km tunnel that cost $3.3 billion. But the Adler-Krasnaya Polyana highway had 6.7 km of automotive road tunnels, 10.3 km of railroad tunnels, 6.7km of escape tunnels, and 77 bridges and overpasses. Now, compare that with the total price of the merely 3.2-km Seattle tunnel. What can you say, glaring economy in favor of Russia here. With the Seattle cost level, the expenditure on tunnels alone would have been $17.5 billion, not counting the escape tunnels, bridges, overpasses and the surface parts of the 48-km four-lane road and 48-km railroad.
There is no reason to refrain from spelling it out: Nemtsov was not mistaken here, he was lying. His narrative is full of holes and deliberate attempts to confuse the reader. (He would not have fooled anybody, hadn’t it been for the orchestrated media propaganda). In his scandalous report, Nemtsov claimed that the combined “highway/railroad” had cost $9.404 billion. But immediately in the next paragraph, the activist dropped the railroad part and pretended that the expenditure was exclusively for the highway, to quote: “For 266 billion rubles, you could build 940 kilometers (and they only built 48 kilometers!) of high-quality four-lane highway in Russia…” (*6). Thus the 48 km railroad – which made up at least half of the cost – was magically made disappear from the comparison.
But that’s not all, next Nemtsov spirited away the tunnels, bridges and overpasses. Quote: “To estimate the cost of the 35-kilometer portion of the four-lane highway, we will use the average European cost – $10 million per kilometer. Thus, the price of the automobile road without the bridges and tunnels would be $350 million. One kilometer of high-speed railroad track, according to average European standards, is $45 million. Thus, the 25.7 kilometers of regular rail track should cost $1.156 billion.” – Here the railroad is back in the narrative, but the items that objectively carry a high cost – tunnels, bridges, overpasses – were all wiped out and never returned into Nemtsov’s mendacious narrative. Interestingly enough, there was that admission of those costly items being omitted. That is a common propaganda ploy, the fabulists mining their narratives with half-truths to gain tools to deflect criticism.
The above exposure of the Nemtsov bluff has clearly shown that the intention was just that: to bluff, to create a giant propaganda hoax aimed at spoiling the Games and sullying the reputation of Russia and its president.
There’s another giant transparent con right in the introduction of the Nemtsov travesty. Although he proceeds further down in the report to discuss the cost of the road building, Nemtsov pretends in the introduction that the $50 billion was all spent on sporting facilities. Quote: “With over $50 billion already spent, it is more expensive than the sports buildings of all 21 other Winter Olympics combined.” (*7). – He compares the cost for an airport, a seaport, several railway stations, power plants, power lines, gas pipelines, all those 367 km of roads and bridges, 25,000 hotel rooms, etc. etc. with previous costs on sports building. Give me a break and STFU.
Spinning the facts, he tells that the original budget for the sporting facilities and organization costs were $12 billion, but then allows (referring to the experience from previous Games) for regular Olympic cost overruns and inflation (from 2007 to 2013) and concludes that $24bn would have been the fair price. Therefore, Nemtsov fancies, the remaining $26bn would consists of nothing but “embezzlement and kickbacks.” (*8). This ridiculous postulation amounts to saying that the real price of organizing the Games and getting all that amazing infrastructure – of which only the Adler-Krasnaya Polyana combined highway and railroad had a fair cost, by global comparison, of at least $25bn – would have been only $24bn.
The Sochi Olympic expenditure also compares favorably with the Berlin Brandenburg Airport (in construction since 2006 and still unfinished, sic!) with a present price tag of 10.3 billion euro. (Approximately USD 13 billion). (*9).
A good gauge is also the approximately $3 billion that Toronto is planning to invest in just one subway station. (*10).
Enough of the fairy tales, now let’s return back to the real Sochi.
Tourists are Flocking to Sochi
All these infrastructure goodies obviously remained in Sochi after the Olympics. They were not dismantled and tucked away after the Games as the brothers-in-arm Nemtsov and Navalny and their cheerleaders in the Western media insinuated. They are there for the millions of visitors and the population of Sochi to enjoy. Notably, the population has grown with one fifth, up from the pre-Olympic 368 thousand to present day 450 thousand.
In the same period from 2013 to 2018, the number of visitors has nearly doubled from 3.8 million to levels around 7 million. It is difficult to pinpoint an exact figure for visitors as many stay in private accommodation, rented or owned, but that must be the level. A foolproof indicator is the number of passengers travelling through Sochi airport. It has grown 150% from 2.4 million in 2013 to 6.3 million in 2018. (Note, both arrivals and departures are counted in airport statistics). A further 10% growth has been reported for first half of 2019.
