A good takedown of all the pro-Putin, Nashi-style nonsense about how wonderfully the Olympic investments would pay off and how there was supposedly no corruption at all. Forbes has published several interesting pieces on Sochi 2014, and the most interesting is this long interview with Potanin, whom they call the biggest private investor in the Olympics. On our website, meanwhile, he is the winner in the “Creative Lending” category: 82.6% of the funding for his Olympic projects, worth 101.7 billion rubles, came from the state-owned VEB bank.
On profitability: — You see, for a resort to survive, you can’t take more money from us than we earn, Potanin explains. Because Rosa Khutor needs 4.5 billion rubles in investment in the quarters immediately after the Olympics, including to turn the resort from a winter destination into a year-round one, and from a purely sports facility into something accessible to the mass visitor. And there is simply nowhere for the free cash flow to come from. The ski resort opened two years ago (the current season is its third), but it has never operated at full capacity: in three weeks of operation this season, Rosa Khutor brought in only 104 million rubles in revenue. In the years immediately after the Olympics, the company expects annual revenue of 3–5 billion rubles, of which about 2 billion would come “from the mountain,” 1 billion from hotel rentals, and 1–2 billion from apartment sales. At the same time, Rosa Khutor has to pay around 5 billion rubles a year on its loan and 1 billion rubles in property tax. By the end of 2013, interest alone on the VEB loan had already accumulated to about 13 billion rubles: if the obligations are not restructured, the project will never pay for itself. If, however, the interest is not capitalized annually and a profit-tax holiday is granted, then in 20 years the company will be able to meet its obligations on its own. And only after 40 years will it see its first net profit, according to Rosa Khutor’s estimates.* On corruption (which Putin claimed did not exist): In January 2014, IOC member Jean-François Kasper said that in Russia, around 30% of the money allocated to major projects like the Olympic Games disappears because of corruption. To be clear, this was not the IOC’s official position, but Kasper’s personal remark. But when answering questions about how anyone could launch a gigantic sports construction project in a country with corruption as rampant as Russia’s, Potanin is clearly irritated — it is obvious that the subject really gets under his skin. — Yes, of course, the corrupt element is very strong in all spheres of life. — What percentage? — The usual percentage, the standard one. — And what is “standard”? At that question, the already animated Potanin practically jumps in his chair and calls on the Forbes reporters to “keep order.” He never did name the “standard” kickback rate for Russian megaprojects, but it is clearly not small. “The corruption component in our country has a macroeconomic character,” was as far as Potanin chose to go. ***http://www.forbes.ru/milliardery/250267-milliarder-na-olimpe-kak-vladimir-potanin-stal-glavnym-chastnym-investorom-sochi?page=0,1 A nice, standard corruption rate of the macroeconomic variety.
Spread the link, citizens. http://sochi.fbk.info/ Old man Potanin has confirmed it all.