The Sochi Olympiad: An Introduction to 2014 - July 2008
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The Sochi Olympiad: An Introduction to 2014 July 2008
Sochi 2014 – Main Sites
Source: Sochi 2014
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The Sochi Olympiad:
An Introduction to 2014
1. Executive Summary
R Sochi is the first winter Olympiad to be delegations from a variety of markets have
held in a sub-tropical resort, and the already started their respective pitches.
combination of its Black Sea coastline R The main contracts will be awarded at a
and mountain skiing facilities, less than national level by the Olympic Organising
an hour from the coast, offers multi- Committee (contacts are available) but at
season tourist potential. Few global best contracts will be awarded to joint-
centres can compete with the proliferation ventures, but most probably sole Russian
of leisure activities that Sochi could entities.
realistically offer throughout each season
R At a regional level the Krasnodar Krai
– provided sufficient investment capital is
administration will be involved in transport
made available.
infrastructure development to assist the
R The successful implementation of the Olympiad, there are also a range of
Sochi Winter Olympiad 2014 is and will development projects not associated with
remain a principal goal of the current the Olympics, and common to most
Russian administration, which realistically aspiring Russian regions which should be
should now remain in office till 2016. The judged on their own commercial viability
loss of prestige as a result of any failure and with the usual caveats.
is too great to countenance. It will not be
R It is at the City of Sochi level that the bulk
allowed to fail. As a result the large
of Olympiad associated investment and
Russian Corporates have been tasked to
business opportunities for British
cover specific projects to ensure their
companies are realistically available.
completion. Accordingly the scope for non-
Few if any are actually Olympic
Russian corporates in the larger projects
designated, they are largely background
will be limited.
service, logistic and infrastructure
R The central programme of infrastructure opportunities. The key to their success is
development directly associated with the that they provide the economic and
Olympics – the Federal Target Programme physical framework within which both the
(FTP) for the Development of Sochi as a Olympiad and Sochi Resort will achieve
mountain climate resort 2006-14 – will their success.
generate at least US$ 12 billion of
R Sochi will be one of the most dynamic
investment at the Sochi Olympic Park and
components of the Russian economy at
in the ski resort of Krasnaya Polyana (the
least until 2014 given the massive level of
Red Clearing).
direct and indirect investment, and it is
R Other non-direct investment projects this flow of capital expenditure
associated with the development of Sochi (conservatively estimated at the
as a mountain climate resort are currently equivalent of US$40 billion) that will fuel
equivalent to US$28 billion, and it is here rapid growth in the wider parts of the
that British businesses could start to Sochi economy.
make an impact. Official and business
R Major transport links are being upgraded, infrastructure developments will
not just in Sochi but throughout provide an additional motor, and growth
Krasnodar, that will stimulate growth, but up to and after the Olympiad is
of particular interest is the completion of expected to average a minimum of 6%
the refurbishment of Sochi International in real terms per annum.
Airport – the opening of the Austrian R Despite the potential re-emergence of
Airline serviced route to Vienna in April is current account deficits beyond 2011,
the first of many anticipated. no serious balance of payments
pressures anticipated in the period up
Political stability until the Olympiad.
R This March’s Presidential election R Inflation will continue to be difficult to
provides the basis for political stability dampen but remain constrained at
for the next 8 years, with President present level (in range of 9-12%
Medvedev in all likelihood serving average per annum).
two terms.
R Rouble to continue to experience
R Regional stability seems assured given upward pressure but authorities to
the progressive re-ordering of Kremlin- continue policy of achieving effective
Provincial devolution and the ending of under-valuation of the currency against
asymmetric devolution of power to major trade partners.
semi-autonomous Republics.
R Specific regional growth hot spots and
R Sochi will provide an effective enclave developments to continue to
administrative process to deliver the be a feature of overall pattern of growth
Olympiad, and parochial issues will not – with Sochi and to a lesser extent
be allowed to interfere with the issue. Krasnodar, forecast to be amongst the
R The Russian-Georgian impasse of top performers.
Abkhazia is likely to remain an impasse
To successfully bid, identify projects your
with any solution frozen until post-2014
company can realistically compete for and
despite the provocation over Kosovo’s
successfully implement:
UDI.
R Olympiad projects
Economic stability R Associated projects – a key opportunity
R Despite major liquidity pressure in the area (infrastructure/housing/transport/
Banking System, the Kudrin Put hotels/Olympic services/training &
(making available the massive language)
stabilisation fund resources to support R Sochi resort projects – the longer term
banks if required) will support liquidity. opportunity in a high growth area.
R Growth will continue to be heavily
determined in part by oil prices,
although projected capital
The Sochi Olympiad:
An Introduction to 2014
Table of Contents
1. Executive Summary............................................................................3
2. National Context....................................................................................6
a. Geography. .......................................................................................................... 6
b. History.................................................................................................................. 8
c. Constitutional Settlement............................................................................. 10
d. Political Climate.............................................................................................. 11
e. Economy........................................................................................................... 14
3. Regional Description: Krasnodar Krai.......................... 18
4. City of Sochi............................................................................................. 23
5. Olympic Bid............................................................................................... 26
6. Olympic Facilities – ........................................................................ 30
Summary of Principal Projects
7. Structure of Olympic Management ............................... 32
and Implementation
8. Olympic Associated Principal ............................................. 36
Principal Upgrade
9. Ancillary Opportunities................................................................ 38
10. Sochi Working Party....................................................................... 40
11. Contact Details. ................................................................................... 41
3 National context
a. Geography
Population (2007): 143,377,752
Land area: 17,075,200 sq kms
Capital: Moscow
Main Cities (1 mln plus):
Moscow, Saint Petersburg, Novosibirsk, Nizhny Novgorod, Yekaterinburg, Samara,
Omsk, Kazan, Chelyabinsk, Rostov-on-Don, Ufa, Volgograd, Perm
The City of Sochi, within which the ski resort of Krasnaya Polyana and the central
Winter Olympic complex are located, is the most southerly part of the western
Russian Federation. The City is located within Krasnodar Krai (defined as a Federal
subject within the constitution of the Russian Federation), which itself forms part of
the Southern Federal District – one of the seven federal okrugs (districts) through
which central or federal government activities are administered across the Federation.
