Public-Private Partnerships, Putin Style


Sochi Olympics

It will be the most expensive Olympics in history costing an estimated $51 billion. By way of comparison, the 2012 Summer Olympics in London cost just $15 billion. The price tag is even more jaw dropping when one considers that the Winter Olympics, which typically have just a third of the events of the Summer Olympics, are usually far less expensive to put on than the Summer Olympics.


Olympics cost

Hosting the Olympics has been a personal dream of President Vladimir Putin. Back in 2007, when Russia was bidding to host the Olympics, Russia blew away the bids of other finalists by pledging to spend $12 billion on the world-wide event. Just to show how serious he was, President Putin had a seven story tall Russian Antonov An-124, one of the largest heavy transport airplanes in the world, bring 200 metric tons of ice and all of the equipment necessary to build an ice rink in tropical Guatemala City across from the hotel where the International Olympic Committee was staying.  

Although host nations routinely outspend the amount pledged in their bids, how do you account for a nearly five-fold increase in spending from $12 billion to $51 billion? According to the Business Week article, it’s “a story of ambition, hubris, and greed leading to fabulous extravagance on the shores of the Black Sea.”


Sochi
  1. Difficult Location – Sochi, once a destination for Joseph Stalin’s workers to recuperate (as opposed to its better known half-sibling Siberia where those needing “re”education were sent), sits on a narrow sliver of land between the Caucasus Mountains and the Black Sea with limited developable land and little infrastructure. $8.7 billion alone, was spent on a road and railway.  Interesting as well, for a Winter Olympics venue, Sochi is also one of the few areas in Russia with a sub-tropical climate, with average temperatures between 52 ºF and 65.1 ºF, although during the winter months it averages between 37 ºF and 50 ºF. How this will affect snow conditions during the Olympics is unknown. It may be like skiing on Slurpees.  But Russia has promised snow, whether natural, man made, or otherwise, no matter what the cost.

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  1. Corruption – In a political system that less than a generation ago was communist, where everybody technically worked for everybody else, there’s going to be inefficiency. And inefficiency breeds corruption. There’s even a word for it in Russian, “blat.” According to the article, there have been reports of construction companies artificially inflating bids to make up for kickbacks they would have to pay to government officials. One contractor said that he was told by government officials that the contract being awarded to his company was worth 250 million rubles ($7.7 million) “on paper,” but that his company would actually only receive 170 million rubles, the rest presumably being pocketed by the officials.


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Well, I suppose that’s one way to do a public-private partnership. Putin style.

The venues look quite nice though.

#Sochi #Construction #BusinessWeek #Putin #2014WinterOlympics

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