12 february 2013

Deputy Prime Minister Dmitry Kozak gives interview to Vesti TV Channel


Presenter: Mr Kozak, good afternoon. Thank you for taking the time to meet. So, the final countdown to the Sochi Olympics has begun. The construction of Olympic facilities is almost complete. What percentage of the facilities are ready?

Dmitry Kozak: If we combine all the sports events, organisational events and the construction itself, it’s over 80%, because it is difficult to evaluate the work, it can’t be calculated mathematically. Over 80% of the projects have been completed. All the sports facilities are ready, acceptance certificates have been prepared for most of them. All the sports facilities are certified by international sports federations. Now, in February, we are approving the facilities constructed for the Olympic Games and in March we will be approving the Paralympic facilities, which will correspond to the period of the Games themselves next year.

Presenter: What about the city infrastructure, what has been done and what still needs to be done?

Dmitry Kozak: This is primarily about the construction of transport routes. This has nothing to do with the Games per se, but is part of a programme to develop Sochi as a mountain resort. In 2006, a decision was made to implement a series of large projects, mainly related to transport. The construction will include three roads that run parallel to Kurortny Prospekt, to ease the load on Kurortny Prospekt and ease traffic congestion, which has a huge negative impact on the city, the environment, the city's residents and the numerous tourists who go there every year. There also are extensive energy projects. We all hear about blackouts in Sochi several times a year because of the weather…the power lines going across the Caucasian Range are often down, and they were the only energy source in the city. We will have no more such problems. I’d also like to mention the sewage treatment facilities. Sochi had a big shortage of capacity. Now, capacity is being increased by a factor of 3 - 3.5.

Presenter: Mr Kozak, how much is all this going to cost? Because in the run-up to the Olympics (this has been going on for some time now and it will only keep going up) there has been a lot of speculation about the cost of the Olympics. Here we have to separate off Olympic construction and the infrastructure for the city and region.

Dmitry Kozak: Of course. As regards the cost of the Olympics itself, the cost will be met by the tax payer, that's 100 billion roubles. Around 100 billion roubles will come from the taxpayer.

Presenter: From the budget?

Dmitry Kozak: Yes this will come out of the budget. And roughly the same amount will come from investors, so these should not be considered costs for the Olympics because all the money we attract from Russian and foreign investors should be a source of pride and we need to understand the positive outcome that will result from implementing this project.

Presenter: So that means all the Olympic facilities will cost 200 billion roubles, is that right?

Dmitry Kozak: Yes, 200 billion, and for the taxpayer 100, I would like to stress that again.

There is another part of the programme, that is the programme for building Olympic facilities and developing the city of Sochi as a mountain resort. Also part of the programme are those facilities, the infrastructure, which are needed to develop the city of Sochi. Several of these will be used during the Olympics, like for example hotels (hotels incidentally are being completely funded by private investment). Some of them will not be involved at all during the Olympics, for example the most expensive three trunk roads I mentioned earlier, which run parallel to Kurortny Prospekt in Sochi. That is not an area where Olympic events will be held, this is the city centre, this is about the development of the city. The energy infrastructure, which is outside the boundaries of the Olympic Games area, this will not be directly involved in supplying the Olympic venues. Only one thermoelectric power station will be used to provide a reliable power supply. But if there is an accident at this power station they can be brought on line to provide additional reliable energy supplies. Their main purpose though is to remove infrastructure constraints and rectify long-standing problems in the city of Sochi. This is about the development of Sochi.

Presenter: And how much will that cost?

Dmitry Kozak: We have allocated 100 billion roubles from the budget for the actual Olympics and another 600 billion of budget funds for the development of Sochi as a mountain resort. This is mainly in terms of transport and the utilities infrastructure. The energy infrastructure is being financed by private investors. And about the same amount, approximately 700 billion roubles, is private investment in the infrastructure. This is primarily 242 hotels funded entirely by private investment. These 242 hotels will have a total capacity of about 42,000 rooms. Generating capacity, all the additional electricity power stations will be funded by private investors.

There are also elements of the Olympic construction programme that seem to go against the interests of the Olympic Games, I have already named some, like Formula 1, the infrastructure for hosting Formula 1. That was a difficult decision, difficult in terms of preparation, but nevertheless we took that decision. The actual infrastructure for Formula 1 is on the same area of land as the coastal cluster where all the sporting venues and utilities networks, transport infrastructure, etc... are being built. And the IOC had many doubts that we would cope with this challenge on a purely organisational level, when on a small patch of ground different organisations are building their facilities, they have to dig up the ground together and in a certain sequence. This project took a long time to come together, until we took that decision. It is also an Olympic venue, officially it is an Olympic venue and Formula 1 will cost 1.5 trillion roubles.

Presenter: That includes everything?

Dmitry Kozak: Yes. Or for example, there is a second facility which may not be built, we can leave it until a later date. This is Russia's first ever modern themed amusement park, along the lines of Disneyland. It will also be built at the boundaries of the Olympic Park. These facilities are needed in order to support the Olympic legacy.