The Russian Russia and the Wider Region
Federation is
the world’s
largest
country in
tems of land
mass with
some 11
seperate time
zones. Given
this size, the
climate of
Source: Forrest Research
Russia is
extremely varied ranging from extreme Arctic conditions in the more northern regions
and much of Siberia to generally more temperate conditions in the south. In addtion
to its extensive coastlines, principally with the Arctic, Pacific but also the Black and
Caspian seas, it shares borders with approximately 14 UN member states. Of these,
the most problematic remain those which its shares with Georgia, primarily as a
result of seccessionist conflicts in Abkhazia and South Ossetia, but also regarding
the neigbouring and troubled Russian region territory of Chechnya.
The Sochi Olympiad:
An Introduction to 2014
As a territory that straddles both Europe and Asia, the Russian Federation does not
fit neatly into the common definitions of either Europe or Asia, indeed the designation
Eurasia only serves to highlight the difficulties of categorising the country. The thrust
of diplomatic efforts, since Russia’s emergence as an independent state, has been
to establish an effective regional role and global position. In the immediate aftermath
of the collapse of the Soviet Union, the CIS (Commonwealth of Independent States)
was established as a regional interstate organisation ultimately comprising: Armenia,
Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan,
Ukraine, and Uzbekistan, with Turkmenistan as an associate member. The CIS has,
however, struggled to establish an effective role given the difficulty of reconciling the
region’s difficult historic legacy and the aspirations of many its members to exercise
their recently acquired independence. Furthermore the expansion of both the EU and
NATO eastwards, has offered alternate regional access, as has the opening up of
the common borders with Turkey and China.
Krasnodar Krai is located at the western edge of the Caucasus mountain range with
the bulk of the territory on the Kuban-Azov plain, encompassing a total area of 76,000
square kilometres. The total length of the internal border is 1540 kms, of which some
740 kms comprise coastline. Within the Southern Federal Okrug, to the north and
north-east, Krasnodar Krai borders the Rostov region, to the east Stavropol, to the
south and east Georgia (Abkhazia) and the Republic of Karachayevo-Cherkessia, whilst
to the south are the coastlines of the Azov and the Black Seas. Whilst the krai territory
wholly encompasses the separate administrative unit of the Republic of Adygea.
Notwithstanding the recent unilateral declaration of independence by the former
Serbian province of Kosovo, it is neither in Russian or Georgian interest to seek a
immediate or even medium-term change to the current status quo. Indeed, the impact
of Sochi being awarded the XXIInd Winter Olympiad, should serve to mollify existing
disputes, calm diplomatic relations and sustain current de facto territorial settlements.
However, as recent incidents have highlighted, the Russo-Georgia relationship can at
times suffer from acute stress. The security provision for the Olympiad will
nevertheless be understandably tight.
Russia responded to Kosovo’s declaration of independence by strengthening ties
with Abkhazia, although falling short of officially recognizing the breakaway region.
The Abkhaz authorities are apparently attempting to promote a Taiwanese solution,
with Russia adopting international practice similar to that accorded Taiwan, informally
acknowledging and trading with the territory while not officially recognizing it. This
indeed appears to be the case with Russian authorities suggesting that as 2014
construction commences, it will purchase Abkhaz construction materials and hire
workers from Abkhazia. This has caused disquiet within the EU, with the Commission
pushing for a policy of respect of Georgia’s sovereignty and territorial integrity.
The Krasnodar region is situated on the same latitude as northern Italy and Southern
southern France. As a result, the climate of the greater part of Krasnodar region is
moderately continental, whilst at the Black Sea coast it can be termed sub-tropical.
The average temperature during January is from -5C in the mountains to 0C in the
plain, whilst in July it ranges from 13C to 24C respectively. The mean annual
precipitation is in the region of 400 mm in the plain and over 3200 mm in the
mountains. The usual duration of the agricultural season is approximately 260 days,
boosted by the rich cherrozen (black earth) soils prevalent in the plains. The
favourable almost Mediterranean climate, warm seas, natural mineral springs and
medicinal mud have enabled the Kuban, and Sochi in particular, to promote a
positive ecological and environmental image, and accordingly remains one of the
most popular tourist resorts within the Federation.
b. History
Independence: 24th August 1991
National Day: 12th June
The ethnic origins of the Russian peoples lie in the first millinenia and one of the
earliest Russian states, the Moscovy principality, was established in the 12th
century. The complexity of this history is reflected by the fact that whilst the official
language is Russian, over 100 other officially recognised languages are spoken. In
addtion, although Christianity is the principal religion, with the Russian Orthodox
Church predominant amongst ethnic Russians and other Slavs, a range of other
religions are represented. The large pre-1917 Jewish population has been depleted
by war and revolution, although a signifcant proportion remain and not just within the
Birobidzhan autonomous district. The main concentrations of adherents of Islam are
among the Tatar, Bashkir and Chuvash peoles of the Middle Volga, and the peoples
of the northern Causcases, including the Chechen, Ingush, Karbardins and the
peoples of Dagestan. Buddhism is main religion of the Buryats, the Yyvans and
Kalmyks. Furthermore, whilst both the Imperial Russian state and its successor the
Soviet Union are crucial factors in the formation of Russia’s historic legacy, it is
important to note the fact that in its current constitutional formation and geographic
extent that the Russian Federation is a relativley new state.
