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Sunday, April 20, 2008

The Sunday Scandal

Last week we reported on how opposition political groups were exposing the Kremlin's disastrous failure in organizing the Sochi Olympiad. No sooner had this story broken than the boss of the affair was forced to resign in disgrace, conclusively proving the truth of the charges. The Moscow Times reports:

Semyon Vainshtok, the head of the Olimpstroi state corporation responsible for preparing Sochi for the 2014 Olympics, resigned abruptly Thursday, amid accusations of mismanagement and cost overruns. Viktor Kolodyazhny, the mayor of Sochi, was named as Vainshtok's replacement.

Vainshtok's departure, just seven months after being appointed to the job, came after months of criticism from lawmakers and state officials, who said the cost of preparations for the Olympics had ballooned to nearly $12 billion. At a news briefing Thursday at Olimpstroi's Moscow office to formalize the handover, Vainshtok introduced Kolodyazhny as his successor. In front of television cameras, Vainshtok hugged Kolodyazhny and wished him luck. Kolodyazhny spoke only briefly, saying merely, "The preparations will be finished by the deadline."

Earlier, Regional Development Minister Dmitry Kozak told reporters that Olimpstroi would now work to complete the preparations ahead of time. Afterward, Vainshtok insisted that he had done what was expected of him, and it was time to step aside. "I had a certain task: to begin the preparations for the Olympic Games, and I have fulfilled it," Vainshtok said in an interview on the street outside the Olimpstroi office. "I am satisfied, by now 46 billion rubles ($1.97 billion) has been transferred to the accounts of Olimpstroi." Vainshtok, 60, added that he had had "a number of very good offers [of jobs] but nothing from the state."

Officials sought to downplay Vainshtok's resignation, saying he had planned it for some months. Kozak said at the briefing that he had agreed with Vainshtok in September that he would leave after completing his allotted task. "He has done as planned," Kozak said. "I see no politics in what has happened." He added that Vainshtok would soon be given a high-ranking state award. Both President Vladimir Putin and Prime Minister Viktor Zubkov on Thursday praised Vainshtok for his work at Olimpstroi.

Vainshtok, formerly head of pipeline monopoly Transneft, was tapped by Putin to head Olimpstroi on Sept. 11, a day before Putin appointed Zubkov prime minister in a shakeup of top government and state officials. After stepping down at Transneft, which he headed for eight years, Vainshtok was replaced by Putin ally Nikolai Tokarev, the head of state oil firm Zarubezhneft. Kozak on Thursday praised Kolodyazhny, 54, calling him "a highly professional manager." He added that Kolodyazhny "was not the only candidate" to replace Vainshtok but declined to name the others. On Thursday, Vladimir Afanasenkov, a former deputy governor of the Krasnodar region, replaced Kolodyazhny as Sochi mayor. Olimpstroi vice president Sergei Grigoryev, a lieutenant of Vainshtok's who followed him from Transneft, said Thursday that Kolodyazhny's appointment had been "quite unexpected." Grigoryev stoutly defended Vainshtok against his critics. "Less than a year has passed since we won the bid. It is obvious that we have neither the financial nor the strategic plan yet with exact figures and parameters," Grigoryev said.

Grigoryev, a former vice president at Transneft under Vainshtok, hinted that the team that came with Vainshtok from the pipeline monopoly last September might also leave Olimpstroi. "But don't expect any dramatic changes in the company," Grigoryev said. Public arguments among officials over the spiraling costs for the Olympics have increased in recent months, with Vainshtok telling State Duma deputies last month that the games would cost taxpayers three times the initial estimates. Building the transportation infrastructure alone could cost 316 billion rubles ($13.5 billion), Vainshtok said. The government initially earmarked 200 billion rubles ($8.5 billion) of state funds for Olympic construction, including the cost of design and construction of sports facilities, energy supply, communications and tourist attractions. "A lot was missing [in the estimates] and most of what was included was not confirmed by state experts," Vainshtok told deputies. "[The cost of] purchasing land was not even taken into account, and this alone would require an additional 82.4 billion rubles ($3.5 billion)."

The first serious hint of Vainshtok's position being under threat came earlier this month, when Victor Ilyukhin, a Communist Duma deputy, urged authorities in an open letter to fire Vainshtok and start an investigation into possible money laundering at Olimpstroi. Ilyukhin said the state's planned budget for Sochi, $11.9 billion, would dwarf the $6 billion combined total spent on the Winter Olympics in Nagano, Salt Lake City and Turin. Audit Chamber chief Stepashin warned a Cabinet meeting last month that the Sochi Games would end up costing taxpayers $24 billion. Ilyukhin said Thursday that the departure would offer only temporary relief. "Not much will change immediately, but all hopes are on [Kolodyazhny] to use his good local knowledge to put things right," Ilyukhin said. In his complaint, Ilyukhin attacked Olimpstroi's status as a state corporation, which he said meant that it was beyond the control of the Justice Ministry, State Registry, and tax and customs services. "This gives huge opportunities for money laundering," Ilyukhin said.

Ilyukhin put the blame for quickly rising land prices in Sochi on Vainshtok's shoulders, saying speculators had gained at the expense of the state. Chris Weafer, chief strategist at UralSib, said Vainshtok's departure had not come as a big surprise, as "a lot of changes across the government structure" were to be expected during the presidential handover period between Vladimir Putin and Dmitry Medvedev. Vainshtok's move to Olimpstroi in September had more to do with moving him out of Transneft, where he was blocking a deal between the state and the Caspian Pipeline Consortium, than with him being involved long-term with the Olympic preparations, Weafer said.

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