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. Last Updated: 07/27/2016

Big Win Translates into Big Money

Itar-TassThousands of people celebrating Sochi's Olympic victory on Teatralnaya Ploshchad in Sochi early Thursday morning.
Once the victory party is over, Russia must face up to the serious job of turning the Black Sea resort of Sochi into a venue capable of holding the Winter Olympics.

As developers now race to transform the area into a world-class resort, money is flooding in from some of Russia's wealthiest businesspeople and biggest companies.

In the resulting bonanza, the country's booming economy looks set to receive a further multibillion-dollar boost.

President Vladimir Putin, who pledged $12 billion for Sochi's development in his pre-vote speech to International Olympic Committee delegates in Guatemala, said Thursday that the city's victory represented a crucial yardstick in the country's progress.

"This is, without doubt, not just a recognition of Russia's sporting achievements but it is, beyond any doubt, a judgment of our country," he said, moments after stepping off the presidential plane in Moscow.

"It is a recognition of our growing capability, first of all economically and socially."

In a note to investors Thursday, titled, "Let the Gains Begin," Alfa Bank estimated that the Olympics could give the country's economy a shot in the arm of at least $15 billion, with companies involved in infrastructure, transport and leisure set to cash in heavily.

And there is a lot of work to be done, as much of Sochi currently resembles a big building site.

Many of the sporting facilities will have to be built up from scratch, while work is going on to build a slew of Western-class hotels and revamp the city's Soviet-era airport.

"This is not a one-off investment but a chance to lift Russia up in international opinion," said Michael Lange, head of the Moscow office of realtor Jones Lang LaSalle.

As the race to get Sochi ready for 2014 increases, some of Russia's richest businesspeople look set to make a lot of money in the process.

The epicenter for the investments is Krasnaya Polyana, Putin's favorite ski resort nestled in the mountains 45 minutes outside Sochi, where developers are throwing up hotels, sports complexes and ski lifts.

Billionaire Vladimir Potanin, head of the Interros holding, announced Thursday that his company would pump $1.5 billion into the developments in Sochi and Krasnaya Polyana.

"It will be the resort for everyone and not only for the rich," Potanin said, Prime-Tass news agency reported.

Interros has already spent around $300 million developing the Rosa Khutor ski center in the area, company spokesman Andrei Kirpichnikov said.

A spokesman for Roman Abramovich confirmed that the billionaire owner of the Chelsea football club was participating in the Olympics project, but refused to say how much was being spent.

Aluminum magnate Oleg Deripaska will be investing more than $2 billion on Sochi's airport and a 180-hectare complex to be used during the Olympics, a spokesman said.

State-controlled energy giant Gazprom is already plowing a reported $375 million into the Peshkhako Ridge project, a ski complex. Gazprom did not comment on the project Thursday.

"There is a huge amount of money to be made in Sochi," said Darrell Stanaford, managing director of realtor CB Richard Ellis Noble Gibbons in Russia.

"Foreign investment will be welcome but Russian and Kazakh investors will have an advantage because they understand the market better," Stanaford said.

Positive market reactions to Sochi's victory gave an indication of who will likely gain in the run-up to the Games.

Shares in steel giant Evraz, part-owned by Abramovich, shot up 9.6 percent on the London Stock Exchange, while shares in Kubanenergo, the main power supplier to Sochi, rocketed 18 percent on the local MICEX exchange.

Government coffers are set to swell, too. Economic Development and Trade Minister German Gref said Russia could collect around 300 billion rubles ($11.7 billion) in taxes from the Olympics, Interfax reported.

Speaking from Guatemala, Gref said Russia would also make money from selling the broadcast rights to the Olympics, but that the total potential gains had yet to be calculated.

As to whether Sochi will be ready on time, companies on the ground were bullish about the prospects.

"I don't have any doubts that everything will be built. Only last year we helped build 40 ski slopes," said Alexander Kozlovsky, general director of Skado, the Samara-based construction firm that worked on the Gazprom ski project. Asked how profitable it is to work in Sochi, Kozlovsky was modest.

"There's a large volume of work to be done, it's not especially profitable. It's average work with big responsibility attached to it," he said.

Commentators dismissed fears that a lack of basic infrastructure around Sochi would seriously hamper the Olympics.

"We are talking about roads, electricity and airports. Those are the main things," Stanaford said.

The obligations that the Olympic Games impose will force local authorities to address infrastructure issues, as well as making the real estate market more open, Stanaford said.

Anatoly Chubais, head of state-controlled power utility Unified Energy System, said Thursday that the electricity grid in Sochi would be fully functioning by 2011.

Anthony Bijkerk, head of the International Society of Olympic Historians, said recent games showed that host cities often receive considerable benefits.

"Both Athens and Sydney saw a very positive influence on their infrastructure," Bijkerk said.

Russian officials have long touted the Olympic bid as a potential savior for the region's tourism industry.

The victory will also bolster Russia's ski sector, said Mikhail Musiyants, general director of Ertsog, a tourist agency that specializes in ski resorts. Such resorts have gone through hard times since the Soviet collapse, but are now recovering.

As Sochi flourishes, other ski sites around the country, including some in the North Caucasus, near war-scarred Chechnya, could see a similar boom, Musiyants said.

"Maybe they will be in the second wave. If Russia and the world see that you can make resorts here, then interest will rise and investment will grow in other places," he said.