Similarly the settlement of the area that now constitutes the Krasnodar Krai is
comparativley ancient, whilst the current political structure of the Krai is relativley
recent. As a result of the favourable natural conditions and the mild climate,
archaeolgical evidence of settlement dates to the earliest epochs. Pontian Greeks
established city colonies in the Kuban, whilst in succeeding historic periods the
regions was settled by the migrating hordes of Hun, Khazars, Pechenegs, Polovets,
The Sochi Olympiad:
An Introduction to 2014
and Mongol-Tatars. In the medieval period, trading posts of primarily Venetian
merchants, including Marco Polo, established trading colonies, maintaining close
relations with the Adyegan tribes and through them access to the Silk route and
China. The first evidence of Slavic settlement dates to Xth Century, with the
foundation of the Russian town of Tmutarkan, which existed till the Mongol-Tatar
invasion on the Taman peninsula. Subsequently, the Kuban came under the
hegemony of the expanding Ottoman Empire. The second wave of Russian settlers
were related to the dispersal of the surving rebels associated with the revolt of
Kondratia Bulavina and Ignat Nekrasov. However, sustained Russian settlement of
the Kuban dates to two Russian-Turkish wars of XVIII century, particuallry after the
success of (the American) Admiral John Paul Jones in the Azov sea battles. As a
result, in June 1792, Catherine the Great granted the lands of the Taman Peninsula
to the Black Sea (Zaporozh) troops, under Beily, as a military frontier buffer to the
Turks. Prior to the establishment of the Soviet Union, the the region was
administered as the Kuban Region and the Black Sea Province. These administrative
areas were combined into the Kuban-and-Black Sea region in 1920. The northern
Caucasian region was formed in 1924 and in 1937 the Azov-and-Black Sea Region
was divided into Rostov region and Krasnodar region, the later including the
Adygeyan autonomous oblast. In 1991 the Adygeyan Region was re-organised as the
Republic of Adyegya, a seperate administrative entity from the Krasnodar Krai,
although the Republic lies entirely within Krasnodar Krai.
In the comparatively short history of the Russian Federation since its emergence as
an independent state, the second decade of its existence has been charecterised by
robust rates of GDP growth and the increasing predictability and pragmatism of the
government process. Understandably however, both the structure of the economy
and the constitutional settlement are still dynamically evoloving. The creation of an
independent state framework, the establishment of the foundations for a market
economy and most notably the emergence of a pluralist political system, were all
products of the often chaotic period of the first decade. The asymetric devolution of
power to the then 89 constituent Federal Subjects (regions) of the Federation
created a number of anomalies but helped preserve the basic integrity of the
Federation. Under the adiminstration of President Putin a more ordered, coherent
and intelligible system of devolution has been driven through. Moreover it is worth
stating that in succeeding the previous incumbent President Yeltsin, Putin achieved
the first constitutional democratic transfer of power in the Russian people’s long
history. Accordingly, the constitutional process has been further strengthened by the
successful election and subsequent innaugration of Dmitri Medvedev as the
Federation’s third Presdiential incumbent.
c. Constitutional Settlement
Constitution adopted: 12th December 1993
System: Presidential Republic with bicameral legislature
The present Constitution of the Russian Federation came into effect toward the end
of 1993, following approval via a Federation-wide plebiscite. This constitution sets
out the parameters of the Russian state as a republican democratic Federation
founded on the rule of the law. The constitutional framework provides for formal
separation of power between independent legislative, executive and judicial
branches. Furthermore, the constitutional structure favours a multi-party system,
political pluralism and a secular state structure with recognised religious
associations equal before the law.
The initial 1993 constitutional settlement created 89 members (federal subjects) of
the Russian Federation. There has however been a subsequent, if slow, process of
amalgamation, due to demographic and economic factors, between some of the
more remote Federal Subjects. These federal subjects essentially corresponded to
regional administrative districts that emerged during the political autarky of the
1930s and 1940s. Almost all possess distinct geographic features, historic or ethnic
legacies that provide a degree of local legitimacy that ensures they are real factors
in the political process. Their latent strength is also recognised in that whilst Russian
is the declared national language, constituent peoples of the Federation have
guarantees protecting their native languages. During the 1990s, a number of regions
were able to secure a high degree of devolution if not effective autonomy, this was
particularly the case with some of the constituent Republics with strong ethnic
identities. This system of asymmetric federalism was not conducive to effective
administration, exacerbating regional disparities and consolidating local elite control
before effective local democracy could flourish. Under both Putin’s administrations
there was an apparently concerted campaign to regularise the process of devolution
and reclaim some of the decentralised powers back to the Kremlin to ensure that
regional political leaders conformed to the thrust of Federal government strategy.
This strategy seriously compromised local autonomy, and although it did not
completely erode it, ensured that the process was more ordered, intelligible,
predictable and compatible with the Kremlin aspirations.
Furthermore, the Kremlin attempted to secure greater uniformity with the creation of
an additional administrative level in between the Kremlin and the federal subjects.
Seven Federal Okrugs (districts) were established by President Vladimir Putin in May
2000, and were initially seen as an attempt to effect economies of scale and co-
ordinate infrastructure planning. Whether it is significant depends on ones point of
10The Sochi Olympiad:
An Introduction to 2014
view, but the borders of the okrugs are congruent with those of the military districts
and comparable to the Soviet-era economic planning districts. Each region includes
from between 6 to 17 oblasts and autonomous republics. The okrugs were
established to strengthen the control of the centre over the regional governments
and for security. The governors of the regions are selected by the President. Their
responsibilities include identifying and recommending candidates for oblast governor
positions to the President. The envoys also insure that federal policies are put into
practice in the regions. Significantly however, the crucial relationship remains that
between the Kremlin and the federal subjects, with little discernible intermediation
on the part of the federal okrugs.
The constitution identifies the separate areas of authority of the Federation, as
distinct from that of the joint authority of the Russian Federation and the members of
the Russian Federation. It also establishes the relationship between federal laws,
federal constitutional laws and the laws and other normative acts of the subjects of
the Russian Federation. The powers of the federal executive bodies and the
executive bodies of the members of the Russian Federation are defined.
The head of state of the Russian Federation is the President, elected by universal
direct suffrage every four years. According to prevailing interpretations, the same
individual can only stand for two consecutive terms of office, and, although it has yet
to be tested constitutionally or in practice, after an interregnum a former incumbent
may apparently return for further terms of office. The President appoints the
government and following recent legislative revisions appoint the regional governors.
d. Political Climate
President: Dmitri Medvedev
Prime Minister: Vladimir Putin
Next election (Presidential): March 2012
Electorate: 109,145,517
The restoration of the authority of the Kremlin during the Putin Presidency has been
variously interpreted, by some as a move back to a more autocratic form of
government, by others as the creation a more rational and effective state structure.
