Putin's Games: Influence Peddling at the Feeding Troughs of Sochi

By Christian Neef and Matthias Schepp

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Though the Olympic Games in Sochi don't begin until next week, the victor is already clear: Vladimir Putin. The president has used the spectacle -- and the vast construction contracts involved -- to secure his own power and to rid himself of rivals.

With his broad shoulders and massive head, the boss of Russia's railway system looks like the kind of man who is afraid of nothing and nobody. When his company lays track in Iran and North Korea, he is like a second foreign minister. With his massive budget, he is also among the most influential politicians back home in Moscow. And with a million people working for him, he is the country's largest employer.

Yakunin is fond of wearing a uniform to festive events. The silver, oak-leaf embroidery on his collar recalls the time when the heads of the Soviet rail system held the rank of general. But for the recent opening of the modern new train station in the Olympic city of Sochi, he came in civilian attire: a dark blue suit with a pink silk tie. Even without his uniform, however, he stood as stiff as a tin soldier next to his president.

Yakunin's posture revealed pride, but also a pinch of trepidation -- even if he belongs to Vladimir Putin's inner circle and has known the president for over 20 years. "In the name of the entire Russian rail collective, I would like to thank you for the trust and the assistance, but also for the control that you have consistently exerted," Yakunin said.

Control is the key word when it comes to Sochi, but also when it comes to the games of power and money that take place in Moscow back rooms, in ministry corridors and in the top floors of large companies. In these competitions, there are no medals at stake. Rather, the prize is a place among the Russian power elite. Participants are not looking for appreciative applause; they are looking for the approval of a single man: Vladimir Putin.

Just 18 months ago, Putin appeared weakened as a result of ballot box fraud and mass demonstrations. But now he is using the Olympic Games to present himself as a leader who can do everything. And he is using the event to consolidate his rule and shunt aside rivals. Those who serve him unconditionally are allowed to profit handsomely. Those who don't lose his blessing.

'Information War'

Rail boss Yakunin is Putin's best advocate when it comes to defending the Kremlin against corruption allegations, criticism over exploding costs and accusations of homophobia. He is arch-conservative and powerfully eloquent. He has railed against the "information war that the West has waged against Russia." He adds: "We started from scratch and then built power plants, highways and tunnels in record time. Of course all of that costs money." His massive new train station in Sochi went up in just three and a half years; the central station that opened in Berlin for the 2006 World Cup took twice as long.

Top Western sporting officials such as Gian Franco Kasper, the Swiss president of the International Ski Federation, would like to see Yakunin taken to court. Kasper has claimed that one-third of the money allotted to Sochi has disappeared. "How does he know that? Was he complicit in corruption himself," thunders Yakunin in reply. "He is slandering Russia."

Yakunin's railway company built eight large projects for a total of €6.6 billion ($9 billion) in Sochi, including a new highway and the 42 kilometer long rail line from the Black Sea coast into the Caucasus Mountains. The list, naturally, also includes the new train station, a facility which can handle just as many passengers as the one in Berlin despite the German capital having 10 times more residents than Sochi. Yakunin's workers poured 332,000 square meters (3,570,000 square feet) of asphalt, laid 54,000 square meters of granite and planted 6,000 plants. "The president was very satisfied with our work," Yakunin says.

Staying in the president's good graces is worth it: Yakunin is still in office even though opposition leader and blogger Alexey Navalny revealed several months ago that the railway boss is not only an excellent contractor, but he is also extremely adept at taking care of himself. Navalny reported that Yakunin built himself a veritable palace just outside of Moscow, complete with dozens of rooms and a special, climate-controlled space for his wife's fur coats. Yakunin says the report was nothing more than a "smear campaign."

Right before Navalny's revelations were made public, Putin had thrown his support behind Yakunin as rumors began making the rounds in Moscow that he was about to be thrown out of Putin's government. Even the state-run news agency had already reported that Yakunin was history.