Presenter: A budget will be necessary to maintain the Olympic facilities after the Games are over as well. Is the region ready to support this spending to prevent these facilities from going to waste?

Dmitry Kozak: I’ll give you my own assessments with regard to what needs additional spending from the budget, etc. The transport infrastructure, including roads, is paid for from the budget, since they are toll-free. It’s much less than 60 billion roubles. I recently approved the programme for post-Olympic use of the Olympic facilities, and everything has been agreed upon and approved. The high-maintenance mountain road, “Ot Alpiki Servis” will cost 61 million roubles a year to maintain. The motorways will require additional budgetary expenses, but the amounts in question are ten times less than the ones that we heard. All the other facilities are run privately and are supposed to pay for themselves. Hotels and utility systems will be handed over to the corresponding operators at no charge. They must maintain them in good order while charging reasonable fees for utility services. This is a completely new energy utility infrastructure that was built with federal funds. We recently adopted pricing rules to promote efficient and reasonable utility charges. We decided that we wouldn’t charge interest on these investments, meaning that it’s a giveaway, and the operators will only have to maintain them in good order.

Presenter: Do you believe these sport facilities will remain attractive once the Olympics are over? When they talked with investors, they tended to say that these facilities were more of a social project for this country and for its people. What will they become after the Games? No one knows for sure if they will be in demand or not.

Dmitry Kozak: These facilities have varying costs and projected profitability rates. This includes the facilities located in the Imeretinskaya Valley, such as the Greater Ice Hockey Arena and the Figure Skating Palace. However few, if any, sports arena operators manage to cover their maintenance costs in full from the revenue alone. A lot depends on the effectiveness of the future owners. Typically, they are subsidised from the federal budget. We studied the experience of almost all of the countries that have hosted the Olympic Games in recent decades. Some manage to get by on their revenues; some need subsidies from the governments. However a lot depends on the effectiveness of the administration of the Krasnodar Territory to make things run smooth for the future owners, primarily the Ministry of Sport. They will own the Central Stadium, among other things.

Presenter: So, the outlook is good?

Dmitry Kozak: Yes.

Presenter: Still, some of these sport facilities are extremely expensive to the point that even the President was surprised to learn about the costs. I’m referring to the dialogue in Krasnaya Polyana as witnessed by the entire country. Was it a surprise for you too?

Dmitry Kozak: No it wasn’t. This situation with the ski ramps was not a surprise at all. All the decisions going into this facility, including the penalties, were taken a year ago. We could see things for what they were as early as a year ago. As for the additional costs, they will not be covered by taxpayer money. Krasnaya Polyana company will cover them from its own funds. There’s no budget money involved in this. However, we have been more interested in the timely completion of the work and the preparations for testing, which was scheduled for last winter, than in private investor money. The ski jump was supposed to become operational much earlier. The document on commissioning should have been ready much earlier. Unfortunately, they failed to meet the deadlines on several occasions. However the discussion with the President that took place at the facility has nothing to do with the current situation. The incident with Bilalov ended a year ago when he and his team were fired from the project. We have a new team who’s doing a good job on this project now.

Presenter: The Audit Chamber checks the Olympic facility construction on a quarterly basis. A year ago, they indicated that 76 facilities were behind schedule. Excessive budget spending, too, was reported regularly, including the bobsled track and Central Stadium, to name a few. How fast can you respond to these issues or prevent them? Or is building everything on time all that counts?

Dmitry Kozak: It’s important to have everything built on time, of course, but construction costs are important as well. The issues of construction costs, turnaround and quality are equally important, and we are keeping tabs on them. With regard to the massive scale of such problems, we do run into this occasionally, both in terms of turnaround time and cost increases. The ski jump is not the only problem on this list. We had to fire about 15 contractors from various projects. Speaking of Krasnaya Polyana, this is just one of 15 instances where we were forced to act. We parted ways with a number of investors, and are still trying to recover damages from most of them in court.

Presenter: Is Akhmed Bilalov your most painful and high-profile loss?

Dmitry Kozak: After we signed an agreement with this private and independent investor whereby he undertook to build a particular facility according to particular specifications (as applicable to the Olympic facilities, and a ski jump is definitely an Olympic facility), the obligations taken on by this private and sovereign investor became a commitment by the Russian Federation to the International Olympic Committee. Therefore, we are entitled to demand compensation or apply sanctions, in accordance with the law, against investors who fail to provide the contracted items. That, of course, automatically means that Russia fails to comply with its obligations to the International Olympic Committee.

Presenter: Do you have faith in the current investors?

Dmitry Kozak: At this point, yes. We do not have any questionable investors left who assumed these responsibilities for some murky reasons and then failed to deliver. Now that we’re on the home stretch we don’t have such big problems anymore.

Presenter: I wish you success! Thank you.

Dmitry Kozak: Thank you.