That this shift from a centrifugal to a centripetal direction of political power has been
paralleled by a similar apparent shift in the balance of public and private
participation in the economy in favour of state and quasi-state entities, has raised
serious international concerns over the future direction of Russia. Although it is
undeniable that the space available for civil society has contracted over the past
decade, it is questionable that the near anarchy of the 1990s offered real
11democratic opportunities within a law-based framework. Furthermore, the substantial
and real failures, both in political and economic terms, of the liberal market
reformers during the 1990s, coupled with the failure of the Communists to transform
themselves into a market-orientated social democratic party, has ensured that there
is no really credible alternative to the administration. This is particularly the case,
given that the Putin administration was able to continually deliver strong economic
growth, including the broad-based delivery of rising per capita incomes.
As a result, political aspirants have increasingly sought to be associated with the
Kremlin. This tendency has been further facilitated by the tightening of the electoral
process with the move away from single-member constituencies to multi-member
party-list elections, with the electoral threshold increasingly raised. Moreover, with
seats assigned by the largest remainder method to the lists of parties winning a
minimum of 7.0 percent of the national vote, the opportunity for oppositional groups
has been yet further constrained. Accordingly pro-Kremlin parties increased their
control of the Duma in elections in December last year, with, of the political
groupings offering an alternate strategy, only the Communists with sufficient
organisational capacity to gain a foothold in the lower chamber. The Liberal
Democrats are supportive of the Kremlin strategy, and Putin especially, despite
claiming to be an independent, if somewhat quixotic, political formation. The results
of the Duma election provides the Kremlin with a parliamentary majority large enough
to revise the constitution, given the restructuring of the composition of the Federal
council (the upper chamber), making it a much more compliant political entity.
Duma election Results December 2007
Party Votes % Seats %
United Russia 44,714,241 64.30 315 70.0
Communist Party 8,046,886 11.57 57 12.7
Liberal Democrats 5,660,823 8.14 40 8.9
Fair Russia 5,383,639 7.74 38 8.4
Agrarian Party 1,600,234 2.30 - -
Yabloko 1,108,985 1.59 - -
Civic Strength 733,604 1.05 - -
Union of Right Forces 669,444 0.96 - -
Patriots of Russia 615,417 0.89 - -
Party of Social Fairness 154,083 0.22 - -
Democratic Party of Russia 89,780 0.13 - -
Source: Russian Electoral Commission
The consolidation of electoral predominance, although not necessarily political
dominance, was complete with the election of Dmitry Medvedev as President, in
March this year. His succession to Vladimir Putin provides a powerful element of
12The Sochi Olympiad:
An Introduction to 2014
political stability and continuity. The election of Medvedev was so widely anticipated,
that at times it appeared less of an election than a coronation, with serious and .
valid concerns over the level of openness and fairness in the electoral process. .
This despite the real levels of popularity of Putin. The degree to which media access
was essentially restricted to pro-Medvedev commentary and the legalistic efforts to
undermine oppositional candidates participation, indicates some fragility of
confidence on the part of the Kremlin. Indeed, the fact that Putin is retaining
influence as Prime Minister and Chairman of United Russia, whilst contributing in
one sense to policy continuity, also probably reflects a significant degree of factional
conflict within the Kremlin power structure.
This stability and predictability of the political process under the administration of
President Putin has played a significant part in fostering the expansion of capital
inflows. Putin’s high levels of popularity throughout his Presidency, was due in no
small part to the success of the economy and the widening distribution of the
benefits derived from it. The maintenance of consistency in macroeconomic
management under the new administration of President Medvedev will be a critical
factor in sustaining economic growth over the medium-term. Notwithstanding the
apparent evidence of increasingly bitter factional conflict within the Kremlin hierarchy,
concerns over the likely strength and competence of the forthcoming Medvedev
administration have in part dissipated by the fact that Putin will retain a role as
Premier. However, for a country undergoing only its second constitutional change of
the head of state, and continued narrowing of the scope of civil society, the process
will not be without sudden squalls. Moreover, the economy remains one in transition
and will require a sensitive economic management strategy.
Presidential Election Result
Candidate Nominating Organisation Votes %
Dmitry Medvedev United Russia, Agrarian Party, 52,530,712 70.28
Fair Russia, Russian Ecological Party
– “The Greens” and Civilian Power
Gennady Zyuganov Communist Party of the 13,243,550 17.72
Russian Federation
Vladimir Zhirinovsky Liberal Democratic Party of Russia 6,988,510 9.35
Andrei Bogdanov Democratic Party of Russia 968,344 1.30
Invalid ballots 1,015,533 1.35
Total 73,731,116 100.00
Source: Russian Electoral Commission
13e. Economy
2006 2007 2008f 2009f 2010f
Real GDP (YOY%) 7.4 8.1 8.6 8.0 7.6
CPI (annual avg %) 9.7 9.0 12.9 11.3 9.9
Federal Govt Balance (% GDP) 7.4 5.4 5.3 3.5 2.5
Current Account Balance (% GDP) 9.7 6.1 8.0 5.0 3.0
FDI (US$ bln) 32.4 52.5 60.0 70.0 80.0
Forex Reserves (US$ bln eop) 304 476 610 720 700
Exchange Rate (RuR/US$ annual avg) 27.2 25.6 24.0 25.0 26.0
Source: Rosstat, Central Bank of Russia, Ministry of Finance
Economic fundamentals are strong as a result of high world commodity prices in
recent years, which have provided a significant boost to external liquidity. However,
heavy reliance on oil and gas exports may dent future economic performance as the
global economy is slowing and commodity prices may fall.
As in preceding years, the dynamism of the economy’s performance has been
underpinned by high global oil prices, with real GDP recording growth in excess of 8%
last year. Despite sensitivity of the overall economy to oil prices and further erosion
of international competitiveness forecast, growth in 2008 and 2009 can be
anticipated to remain robust and likely to remain at close to 8% in real terms
annually. Indeed over the medium-term, essentially the period encompassing
Medvedev’s first term, the strong foreign exchange position (equivalent to US$ 534
billion as of end May 2008) and the restructured stabilisation funds (as of July
2008, the Oil Reserve Fund stood equivalent to US$ 140 bln and the National
Welfare Fund almost US$ 33 bln), the economy and the fiscal position will be largely
insulated from any global oil price volatility. Whilst oil prices are currently trading
above US$ 135 pb, even at the comparatively low levels of US$35-40 per barrel,
the Reserve and Welfare Funds are structured to continue to accumulate resources.
