Foreigners are leaving the Russian soccer field
27.05.2010 — Analysis
Russia would like to host the 2018 World Cup. But experts fear that the country will be hard put to find enough soccer fields that are up to FIFA's standards. Most Russian cities would be forced to build brand new, modern stadiums, and neither businesses nor the government has the money to do this. As a columnist for RusBusinessNews explained, the scandal that erupted during the reconstruction of the Yekaterinburg soccer field was the result of a conflict between the ambitions of public officials and what was realistic for Russia.
Yekaterinburg took up the idea of rebuilding its main stadium six years ago, long before Russia's bid to become a World Cup host city. A private business was invited to help with the project, the privately-held company Gruppa Sinara, which took over 75% of the shares of the public corporation Central Stadium. The Yekaterinburg municipal government retained blocking minority ownership.
A French architect from the firm Valode et Pistre came up with the original conceptual design for the reconstruction. This design was reviewed and evaluated, but the project was then handed over to the Finnish firm Hansa Stroi. It was assumed that they would act as the general contractor for the reconstruction. However, the Finns refused to try to rebuild a stadium seating 25,000 people for only 42.3 million Euros. The Neimar Engineering Company from Montenegro, who had already modernized many other facilities in Russia, then agreed to direct the reconstruction work.
According to the deputy head of Neimar Engineering's Yekaterinburg office, Aleksandr Kitashev, before the economic crisis hit, the general contractor had spent 45% of the estimated costs of the project. When money from private investors dried up, the Sverdlovsk regional government became a participant in the project. They spent 80 million rubles (at the time worth 2 million Euros) to buy 25% plus one share of the public corporation Central Stadium from Gruppa Sinara. A.Kitashev confirms that the subcontractor received 31 million rubles. The last payment was made at the beginning of 2009. After that, periodic payments of 2 to 3 million rubles were made for public utilities. In total, Neimar Engineering received 16.3 million Euros, a loan of 7.7 million Euros, according to the company's manager's data.
The investor persuaded the general contractor not to abandon the construction, promising to take out a loan backed by the Sverdlovsk regional government. However, the governor at that time, Eduard Rossel, refused to provide this guarantee, citing budgetary constraints. But after Russia put in her bid to host the World Cup, interest in this issue revived. Officials decided that Yekaterinburg was an excellent setting for a soccer championship - it had an international airport, hotels, restaurants, and a half-finished stadium. At the end of 2009, the company Central Stadium got their loan guarantee from the regional government. One should keep in mind that this region has many towns with only one large, troubled industrial employer and high hidden unemployment rates. The sort of government assistance shown to Central Stadium would have been very welcome in any of these places.
But it rapidly became clear that even a 1.2 billion ruble loan would not be enough to cover the general contractor's debts. In February of 2010, Central Stadium informed Neimar Engineering that their contract was being dissolved and strongly advised them to accept a debt at the expense of the refunded VAT. The general contractor refused and filed a lawsuit against them. As part of this lawsuit, Neimar Engineering proposed seizing the land that the Globeks Bank (a subsidiary of the state Vneshekoonombank) intended to take as collateral for the loan along with the shares of Central Stadium.
The Sverdlovsk regional court of arbitration seized the land, but within 24 hours the marshal decided to instead confiscate the debt owed by Central Stadium, which included debt to Neimar Engineering. A continuation of the scandal is expected in court. In a countersuit, the investor is trying to collect 131.4 million rubles from the Montenegrin company, charging that their work was substandard.
One expert, who asked that his name not be used and who works in a development firm that Central Stadium relies on, told RusBusinessNews that foreign companies are not using Russian construction standards, and thus their estimates are not dependable. In one instance, Neimar Engineering did not use sufficient steel reinforcements when installing a video display board to satisfy Russian Construction Requirements and Regulations. There is a similar problem with the one-piece bleachers that experts warn need to be strengthened if they are to avoid collapse.
A.Kitashev makes the objection that the facility has not yet been completed and thus the case cannot be made that the work is not up to code. In addition, the manager claims that not a single complaint of defects was ever made to the general contractor. These reports emerged only in court, which, in the opinion of A.Kitashev, is evidence that this is merely a planned action to discredit the subcontractor.
Neiman Engineering's representative claims that not enough money was allotted for the project. The per-seat cost estimate for the Yekaterinburg sports arena was five times less than a similar cost estimate for a European sports arena. As a result, the subcontractor was forced to find cheaper materials and techniques. In the end, they settled on using poured-in-place concrete. Since the work took place under different weather conditions, the general contractor's representatives do not deny that in places there could be problems where the concrete was not poured evenly.
A.Kitashev confirms that Hansa Stroi refused to act as the general contractor because the 60 million dollars that was required to build a FIFA-compliant stadium was not available. Officials in the city of Perm took Yekaterinburg's construction problems into consideration when their turn came to plan a similar-sized stadium, and as a result, they allowed for a cost estimate of 80 million dollars.
Vladimir Borzenko, the head engineer of the design and construction company Dominanta, had some startling information for RusBusinessNews. It seems that during the design phase of the project, which was being financed by a private investor, the cost estimate was never reviewed to be sure that it was realistic. Apparently, the project's cost summary section contained blank lines. But even if those lines had been filled in, that still does not tell us how much it really costs to build a facility. That question can only be answered after specialists have inspected the finished work and studied the work specification documents. Consequently, the expert will not venture to say whether or not 60 million dollars is sufficient to rebuild the Yekaterinburg stadium. He merely notes that the per-seat cost for the reconstructed facility is higher than it would be if the stadium were being built from scratch.
Sinara Gruppa did not have any particular desire to take on the stadium's reconstruction, constantly emphasizing that they did this was something they were doing for the community. In order to attract an investor, city officials dedicated 5.5 hectares of land to this project and the plans were to include a hotel, restaurants, and recreational facilities. The economic crisis prevented the return of the Sinara Gruppa's investment. The investor did not even have sufficient money for the sports arena, much less to develop the land around it. It is possible that this lack of funding forced Central Stadium to come close to the edge of misconduct with its subcontractors. For example, the French architect who developed the conceptual design of the new stadium was never paid.
A deputy in the Sverdlovsk Regional Duma, Andrey Alshhevsky, thinks that foreigners in Yekaterinburg collided with a very Russian way of doing business, that of placing the cart before the horse. In this case, for example, Yekaterinburg showed the world a candy wrapper, and when it turned out that the investor did not have money to buy the candy, Yekaterinburg decided to twist the arm of the candy-maker to try to force him to come up with the goods anyway.
Now, to avoid embarrassment, the government is being forced to spend money on soccer that it had earmarked to support Russia's actual economy. But the fact still remains that the money that Central Stadium is trying to squeeze out of the Montenegrin general contractor's construction site, is still not enough to build a stadium capable of hosting an international soccer competition. The loan amount is only enough to cover the construction of stadium seating for 25,000 people, while the project they showed to FIFA would seat 40,000 spectators. The cost estimate for that project was 80 million dollars. But no one even tried to talk about that kind of money in Yekaterinburg.
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