Obviously, this tremendous growth in population and visitors would not have been possible without the $40 billion investment in Sochi’s infrastructure.
It has been established that 25,000 additional hotel rooms where built for the Olympics, of these 12,000 in 56 new world class hotels rated four-stars or above. This practically doubled the pre-Olympic capacity to a total of 55,000 rooms. Before the Olympic boom, Sochi had only one single hotel conforming to international standards, a Gazprom owned Radisson establishment with 200 rooms.
There’s more devastating news in store for the propagandists. The Olympic constructions did not result in any overcapacity, far from it, on the contrary the number of hotel rooms has significantly further risen since then. Reporting on the results of completing the new mandatory star rating procedures for hotels, the Sochi city administration told in February 2019, that the city now possessed a total capacity of 84 thousand rooms combined in 2,387 hotels, guest houses and hostels. (*12). On top of that comes the huge number of private accommodation.
This means that there has been a major shift towards more value-added visitors. With this total capacity, Sochi was ready to accommodate 200 thousand guests simultaneously in one day during the FIFA football world cup.
For sake of comparison, Helsinki (Finland) has built only 63 hotels with a combined 9,373 rooms in its entire history. (*12). Sochi then built 5 times more in just a couple of years before and after the Olympics than one of Europe’s major capital cities managed in over 100 years.
Interestingly, due to good bookings, the mountain resort hotels also get guests in the summer, and the coastal hotels in the winter.
Western wishful predictions of doom and gloom failed to materialize
Right after the Olympic games, the Western media kicked off a follow-up campaign designed to convince that all the investments actually had been in vain. Sochi is “Deserted and already falling apart,” The Daily Mail gleefully declared. (*13). A “ghost town,” announced the spooks at The Guardian (*14). “A $51 billion ‘ghetto’: Extraordinary images show Vladimir Putin’s Sochi Olympic park lying desolate and abandoned one year after most expensive games in history,” more lies from London. (*15). I cannot even get worked up about these claims — they are so ludicrously flawed — just what one would expect from the London fiction factory.
As there simply was nothing real to complain about, what the Western reporters did was to go up to the mountain winter sport cluster in summertime to report that no skiers were spotted, as the CNN did (*16), and then descend onto the coastal beach resort in wintertime (*17) to share their amazement over the empty beaches, as The Daily Mail did. (*18). The winter is mild down there, rarely cooler than 10°C in daytime, but it hardly qualifies for a beach season.
As post-Olympic Sochi really has been a resounding success, this line of attack is largely dead in the media. My impression is that the only ones who are trying to rehash the scandals are Moscow based correspondents of Western media who want to take a long weekend off and travel over to Sochi to enjoy some nice days in the sun during the Moscow winter gloom. It’s a surefire trick to get your employer to pay for it by promising a report about the “post-Olympic decay of Putin’s vanity project.” But even so, they seem not to be able to deliver, as for example was the case with Marjo Nakki from Yle, Finland’s state broadcasting corporation. She enjoyed her free meal but really had nothing to complain about. (*19).
For those who are interested to see how the real Sochi looks like, I refer to an article which I wrote back in 2017. It has a lot of pictures displaying the beauty of Sochi. Here is the link https://russia-insider.com/en/society/sochi-sunny-side-reality/ri4658
White Elephants Live and Kicking
What about the claims that the Olympic sporting arenas stand out like white elephants – unfinished, useless and abandoned? Already a few days before the games even took off, Voice of America declared that “Sochi Facilities Will Not Be Used After Olympics.” (*20). Alas, this wish did not come true; far from it.
These sporting facilities are surrounded on a large territory by hotels, convention centers, and various clusters of housing developments originally built to accommodate the Olympic teams, support staff, organizers and media. The result is an extraordinarily vibrant residential and recreational area with a gorgeous beach on one side and snowcapped mountains on the other. This area will for sure provide for some of the best quality of life in Russia, and a good one by any global standards.
And the venues are bustling with activity. One of the ice rinks is the busy home rink of the new Sochi Hockey Club, debuting in Russia’s prestigious KHL league right after the Olympics in 2014. The club draws between six to ten thousand spectators per game. Another ice rink is being used for various figure skating activities and ice shows. A third one has been converted into a Russian central facility for child health and sports activities. The speed skating arena was turned into a tennis center with nine courts under roof and 15 open-air courts. The Fisht Stadium, the central stadium of the Sochi Olympics, which hosted the opening ceremony of the Olympic Games, was fast reconstructed to serve as one of football stadiums for the FIFA World Cup in Russia 2018. In 2014 Sochi hosted its first annual Formula One race on a street circuit built around these venues of the Sochi Olympic Park.