This despite greatly increased fiscal expenditure and rising import demand, which is
unlikely to be reined in during the first few years of a new administration. With
massive expectations, real need for infrastructure investment, capital re-equipment
and plant modernisation, demand for foreign direct investment will not diminish.
However much the administration may wish to dictate the terms and conditionality
of inward investment, and while the parameters may become more discernible and
the available sectors more intelligible, fdi will be a key component supporting future
economic development. This is most especially the case in the oil and gas sector,
where there are severe concerns regarding Russia capacity to sustain current output
levels and consequently the apparent acute need for capital investment to boost
productive potential.
14The Sochi Olympiad:
An Introduction to 2014
Fortuitously Russia’s capacity to generate inward capital investment flows continues
unabated. This despite deteriorating conditions in global capital markets and in the
face of the tightening legislative and regulatory environment within Russian itself.
Notably with regard to sensitive, but in many cases largely ill-defined, strategic
national sectors, particularly extractive industries. Nevertheless, according to
preliminary UNCTAD estimates Russia fdi flows increased over 70% to the equivalent
of US$48.9 billion, up from US$ 28.9 billion in 2006. Not only was the Federation
the recipient of just over half of fdi flows into transitional economies, but was the
second largest destination, after China (including Hong Kong), of FDI flows toward
emerging markets, and even exceeded Italy in terms of receipts.
With its accumulated reserves and comparatively prudent husbanding of oil-derived
revenues, the immediate impact of the global tightening of market liquidity on
Russian economic performance is likely to be constrained. Not that Russia is likely
to emerge unscathed. In the third quarter Russian capital outflows increased to the
equivalent of US$ 9 billion, contributing to the sharp drop in Russian asset prices
experienced during that period, with the reserve position easing the equivalent of
US$ 7 billion. In the final quarter of last year, there was however a limited recovery
of capital inflows, which contributed to renewed reserves accumulation.
Official estimates for the period January-September 2007, indicate that net inflows
of foreign private capital amounted to US$131 billion, more than 50% of that
recorded for the whole of 2006. This was primarily comprised of external financings
raised by both corporates and banks. Notably recourse to external borrowing by
Russian corporates surged to the equivalent of US$ 61 billion, two-and-a-half times
as much as during 2006 as a whole. Moreover, the bulk of this financing is attributed
to funding the state-owned oil company, Rosneft’s acquisition of the remaining
Yukos’ assets and the securing by Gazprom of foreign shareholders majority ownership
of a gas field. Corporate bond issuance increased to US$ 16 billion in net terms.
Given the apparent scale of the global credit crunch and its potential longevity, the
banking sector’s recourse to international capital markets during 2008 could prove
problematic, although not insoluble. During 2007 foreign borrowing exceeded that
incurred in 2006, with in the region of US$ 60 billion committed over the year. In a
sector already dominated by state-owned institutions, further extension of state
participation in the banking sector could prove an immediate consequence of the
reshaping of global capital markets during 2008. With borrowing and bond issuance
sharply scaled back in the final quarter of 2007, 2008 could prove to be an interesting
period for corporate and bank refinancing.
15A particular feature of Russian capital flows, is the proportion of returning Russian
funds, reflected by the fact that offshore financial centres provide a significant core
of Russian fdi. Nevertheless adjusting for returning Russian funds, foreign direct
equity investment was equivalent to US$7 billion, which was primarily the result
of IPOs by two state owned financial entities, VTB and Sberbank.
Sochi
Source: Sochi 2014
Adjusting for returning Russian funds, whilst net outflows of resident capital jumped
to US$75 billion during January-September, equal to almost 10% of GDP. Although
equity investment abroad accounted for a third of capital outflows in the first nine
months of 2007, and a further third was attributed to foreign lending by Russian
domiciled institutions, capital flight increased significantly during 2007. Monthly
capital flight flows are now over US$ 4 billion double that sustained in 2006.
According to Bank of International Settlements (BIS) data, Russian residents
significantly reduced bank deposits in Europe. Cumulative liabilities to Russia fell
by US$ 55 billion, the largest yet recorded fall since data became available in 1993.
British, German, French and Belgian resident banks all reported notable shifts in
deposit patterns. Whilst US dollar denominated liabilities fell by over US$ 39 billion,
16The Sochi Olympiad:
An Introduction to 2014
recording their lowest proportion of Russian liabilities, Euro-denominated assets also
eased by the equivalent of US$ 21 billion. Similarly, IMF data indicates that Russian
banks reduced their foreign exchange reserves abroad by as much as US$ 17 billion
in the fourth quarter of 2007 and by US$ 39 billion in the first quarter of 2008.
Whilst this was in part due to Central Bank of Russia activities, and there was a
compensating increase in Russian securities holdings of US$ 92 billion by the end of
2007, the shift in the asset/liability pattern may be indicative of further liquidity
pressures in the domestic financial sector.
Given the difficult global market conditions, 2008 could mark a new stage in the
structure of fdi for Russia. Whilst Russia itself can mobilise considerable capital
investment resources, the scale of demand, both actual and potential, will ensure
that fdi will continue to play a key role of the expansion of the economy. Indeed with
the anticipated narrowing of surpluses in 2009 and 2010, fdi is set to play a more
significant role. How this will be achieved will obviously depend on the stance the
Russian authorities take. Whilst there have obviously been problems in the so-called
strategic sectors, across the wider economy a more favourable attitude prevails.
