Sochi-2014: investment plans versus grim reality

Moscow, February 26 – Prime. The electronic clock set at the squares of Moscow and Sochi are implacable in showing that the time before the Olympic Games of 2014 start is running out. The investors, who enthusiastically chose the works at the beginning of the construction, are now pensively looking back and apprehensively – forward. There are many causes for the dwindling of the enthusiasm, but three of them are the most grave: construction problems, mounting costs and the thoughts of an unclear future of the erected objects.

The experts questioned by PRIME are convinced that the investors will hardly be able to achieve the profitability of the Olympic projects on their own. According to their evaluation, only the government is able to rescue the “Olympic builders” by granting tax and other benefits, compensating investments or subsidizing loans. <…>

Motherland, help us!

[The Deputy Prime Minister] Dmitry Kozak says: “They drew and constructed financial models. Sure, many of them say they made a mistake, but such are the risks of decision-makers, after all. The Government did not interfere in those models, did not regulate anything and gave no guarantees of payback. Therefore, said risks should be borne by the respective investors”.

He immediately adds that the government will “do everything that is possible within the scope of the current legislation in order to assist the investors”.

The Deputy Head of “Bazel” used to point out: “The Olympic objects’ investors, when they entered the project at its initial stages, understood that they were doing an important state task. But the projects should at least bring no losses to the investor. A year ago the investors explained the problems they were experiencing, and the State assured them that mechanisms of compensation of the losses, should the losses appear for objective causes not related to the investor, would be developed”.

The experts state that there are ways to aid the Olympic investors, the first one being tax benefits.

Advocate Maxim Rovinskiy, Head of Tax and Customs Law Practice of the Law Firm "YUST", commented to the PRIME agency: “The investors into the objects of the Sochi Olympics currently enjoy no tax benefits. The changes to the Tax Code were essentially aimed at legally securing the Russian obligations towards the IOC. That is why the businessmen now start mentioning that the Government, apart from the patriotic appeals for assistance in the preparation and holding of the Olympics, should grant tax benefits to investors and sponsors. For example, it would be logical to fix tax vacations for property tax during the period of use of the objects for organization and holding the Sochi Olympics”.

However, the analysts of RIA Rating believe that such property tax benefits will be insufficient as compared to the amounts of investments, even if they are granted. Currently the Legislative Assembly of the Krasnodarsky Region decided to exempt from the property tax only the infrastructure objects and only for the period before the start of the Olympic Games.

A more radical suggestion has been voiced – to exempt the Olympic objects from the property tax after the Games. RIA Rating specialists say: “Here the tax benefits or any other aid would be very useful, even more so that the erected assets also bear social functions”.

The analysts remark that it is difficult to discuss the income tax, as no investor expects any profits in the foreseeable future. <…>

To join everyone’s efforts

A.Kudrin says:” We all wanted our country to host the Olympic Games of 2014, and we all were very glad, when we got that right. Of course, a number of errors came up, which had been committed at the preparatory stage, but this is no reason to dress in sackcloth and ashes. I think we should put our shoulders in it and complete everything, and hold the Games with dignity and honor”.

And when the Olympic Games are over, everything will correct itself, there will be publicity for the city, and the tourist flow will increase.

A.Kudrin is convinced: “This is a huge experience of designing and implementation of such projects, even if it is negative to some extent. I think it will be taken into account for future projects”.

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