Three years ago Russian President Vladimir Putin made the rejuvenation of this Black Sea resort his personal project, and it has boomed ever since. The Kremlin has pledged $7.5 billion to upgrade the city’s infrastructure and create new ski runs in the mountains above the city. Private capital piled in behind. At this year’s Sochi investors’ forum, hosted by Putin, businessmen made $23.3 billion in investment deals in Sochi and the region, most of them construction and resort projects. Earlier this year the International Olympic Committee cemented the city’s status by choosing it as the site of the 2014 Winter Olympics. And while it might not be as grand as St. Petersburg or Odessa—both cities created by great Russian tsars and tsarinas centuries ago—it has become clear, as Putin’s term as president draws to a close, that part of his legacy will remain in Sochi, a monument to the prosperity and renewed Russian pride of his era.
In many ways Sochi’s well-to-do façade mirrors Putin’s Russia, where big deals are lubricated by petrodollars—and the Kremlin keeps a paternal eye on the dealings of big business. The city’s boom has been funded by money from Russia’s rich store of commodities, but it is the Kremlin that has taken the lead in directing those cash flows to Putin’s pet city. And while bureaucrats in every Russian city regularly require under-the-table payment in return for otherwise routine transactions, Sochi businessmen complain the city’s new prosperity has made some of Sochi’s bureaucrats greedier than most.
Putin has also chosen a risky gambit in selecting Sochi—not least because the city is just 20 kilometers from Abkhazia, a separatist region of Georgia. Though Abkhazia broke away from Georgia in a bloody civil war in the early 1990s, Tbilisi has never recognized the rebel statelet. Low-level raids and skirmishes are a regular occurrence on Abkhazia’s border with Georgia proper—and though there’s little danger of the violence spilling into Russia, an ongoing war of words, interspersed with bullets, is a headache the Olympic city doesn’t need on its doorstep. Last week Georgian President Mikheil Saakashvili complained to the United Nations that Russia was “sponsoring terrorism” via Russian peacekeepers stationed in Abkhazia. In response, says Abkhazian President Sergei Bagapsh, he had “30,000 angry soldiers, all Olympic-class riflemen,” ready to counter any Georgian aggression. Georgia is also objecting to a Russian oligarch’s purchase of building materials for Sochi from suppliers in Abkhazia, on the ground that business deals with separatist states violate international law, and represent “a shameful beginning for the Olympics.”
Yet the party goes on in Sochi, at least in part because it is one European resort where rich Russians have not begun to wear out their welcome. Hoteliers at the Austrian resort Kitzbühel, for instance, have proposed limiting the number of Russians allowed in because, they said, of bad behavior. Now Russians are ready for their own sea-and-ski resort that is free of such discrimination, says Alexander Pochinok, a Russian senator. “Russians need their own Courchevel,” he says. He predicts Sochi will become a year-round, world-class international resort that could welcome 15 million to 17 million tourists every year.
All the Kremlin’s favorite businessmen are already loyally contributing to the project. Billionaire metals magnate Vladimir Potanin plans to invest $1.5 billion in the Roza Hutor sports complex in Krasnaya Polyana. He worries that “there is nothing ready yet, no water-filtering stations, no electricity, no roads.” But he says he is confident Sochi will soon be “every bit as good” as the best European resorts. Similarly, aluminum billionaire Oleg Deripaska has sunk $2 billion into a 220-hectare plot where the Olympic village will stand. He also owns Sochi’s top hotel, the Rodina, or Motherland, where double rooms go for $1,000 a night. The heady combination of the Kremlin’s blessing of Sochi and petroleum wealth has produced a spike in real-estate prices and luxury spending. Developer Viktor Baturin, brother-in-law of Moscow Mayor Yury Luzhkov, recently sold the Park Hotel on the Sochi waterfront for $65 million. “Real estate has gone up 500 percent since Sochi got the Olympics,” he says.
With all this money flying around, Sochi could become a glaring example of Russia’s other systemic problem: graft. “Local bureaucrats see their job as harvesting money from businessmen,” says Sergey Demin, the director of the ST construction group, which is busy putting up multistory luxury apartment buildings on the Sochi waterfront. Businessmen hope the Olympic Committee’s oversight will help stop the alleged corruption. But it is unclear what steps the local authorities are prepared to take to counter the allegations of growing corruption in the thriving Sochi economy. Last week Sochi’s Mayor Viktor Kolodyazhny told a NEWSWEEK reporter that corruption did not exist in Sochi, and that he would “come and find you and your family” if anything “negative” appeared in print about his city. He later claimed the remarks were a “joke.”
The mayor’s joking aside, Sochi’s problems with crumbling infrastructure, overpriced real estate and sluggish bureaucrats are nothing new. In fact Russia’s other great boomtown, Moscow, has them in spades yet somehow continues to grow apace. And Sochi is an Olympic city, after all, and like most Olympic cities it will undoubtedly muddle through to put on a great show—probably aided by at least a little pressure from Putin, even from retirement, as he ensures that his Olympics are an enormous success. So as long as prices for Russia’s energy and raw materials remain sky-high, Sochi will continue to party on, and the model oil pumps that decorate the roof of the Plotform nightclub will continue pumping—as the locals joke— money out of visiting billionaires.