This can perhaps best exemplified by the development proposals associated with the
Sochi 2014 Winter Olympics. The Federal government itself has implemented a
US$ 12 billion Federal investment programme to develop the Black Sea resort into
a global winter sports capital. Associated investment into the City’s infrastructure
and resources are likely to be double if not triple the cost of the Federal investment
programme. Both the regional government, Krasnodar Krai, and the Sochi City
authorities have adopted a proactive approach to secure the financing necessary to
the realisation of these projects, with a range of options available, including public
private partnerships, foreign investment is being actively courted. The degree to
which fdi can be attracted to Sochi will be indicative of the likely scale of fdi flows
into Russia generally, and will probably provide a model for future fdi projects.
173. Regional Description: Krasnodar Krai
Population: 5.1 Million (2002)
Area: 76,000 sq km
Governor: Alexander Nikolayevich Tkachev
According to 2002 census results, the Krai’s total population was 5.1 million people,
with an average population density of 67.4 people per square km. The economically
active population amounts to 2 million. Although the 2002 official unemployment rate was
stated as 0.7%, the real rate was actually nearer to 11.0% in terms of the
demographic structure, the equivalent of 58% are of working age, 19% are below the
statutory working age, and 23% are beyond the statutory working age. As of 2002, the
major urban centres of the Krai were Krasnodar (644,800 inhabitants), Sochi (328,800),
Novorossiysk (231,900), Armavir (193,900), Yeisk (84,600) and Kropotkin (81,300).
Krasnodar region is formed of 48 municipal units including 26 townships, 21 settlements
of the urban type and 1717 rural settlements. The administrative centre of the Krai is
Krasnodar City. It celebrated the 210th anniversary of its foundation in 2003 and is the
administrative, financial, industrial, scientific-educational and cultural centre of the Krai.
As a subject of the Russian Federation, and a component of the Southern Federal Okrug,
the parameters of the executive structure of the Krai are stipulated by the national
constitution. The head of executive power is the Governor (or head of administration)
who is elected by universal suffrage for 5 year terms. Alexander Nikolayevich Tkachev
was elected Governor of the Krasnodar Krai on March 14, 2004. Similarly, the legislative
assembly of Krasnodar is elected by universal suffrage for the term of 5 years which
adopts the laws of Krasnodar Krai obligatory for execution in the territory the region.
The Gross Regional Product (GRP) share of Krasnodar in the all-Russian volume of GRP
amounts to 2.2%. During 2004 the volume of GRP of the region was RuR 331.8 bln,
which exceeds the volume of GRP in 2003 by 7.8% in comparative prices. This positive
GRP performance was a result of growth across the main economic sectors. Agriculture
occupies the largest part of GRP structure (17.2%), followed by the industrial complex
of the region is represented by 6,300 organisations including over 500 large- and
medium-sized organisations. The leading industrial branches are food processing,
power generation, fuel production, engineering industry metal-working, and the
construction material industry, in total equivalent to over 60% of industrial production.
The Krai is rich in natural resources, containing more than 60 commercially exploitable
mineral deposits: oil & natural gas fields, marl, iodine-brome mineral water, marble,
limestone, sandstone, iron ores and apatite ores. In terms of hydro-carbons, the Krai is
one the oldest producing regions, with 69 oil fields under exploitation, the principal oil
fields situated in the western and central parts of the foothills (in the districts of Abinsky,
Seversky, Apsheronsky, Slavansky). Total annual crude oil production is equivalent to 1.7-
1.9 million tonnes and over 2 billion cubic metres of natural gas.
18The Sochi Olympiad:
An Introduction to 2014
Furthermore, the Krai possesses one of the largest European freshwater resources,
located primarily in the Azov-Kuban basin. There are 42 deposits of mineral waters in
the region, with 17 of them currently exploited. Forests are among the most
important natural resources of Krasnodar region – the total area of forests is over
1.5 million hectares, mainly fine wood.
In terms of economic potential the Krasnodar is one of the strongest in the
Federation, with the Krai noted for steady real growth in gross regional product,
based on population growth, output and services provision in key sectors of
economy. Additionally, fertile agricultural land, which provides for a broad production
range of temperate zone crops and sub-tropical crops, with the Krai ranked in the top
echelon of agricultural producers. Growth prospects are supported by the
comparatively well-developed transport infrastructure – three international airports, 8
seaports including one of the largest in Russia and one of the major railway nodes in
the southern Russia. Road infrastructure provision also compares favourably with
other parts of Russia. Given these attributes, Krasnodar acts as a major
international transport corridor between the Russian hinterland, Europe, the
Mediterranean, Middle East and Central Asia.
Economic potential is facilitated by the favourable investment climate – with
Krasnodar is among the top ten regions in Russia by volumes of investment.
Similalrly, in June, Forbes magazine published the ranking of Russia’s cities in terms
of their business environment. Krasnodar topped the list. Sochi took 11th place and
Novorossiisk – 26th. This has fostered the expansion of the regional financial sector,
with Krasnodar ranked amongst the top ten regions of Russia in terms of scope of
banks and branch networks operating in the region. Whilst foreign economic interest
and activity in Krasnodar is expanding steadily the geographic range of its business
links and external trade. In 2007, Krasnodar was awarded long-term ratings by the
main international rating agencies: Fitch Ratings, Standard & Poor’s and Moody’s.
Fitch Ratings gave the Krai a long-term rating of “BB”, with the outlook “Stable”.
Similarly, Moody’s awarded Bal, with a stable outlook, whilst Standard & Poor’s has
improved its outlook from “Stable” to “Positive” on a BB- rating. This compares
favourably to the overall Russian rating, with Standard & Poor’s, for instance,
awarding the sovereign BBB+. This was attributed to the strength of high economic
growth. Furthermore, the ratings reflect positive trends in budgetary performance
supported by positive economic condition, as well as a well-balanced budget policy
and a low level of debt load. However, the ratings take into account the constrained
predictability and flexibility of Krasnodar’s fiscal position, stemming from central
government controls, considerable infrastructure requirements and below-average
income levels. Nevertheless, both the Krai’s economy and revenues are expected to
expand further and the debt burden manageable.
19The principal manufacturing sectors, accounting for in excess of 80% of
manufactured output, are food and beverages, energy, fuel, machine engineering and
metal processing, and construction materials. Production is spread across 700 large
and medium-sized companies and over 4,000 small enterprises. However, food and
food processing is the predominant sector, accounting for 43% of total industrial output.