The Feeding Troughs of Sochi

It is likely that the team of Prime Minister Dmitri Medvedev is behind the speculation. He has long wanted to get rid of Yakunin, but Putin shows no sign of withdrawing his support. Indeed, it is Medvedev who the president has reduced to the status of a political dwarf in recent months. The former president is now considered to be completely powerless. Most of his closest allies have been removed from important positions and were kept away from the feeding troughs of Sochi.

Ahmed Bilalov is one of them. Bilalov is a developer from the restive Caucasus republic of Dagestan; his company was tasked with the construction of the ski jumps in Sochi, among other projects. One year ago, Putin made an example of Bilalov in his presumed battle against the corruption that has surrounded the Sochi games, the most expensive Olympics of all time. On live television, Putin scolded Bilalov for not yet having finished the ski jump facilities and for the fact that costs had exploded to €174 million, seven times the original estimate.

To that point, Bilalov was vice president of the Russian Olympic Committee and a member of the ruling party United Russia. Shortly after Putin's televised rebuke, Bilalov was removed from all of his posts and he disappeared to London.

His elimination was to serve as a warning. And, as is so often the case in Russia, it was merciless. Shortly after Putin voiced his displeasure with Bilalov, Moscow prosecutors opened up a criminal investigation into the contractor, accusing him and his brother Magomed of misappropriating public funds. Specifically, authorities accuse the Bilalov concern of having taken a loan for the construction of the Olympics facility only to deposit the money in a bank owned by Magomed and loan it out elsewhere at triple the interest. Prosecutors allege that the brothers made a profit of a million euros.

Bilalov says that the accusation is a "shameless lie." He claims that a major shareholder of his company -- one which had overreached itself amid the Sochi construction boom -- was behind the scandal. Namely, state-owned Sberbank, the largest and oldest financial institution in the country. Indeed, after the Bilalov brothers backed out, Sberbank was left with a controlling majority in the company.

It is unclear which version is correct. But the affair makes it seem as though someone was seeking personal gain without having subordinated himself to the interests of the Kremlin. And that he was relying on the wrong patron.

'A Tax for the Oligarchs'

Bilalov is not the only one for whom Putin's glorious games have led to the agony of defeat. Immediately after Sochi was chosen to host the games in July 2007, unloved oligarchs from the period of Putin's predecessor, Boris Yeltsin, were essentially forced into investing in the Black Sea town. One of them is nickel king Vladimir Potanin, a prime minister under Yeltsin whose estimated worth is $14.3 billion. Another is aluminum czar Oleg Deripaska, who is married to a step-niece of Yeltsin's and is allegedly worth $8.5 billion.

"Participating in Sochi is a kind of tax for the oligarchs," says former Russian Prime Minister Mikhail Kasyanov. "If you want to continue doing business in Russia, then you have to help Putin."

Potanin is more or less approved of in the Kremlin because he finished his €2 billion-worth of projects on time, including a mountain health resort complete with hotels and an ultra-modern ski lift. Deripaska's company Rusal, on the other hand, is heavily in debt and has become essentially dependent on the state-owned bank WTB. Furthermore, workers were still putting the finishing touches on his €500 million Olympic Village with just three weeks to go before the opening ceremony.

Despite past differences, the two magnates do have one thing in common, however. They both want to have their investments settled with taxpayer money. Together with the heads of state-owned enterprises Gazprom and Sberbank -- both of which also invested billions in Sochi -- Potanin and Deripaska are demanding that the government "rescue at least a minimum of our investments." They would seem not to believe that Sochi, once the Olympics are over, will in fact become the tourist mecca (Moscow projected 50,000 overnight stays per day after the Olympics) of which the Kremlin dreams. Their pessimism is hardly surprising when one considers that the resort town now possesses fully half the number of hotel beds found in Moscow, a metropolis with 14 million residents.

