Bach and his board have come to their decision after reading through the findings and recommendations of a 17-month investigation headed by the former president of Switzerland, Samuel Schmid.
"It's a punishment for the state, the country, and they are obviously trying not to punish the athletes who haven't done anything wrong", he said in a phone interview moments after the International Olympic Committee announced that Russian athletes who pass a series of drug tests can apply to compete as neutral athletes.
This year the team will be called Olympic athletes from Russian Federation. Athletes approved by the panel will compete in a uniform with "Olympic Athlete from Russia" written on it and under an Olympic flag.
"It sounds like a really good compromise to me", said Stuart Benson, who raced on the British four-man bobsled team that placed fifth in Sochi, but which now hopes for the bronze medal after two Russian sleds were disqualified.
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WADA's report calls on Russia's track and field team to be banned from global competition, including from the 2016 Rio Olympics, until "state-sponsored" doping is eradicated.
The commission noted that the McLaren Report did not mention that the Russian Olympic Committee (ROC) participated in the system.
Bach said on Tuesday: "This was an unprecedented attack on the integrity of the Olympic Games and sport".
It was Rodchenkov who first revealed the scale of Russia's cheating and it was his testimony which formed the basis of the second of those WADA investigations, conducted by Canadian law professor Richard McLaren.
Mutko receives a lifetime Olympic ban for his involvement in Russian doping, raising questions as to whether he can continue in his role as head of the organising committee for next year's World Cup.
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President Putin warns of Russian "humiliation" and serious harm to the Olympic movement if the country is forced to compete under a neutral flag or excluded altogether.
Many athletes said they wouldn't have felt comfortable had the International Olympic Committee banned all Russians from the Pyeongchang Games.
The Winter Olympics will be held from February 9-25.
As noted, the Russian athletes who were not involved in doping scandal may be allowed to play and compete under a neutral flag. By Monday, 25 Russians had been disqualified from the Sochi Games and banned from the Olympics for life, and 11 medals were stripped.
The IOC also heard from a large Russian delegation, led by the former KGB agent Vitaly Smirnov - a long-time IOC member and a major sports administrator dating back to the Soviet era - as well as the brilliant 18-year-old skater Evgenia Medvedeva, the double-world champion who has not been beaten for two years.
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