In total, Krasnodar possess 16 sugar refineries, 10 vegetable and fruit canning
plants, 7 fish canning plants, 42 dairy and 23 meat processing plants, 7 butter
and fat plants, 2 tea and 2 tobacco processing plants, 48 vineyards, 11 wine plants,
4 distillers, and 25 bakeries. Major companies within this sector are:
R OAO Krasnodar Butter and Fat Plant,
R OAO Armavir Butter and Fat Plant,
R OAO Abrau-Durso,
R OAO Krasnodar Meat Plant,
R ZAO Krasnodar Fish Plant,
R Municipal Unitary Company Krasnodarptitsa,
R ZAO Anit Ltd.,
R Subsidiary No. 1 of ZAO Moscow Brewery
R Soft Drink Plant Ochakovo.
The energy sector accounts for 13.5% of total industrial output. OAO Kubanenergo is
the main energy generator and supplier, consisting of the Krasnodar Power Station,
three hydroelectric power stations, high-voltage transmission lines and transformer
substations. Refining and production of fuel products account for 9.6% of total
output. Of the three oil refineries present in the Krai, the largest of which are ZAO
Krasnodareconeft Refinery and OAO Krasnodarneftegeofizika. The machine
engineering and metal processing sector generates an equivalent output, 8.7%, with
over 100 companies produce a wide range of machinery, including metal-cutting and
lumber machines, automation tools, agricultural vehicles, electrical engines,
compressors, pumps, refrigerators, and oil exploration and extraction equipment.
Major companies within the sector are:
R OAO AvtoKuban,
R OAO Krasnodar ZIP,
R OAO Molot,
R OAO Krasny Dvigatel,
R OOO Electro,
R ZAO Agrostroimash.
20The Sochi Olympiad:
An Introduction to 2014
Construction materials accounts for 7.3% of total industrial output, with four
construction materials manufacturers – OAO Kuban Gypsum-Knauf, OAO Novokuban
Ceramic Wall Materials Plant, ZAO Reinforced Concrete Goods Plant, and OAO Ceramic
Goods Plant, which rank amongst Russia’s top construction materials companies.
The timber and furniture sector for 5.5% of total industrial output and is represented
by 35 large and medium companies producing lumber, chipboard, parquet flooring,
and home and office furniture. Industrial timber export amounts to 100,000 cubic
meters per year. Major companies include OAO Krasnodar Furniture Firm, OAO Kuban
Furniture, and OOO SBS-Furniture Company. Agriculture accounts for some 17.3% of
gross regional product and over 5% of Russia’s gross agricultural product, including
10% of grain output, 19% of sugar beet output, and 15% of sunflower seeds output.
The Krai has 4.4 million hectares of arable land, including 3.9 million hectares of
ploughed fields, 77,000 hectares of orchards, and 35,000 hectares of vineyards.
Given the Mediterranean-type climate, warm seas, mineral water springs, and
therapeutic mud, Krasnodar is one of the most ecologically advantaged regions
ensuring its popularity as a tourist and recreational destination across the country.
With over 1,300 recreation and tourism enterprises, which can accommodate some
220,000 people at any one time, generating an estimated US$333.5 million per year
in Krasnodar. Krasnodar is home to all of Russia’s major seaside resorts, including
Sochi, Anapa, Gelendzhik, Tuapse, and Yeisk.
The transport sector accounts for 17% of the GRP. The Territory has 10,400
kilometres of roads, including the following: Krasnodar – Novorossiysk, Krymsk-Port
– Caucasus, and federal roads Krasnodar – Baku and Don (Moscow – Voronezh –
Rostov-on-Don – Krasnodar – Novorossiysk). The Krasnodar Territory has 2,200
kilometres of railroads. The main route going through the Territory is the Krasnodar
section of the North-Caucasus railroad. The main freight flow goes in the direction of
the seaports. Freight is dominated by oil, oil products, timber, lumber, grain, sugar,
construction materials, and equipment. Additionally, Krasnodar has international
airports at Krasnodar, Sochi, Anapa, and Gelendzhik
There are eight seaports in the territory: Novorossiysk, Tuapse, Sochi, Anapa,
Gelendzhik, Yeisk, Temryuk, Caucasus, and the Krasnodar river port. These account
for up to 40% of the Russian Federation’s ports freight turnover. Major shipping
companies are OAO Novorossiysk Sea Ship Line, OAO Novoship, and OOO Barwel
Novorossiysk. As a principal oil and gas pipelines export route, sections of major oil
pipelines including Makhachkala – Grozny – Tuapse, oil pipelines of OAO Transneft,
OAO Chernomortransneft, ZAO Caspian Pipeline Consortium, and the Lazarevskoe –
Tuapse – Nebug gas pipeline, all pass through Krasnodar. Whilst plans are being
developed to establish a gas pipeline from Tyumen to Turkey through Krasnodar.
21The Territory’s enterprises supply over one third of Russia’s output of granulated sugar (2
million tons), some 40% of concentrated fruit juice output, 100% of canned meat for
infants, and 6% of cheeses and canned dairy products. Other products include vegetable
oil (320,000 tons) and canned fruit and vegetables (376 million conventional cans).
Furthermore the Krai produces 10 million decilitres of wine per year (including 2.5 million
decilitres of sparkling wine and 4.8 million decilitres of grape wine). A favourite of the
Russian market, the classic sparkling wine Abrau-Durso, is produced at the Abrau-Durso
Plant. All in all, the Krasnodar Region produces over 120 brands of alcoholic beverages.
2002 tobacco output amounted to 37.1 billion items. The 2002 gross grain yield totalled
8,481,200 tons, sunflower seed – 732,400 tons, sugar-beet – 4.2 million tons, dairy
products – 436,000 tons, and meat (including by-products) – 88,800 tons. In 2002, the
Territory’s enterprises produced 6,300 tons of paints and varnish, 105,300 tons of
mineral fertilizers, 7,000 electric mixers, 31,000 cubic meters of lumber, 33,300 tons of
cardboard, 2.4 million tons of cement, 580 million conventional bricks of wall construction
materials, 3 million square meters of fabric, and 9,757,000 pairs of footwear.
