Last September, in Vladivostok, Russia hosted the annual meeting of Asia-Pacific Economic Cooperation (APEC) countries. This July, in Kazan, Russia hosts the Summer Universiade. Next February, the Winter Olympic Games will take place in Sochi. In 2018, the final tournament of the World Soccer Cup will be played in 11 cities across the country. And in 2017, Russia is planning to organize the World Festival of Youth and Students.
Why such a passion for holding hugely expensive global forums?
An answer to this question emerges when you look at the costs of the events. The total price tag for the APEC summit was $20 billion, more than twice than had been originally budgeted. Already, construction deficiencies are evident for the hallmark of the summit, the $1 billion bridge to the Russian Island (a.k.a “bridge to nowhere”). The Winter Olympiad in Sochi is promising to become the most expensive sports event in the history of mankind: the final price tag is expected at the level of $50 billion, about five times above the initial budget. Naturally, there is no one among government officials capable of explaining what happened. The opening of a soccer stadium in St. Petersburg–to be used in 2018–has been already delayed by six years. It will eventually cost about $1.5 billion, six times more than planned.
There is nothing mysterious or coincidental about these cost overruns: this is a system the Kremlin has created to maintain the loyalty of regional elites. Moscow would obtain rights to hold a global event, allocate federal money for its organization–and there is always construction involved here–and send it to the regions. In the course of “appropriation” of the money, its significant part–as it’s customary in Russia–ends up in the pockets of local authorities. The very greatness of the chosen events justifies hefty budgets, and the lack of any real oversight ensures that these budgets are constantly corrected in the upward direction. As a result, money is plentiful to steal, so not only top regional bosses benefit from the event, but the bonanza is shared by many in the region. Characteristically, Moscow chooses the events in such a way that various regions get their share: APEC in the Far East, Universiade in Tatarstan, Olympic Games in the South, Soccer Cup in many cities of the Central Russia. This allows to spread money evenly helping keep a lid on a popular in the regions sentiment that Moscow “gets it all.”
The problem with this system is that it’s going out of control. Traditionally, kickbacks (“откаты”) represented 20-30% of the size of a government contract. In the past, this allowed all necessary constructions to be at least finished–on time or with small delays. However, in recent years, the ratio of kickbacks seems to have dramatically risen and now amounts to up to 60-70%, as some anecdotal evidence suggests. Naturally, there is simply not enough money to complete any construction on schedule with reasonable quality.
It seems that Russian officials have simply gone on a stealing binge. This turn of events would appear to be a direct consequence of the current situation in the country. First, Russian economy is still dangerously dependent on export of raw materials. Should commodity prices significantly decrease, the federal center will have no more money for megaprojects in the regions. So the regional elites are trying to grab everything from what is still available. Second, Russian political system keeps revolving around one single person, president Putin, who sets the rules and ultimately decides who gets what. No one knows what will happen after 2018. Who will be setting the rules? What these rules will be? Again, this uncertainty only fuels the après nous le déluge mentality.
The budget overruns for the APEC summit, Sochi Olympics and other “megaprojects” are not simply the cost of the projects gone awry. It’s a price tag–in real money–of the political system that Putin built.