Sochi 2014 - Overbuilding the Olympic Infrastructure

Now that we know that the 2014 version of the Winter Olympics will be, by a very, very wide margin, the most expensive Winter Olympics ever put on with a price tag of between $50 and $55 billion, I'd like to post a few details about the spending in a report written by Russian opposition leader Boris Nemtsov and journalist Leonid Martynyuk as translated on the Interpretermag website.

Way back in July 2007, Vladimir Putin made the following speech to the IOC, opening Russia's bid presentation:

Notice that he states that Russia has "allocated" $12 billion to build and host the 2014 Winter Olympics.  This was twice the amount proposed by Russia's competitors, South Korea and Austria and, in itself, was a new Winter Olympic record.

Even that sum is enormous, given that a total of $7.771 billion was spent to host the 2010 Winter Olympics in Vancouver, including $3.688 billion on non-venue infrastructure construction.  The Auditor General of B.C. estimated in 2003 that the total cost of the Games would be a minimum of $2.892 billion, excluding the impact of inflation or $3.247 billion when a 6 percent discount rate was included.  From that, we can see that it is quite easy to double or triple the initial cost estimate for hosting the Olympics.   The total cost of the 2006 Winter Olympics held in Torino, Italy was $2.207 billion including $429 million on public works that were connected to the Olympics but not part of the actual sporting facilities.

In this posting, I would like to focus on the key Sochi infrastructure that was purpose-built for the Olympics, the group of buildings known as the "Coastal Cluster".  As you can see on this satellite photo, the Olympic infrastructure built along the shores of the Black Sea is substantial:

According to the Nemtsov/Martynyuk report, here is a chart showing the Olympic stadiums that have been built in Sochi, their capacity, their construction costs and their future purpose after the Olympics:

The original cost estimate for the Fisht Stadium was $230 million; that has more than tripled to the current cost cost of $778.7 million.  

According to the 2010 Census, the population of Sochi was 343,300 with the wider Sochi Municipal District having 415,087 residents.  In total, the six new Olympic venues have seating for 82,000 or roughly one seat for every four Sochi residents.  With the Fisht Central Stadium seating 40,000 people, filling all of those seats from the local population for soccer events after the Olympics will likely prove to be problematic, particularly given that there is already a 10,000 seat soccer stadium in Sochi.  As well, given that Sochi is in a sub-tropical climate and is a travel destination for those looking for a holiday from Russia's cold winters, it is highly unlikely that the 12,000 seat Bolshoi Ice Palace, Sochi's new ice palace and entertainment centre will be filled either.  Russia plans to use the Fisht Central Stadium as the winter home for Russia's national football team and a venue for the 2018 FIFA World Cup finals, however, one has to question what portion of time the stadium and its neighbouring purpose-built buildings will actually be in use during the year.    

Just in case you were curious, here is a Google Earth image of Sochi's existing 11,500 seat Central Stadium (Stadion Im. Slavy Metreveli) which is mainly used for football:

According to the authors of the report, the Central Stadium was only fully occupied once during its history.

Another problem that will ultimately appear will be the power requirement of the facilities.  Sochi has chronic energy shortages.  During 2012, there were more than a thousand power outages in the city and, on average, the power was out three times daily in various sectors of the city.   It is estimated that the Olympic facilities will require 650 MWe (megawatt electrical) of electricity at a cost of roughly $1 million per day, excluding the cost of heating.  Once the Olympic Games are over, the authors estimate that the infrastructure will use about half of the level used during the Olympics; that will reduce electricity costs to around $425,000 per day or about $155 million annually.    With the city of Sochi currently using 450 to 550 MWe of electricity, the total energy demand in Sochi when the Olympics are underway will be in the neighbourhood of 12,000 MWe, more than twice the city's current capacity of 550 MWe.  There is a proposal to deploy nine mobile power stations with a combined capacity of 200 MWe in order to resolve the problem of supplying power to the Olympics, but that won’t help the residents of the city of Sochi.

The authors of the report suggest that of the $50 billion plus that was spent on the 2014 Winter Olympics, roughly $25 to $30 billion was embezzled by the oligarchs and companies that are close to Vladimir Putin.  The Russian government's Audit Chamber has already estimated that the maintenance of the 2014 Olympic venues will cost at least $2 billion annually, leading to an urgent request by Prime Minister Dmitry Medvedev for plans for post-Olympic use of the venues. With the appearance that billions of dollars worth of purpose-built infrastructure will be either too expensive to operate after February 2014 or that it will lie empty, the people of Russia may have one of the world's most expensive white elephants on their hands.