The Territory’s foreign trade turnover amounted to $2 billion in 2002 (extra-CIS trade
accounted for 91% and CIS trade for 9%). Major trade partners include Turkey, Bulgaria,
Italy, Greece, the Netherlands, Germany, Spain, and the USA. Additionally, the Territory
maintains close links with Ukraine, Kazakhstan, and Uzbekistan. Exports to extra-CIS
countries amounted to $944.9 million in 2000, with exports to CIS countries totalling
$50.8 million. The respective figures for 2001 were $912.6 million and $79 million, and
$986.9 million and $96.3 million for 2002. The main goods exported by the Territory are
crude oil, sunflower seeds, sugar, tobacco products, raw timber, and grain.
2000 imports from extra-CIS countries amounted to $501.4 million, while imports from
CIS countries totalled $70.3 million. The respective figures for 2001 were $558 million
and $69.2 million, and $872.7 million and $82.1 million for 2001. Imports from CIS
accounted for 12% of total imports, and imports from extra-CIS, for 88%. The main
goods imported by the Territory are raw sugar, fertilizers and pesticides, agricultural
equipment, citrus plants, oil products, and medicine. The main exporters to the region
are Ukraine, Germany, Italy, France, Turkey, China, Cuba, Greece, and the USA.
Due to the structure and attributes of trade in Krasnodar, export and import
operations are performed mainly by industrial companies. The Krai is home to 781
companies with foreign investment from 60 countries. Major companies are OAO
Krasnodartabakprom, ZAO Sochi Pepsi-Cola Soft Drinks Plant, OAO Kuban Gypsum-
Knauf, and JV Tetra-Pak Kuban. Investors from the USA account for 47% of total
investment, the Netherlands – 29%, Cyprus – 14%, and the UK – 7%.
For further information on the available investment projects and fdi potential of
Krasnodar contact mail@forrestresearch.co.uk
22The Sochi Olympiad:
An Introduction to 2014
4. City of Sochi
The City of Sochi has developed along a relatively narrow littoral ribbon between
the Black Sea and the western fringe of the Caucasus Mountains, and it is claimed,
at 145 kms in length, to be the longest city in Europe. Administratively Sochi,
is divided into four districts: Adler, Khosta, Central and Lazarevsky. According to the
2002 census, it had a population 328,809, down from 336,514 recorded in the
1989 Census.
As an already long Sliding Centre
established resort, it is
often referred to as the
Russian Riviera, with an
existing provision of
infrastructure, Sochi
provided the successful
basis for the 2014
Winter Olympics bid.
Traditionally, through
the later Nineteenth
and much of the
Twentieth Century,
Source: Sochi 2014
Sochi was a pre-
eminent holiday destination. It has remained Russia’s most popular tourist
destination through the transition period, and currently boasts with over four million
visitors a year. In addition to its expanse of beaches and coastline, within one hour’s
drive from the Sochi coast is the mountain resort of Krasnaya Polyana, offering both
quality and quantity of snow to develop the highest provision of winter sports.
Notably, Mount Elbrus, at 5,642 m in the Russian Caucasus is considered the
highest mountain in Europe, in comparison Mont Blanc stands at 4,810 m. Indeed,
the average height of the Caucasus mountains adjacent to Sochi is 2,000m.
Sochi borders the Caucasus State Biosphere Reserve, a UNESCO World Heritage
site and one of a number of specially protected natural zones in the vicinity.
Accordingly, the accommodation of the potential and perceived environmental impact
have been central to the planning and design process for both the 2014 Olympiad
development and the longer-term project of establishing Sochi as a global resort
destination.
The Sochi Administration has been working in conjunction with the Federal Ministry
of Natural Resources to develop a list of specific state-of-the-art ecological projects
to ensure minimal environmental impact. The Federal Olympic programme also
includes funding for SEER review, monitoring of the environmental impacts of all
projects as well as the creation of infrastructure for environmental preservation.
23This includes a commitment to environmental awareness and education, with Sochi
2014 allocating substantial funding as part of the Winter Games budget to regional
educational administrations to promote environmental awareness. This strengthened
focus on existing educational institutions, combined with the establishment of
Sochi’s Environmental Discovery Centre is designed to ensure that the principles of
environmental stewardship and sustainability remain a key part of the longer-term
development and promotion of the Sochi resort.
Mayoral elections were initially planned for October, but these were brought forward
following Victor Kolodyazhny’s resignation on his appointment as head of Olympstroi,
the Olympic implementation organisation, in April. Kolodyazhny was elected as Sochi
Mayor in 2004, with the term of office expiring in October. Vladimir Afanasenkov, who
became acting Mayor, won the Sochi mayoral elections that were held on June 29,
polling 85.1% of the total number of votes. His nearest rival secured 12.17%, the
Head of the Communist Party City Committee Yuri Dzagania. More than 132,000
local residents or 46.6% of the total number of registered electors came to the
polling stations on the day of the voting. Given the technical nature of inputs to the
Olympiad, from the Mayor’s office, it is unlikely that the election will result in either
major change in the thrust of policy or the organisation of the Games.
Although, the Duma has passed the “Olympic law” which will speed up the
expropriation of the property, as in previous Olympiad as well as London, there are
serious concerns regarding the implementation of the law. Initial unofficial estimates
suggest over 4,000 people are facing compulsory purchase orders ahead of the
Games. Within Sochi, a 2014 Olympic office, headed up by Alexander Remezkov, has
been established. The office will be responsible for issues related to securing land
plots from Sochi residents of Sochi, the purchase of which is necessary to facilitate
the Olympiad. A key role of this office will be to alleviate as much of possible the
negative consequences of the purchase. Tensions have nevertheless risen recently,
with Governor Tkachyov, calling for law enforcement agencies to counter protests.
A recent demonstration by local residents, took place in full view of International
Olympic Committee coordinating commission. The authorities believe that plans to
build a new village for local residents displaced from their homes by Olympic
construction will be sufficient. Olympstroi have said that within months the land for
Olympic construction will be expropriated.
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