The sporting venues and adjacent hotels and congress centers have also been busy with continuously hosting one or another top level conference or summit.
President Putin has practically transformed Sochi into the country’s summer capital, where he frequently meets with foreign dignitaries during the sunnier half of the year. This also tallies with Russia’s pivot to Asia as Sochi is much closer to those countries.
Sochi saw a lot of real estate development – not included in the famous $50 billion price tag – across the city in the years leading up to the Olympic Games. After the sharp devaluation of the Russian ruble in 2014/2015 in the wake of the Western-imposed sanctions and the decline of the oil price, the Sochi real estate prices initially declined in in dollar terms. But since the decline the prices have surged by more than 100 to 200%. Premium category apartments with a sea view currently sell at a level of five to ten thousand dollars per square meter.
The present report should serve to convince the skeptic that without even a glimmer of doubt the bulk of the much touted Sochi $50 billion investment budget went towards a regional transformation and a thorough infrastructural overhaul of Sochi with a lasting impact. The reports about vanity spending and corruption can be firmly put down to malicious propaganda aimed at destroying Russia’s and its presidents external image, wipe out national support for the Games, and destabilize Russia’s political system.
Now, we are not saying that there would not be any legitimate concerns about the Sochi spending, there always are in connection with such huge projects, in all countries of the world. And while Russian law enforcement and the president have addressed some of them, the so-called opposition and their foreign cheerleaders have done nothing to expose any kinds of real misallocation of funds, solely concentrating on an entirely fictious propaganda narrative.
In addition to the impressive data evidencing the permanent economic boost that those investments delivered to Sochi, we may look at this from the point of view of the national economy. After the Sochi investments and the reunification of Crimea with Russia, the nation’s current account surplus got a $20 billion boost in form of a much lower capital outflow on foreign travel. In 2013, Russians spent $53 billion on travel abroad, but by 2018 the figure was down at $34 billion. Obviously, not all that money saved from foreign travel was spent in Sochi and Crimea, but these places sure made an enormous contribution towards it.
Finally, let’s see how miniscule the alleged scandal would be in an international comparison, even if the whole propaganda lie had been true. In the wake of the 2008 financial crisis, the United States spent on entirely murky bailouts of the country’s banks and largest corporations 475 billion on the federal TARP bailout program. In addition to that the Federal Reserve’s own bailout program regaled the banks and corporations with $1.2 trillion in the immediate aftermath of the crisis (*21) without any oversight in blatant corruption schemes. (*22). These were followed by more venal schemes in form of Fed’s program to pump $3.5 trillion of virtually interest free money to those private entities belonging to the American financial aristocracy. (*23). Those funds were further contributed by the highly contentious $787 billion Obama stimulus package. Independent analysts have shown that, Obama’s stimulus package resulted in nothing else but “waste, fraud and abuse as well as highly questionable projects.” (*24).
I bring up the American corruption here, because the fabricated Sochi spending scandal was aimed at portraying Russia as a particularly corrupt country. Without any evidence and distorted facts and outright lies the propaganda media indeed managed to convince a substantial majority of the Western populations that this was the case. Therefore, I find it very opportune to remind where the real corruption and waste resides. After all, those people, and types like above referenced Chris Miller and Anders Aslund, especially designed their narratives to convince the public how a supposed byzantine Russian government was the epitome of crony capitalism in comparison with the shining city upon a hill that their America is supposed to be.
*1. Chris Miller (2018). Putinomics. Pages 139 and 140.
*2. Boris Nemtsov and Leonid Martynyuk (2013). Winter Olympics in the Subtropics: Corruption and Abuse in Sochi” (2013). https://www.putin-itogi.ru/cp/wp-content/uploads/2013/05/Report_ENG_SOCHI-2014_preview.pdf
*3. Alexey Navalny (2014). Sochi 2014: The Comprehensive Report. https://sochi.fbk.info/en/report/
*4. Oleg Golubchikov (2017): From a sports mega-event to a regional megaproject: the Sochi winter Olympics and the return of geography in state development priorities, International Journal of Sport Policy and Politics https://www.tandfonline.com/doi/full/10.1080/19406940.2016.1272620
*6. Nemtsov report, pages 23 – 25.
*7. Nemtsov report, page 6.
*8. Nemtsov report, page 6 and 7.
*22. A fantastic description about the bailout and Federal Reserve quantitative easing frauds and corruption schemes is provided by David Stockman in his The Great Deformation (2013).