But there are plenty of business magnates for whom Sochi was a fountain of wealth from the very beginning: men who are particularly close to the Kremlin and to Vladimir Putin. One of those is Arkady Rotenberg. Until about 30 years ago, Rotenberg was the director of an inconsequential sports school for children and youth in Leningrad, now St. Petersburg. Following the collapse of the Soviet Union, he became involved in small-scale commerce with Finland. To the public at large, he was virtually unknown. Today, however, the 62-year-old is a billionaire and, together with his brother Boris, controls banks, pipeline companies and construction firms.

Kremlin Bigwigs

The Rotenberg brothers' path to wealth began when a childhood friend of theirs began his career in Moscow: Vladimir Putin. They once trained together in a judo club. Today, Arkady Rotenberg owns the club and Putin is its honorary president. Rotenberg is seen as Putin's judo trainer -- and he is also the chief executive of the famous Moscow hockey team Dynamo, whose board includes numerous Kremlin bigwigs.

As such, it is hardly surprising that Rotenberg became a billionaire within just a few years. In 2008, when Gazprom sold off five subsidiaries responsible for the construction of pipelines and compressor stations, the lucrative bundle was snapped up at the discount price of just €227 million. The buyers were companies based in Cyprus -- companies controlled by Arkady Rotenberg.

Rotenberg's companies received contracts for projects in Sochi worth €4.8 billion, according to Bloomberg, including road construction, a pipeline and the media center. Observers believe that, in contrast to Deripaska and Potanin, Rotenberg hasn't lost money as a result of his Olympics projects -- indeed, that it is earning handsomely -- because he was contracted by the state.

Primarily, however, the state's presence in Sochi takes the form of Olympstroy, the company responsible for building most of the sports arenas for the games. It is one of seven large, state-owned companies in Russia and offers an almost perfect breeding ground for corruption. Paradoxically, state-owned companies are considered to be non-commercial entities in Russia and are thus freed from the requirement of submitting detailed annual reports.

The fate of Olympstroy reveals the weaknesses of Putin's system -- a system that concentrates money and power in the hands of the few, thus promoting mismanagement. The company was founded six years ago, but has already gone through three CEOs due to their inability to prevail over local authorities or because they clashed with leading government representatives. Currently, a senior official from Moscow is heading the company.

Here Comes the World Cup

The chaos at the top of the largest company involved in the Olympics shows that there were likely conflicts among the various elites who wanted to control the money flows, writes Russia expert Robert Orttung. He refers to a study focusing on Olympstroy's expenditures which found that Olympics structures built in Russia were some 57 percent more expensive than comparable projects built in other countries. The difference, he notes, was likely diverted by insiders that control the large construction companies.

The games are set to begin in just over a week. Yet even as it has become fashionable among Moscow intellectuals to voice displeasure at the gigantism of the Olympics, the debate over money, loyalties and influence has not reached the broader public. Most Russians are excited about the spectacle on the Black Sea and have heard little about Western calls for a boycott. If they have, they merely shake their heads uncomprehendingly.

The German president isn't coming? Hadn't heard that. The debate over homosexuality? Bizarre. Most Russians are unaware of the debate over homophobia though many television stars and even some leading politicians are known to be gay.

But once the Olympic spirit has faded a few months from now, the economy returns to the doldrums and Russians begin to notice the pinch of the money spent in Sochi, Putin will ensure that a few heads roll.

And then it will be time to begin looking forward to the next outsized event. In four years, the World Cup is coming to Russia.

Translated from the German by Charles Hawley

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3 total posts
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1. political winds
broremann 01/29/2014
who wants to be at the top for just a few years, then be torn down and condemned. as al power grab and politics in the end fails
2. What lies behind
History Hacker 02/01/2014
What makes this whole affair even more scandalous, is that behind this wanton show of power lies the colossal monolith of the Russian Orthodox Church, Putin's cohort, which thoroughly condemns Russia.
3. Unbecoming jealousy ?
verbatim128 02/02/2014
Is it that Mr. Putin left no room for Western corruption to partake at the feeding troughs?
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