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The World Cup in the Russian way - write down five but think two

The World Cup in the Russian way - write down five but think two

27.06.2011 — Analysis

Russian sports officials have announced how much it will cost to hold the 2018 World Cup and claim it will cost an average of $334 million to build a single stadium. Experts allege it will cost at least twice as much as the amounts specified in FIFA's instructions. As these columnists for "RusBusinessNews" have learned, the price of sports facilities in Russia can balloon for the same reason that MRI machines purchased for Russian hospitals end up costing three times as much as their actual price. 

Officials from the Russian Ministry of Sports and Tourism claim they need to build or renovate twelve stadiums before the 2018 World Cup. Only one stadium, Moscow's Luzhniki, is completely ready at present. Ekaterinburg's Central Stadium is opening this summer after its renovation, but the seating capacity yet has to be increased to the requisite 40,000. Some of the facilities are already being built or renovated, but five are still in the process of being designed and surveyed. Most of the projects are being financed from federal coffers. Based on the numbers that have been released, one can see that Russia is on its way to spending record-breaking amounts of money on its sports arenas.

The construction costs are staggering. For example, the Spartak stadium in Moscow that can seat 43,000 spectators will cost its investor $340 million ($8,000 per seat), Central Stadium in Sochi will cost $390 million ($9,000 per seat), and Kazan's Rubin Stadium - $330 million ($7,500 per seat). The renovation of Moscow's Dynamo Stadium will cost even more. Ivan Mishulin, a consultant from the business and investment projects valuation department at the NEO Centre consulting group, suggests that the cost per seat at Dynamo might approach $10,000. In St. Petersburg, the Gazprom Arena alone cost $1.1 billion ($18,000 per seat), making it one of the ten most expensive stadiums in the world, competing with London's Wembley stadium (at a total cost of $1.5 billion or $16,500 per seat).

Meanwhile, the International Federation of Association Football (FIFA) claims that stadiums capable of hosting major international tournaments can be built for $4,000-5,000 per seat. Experts say that a perfectly good soccer stadium with a dependable scoreboard can be built for that amount of money (but without track-and-field facilities). Not all options for reducing costs have been exhausted. Central Stadium in Ekaterinburg was renovated for a cost of $2,500 per seat, a cost that included track-and-field equipment, and one has to remember that renovation is always more expensive than new construction. Aleksandr Kitashev is a representative of Neimar-Engineering, the company that is currently renovating Ekaterinburg's arena, and he claims that if Central Stadium were to be used only for soccer, the cost would drop to $1,500-$2,000 per seat.

Experts state there are two reasons that Russian stadiums end up costing their weight in gold. Construction technology is not yet fully mature in this country and it is common for estimates to be ridiculously inflated. In Europe, every detail of a plan for a proposed facility is meticulously thought out before the project is carefully drawn up and then quickly built, but in Russia the opposite is true. The concept is not carefully developed, the project is organized in a rush (practically scribbled out on a napkin), and then the construction itself drags on for years, eating away at the investors' nerves and money. This disregard for the feasibility of the process results in the need to alter and rebuild much of what has been constructed.

The way estimates are prepared is even worse. When they started to build their stadium in 2006, the public authorities in St. Petersburg estimated that it would cost $190 million. This estimate had increased by 3.5 times by 2008, and, as we know, in the end topped $1 billion. Officials claimed that the design engineers did not take into account the "difficulties encountered in pouring the foundation and the cost of the retractable construction". But experts know that it's just a case of inflated cost estimates. Builders say that the most expensive part of a stadium is the concrete work and the equipment. But according to Alexander Kitashev, almost half of all the costs are for the general construction, and the equipment accounts for another 15-20% of the expenses. But you only get those numbers in a legitimate estimate, which is simply impossible to find on a Russian construction site. Even the professionals have no idea how Russian builders are able to "bury money in the ground", much less wall it up in concrete.

There is also lots of room to maneuver with the equipment. You can buy a scoreboard made in Finland or one made in China. Or you can pay Finnish prices for Chinese equipment. The purchasing process works the same way in healthcare, where manufacturers bribe public officials to buy MRI machines at three times their market price. And in addition to a scoreboard you also need a ticketing system for the public entrances, fire and security alarms, and, as they have in St. Petersburg, a retractable roof and a roll-out pitch. The officials have some wiggle room, which is why the professionals doubt that this stadium will ever be finished. There's a sense that half of Russia is "feeding" at the trough of this stadium project.

The Russian government is not only turning a blind eye to the games that are played with the cost estimates, but wittingly or unwittingly they are even behind this dubious practice. As soon as it was announced that Russia would host the 2018 World Cup, Prime Minister Vladimir Putin claimed that $10 billion would be spent on the construction of stadiums and infrastructure. The head of the government was basing his projections on the experience of other countries. According to him, this was approximately what South Africa had spent on its soccer facilities. But he was misleading the public. According to a statement made by a spokesman for the South African government, that country spent $5.8 billion on stadiums and transportation infrastructure. But Russia has allocated $10 billion just for buildings, parking lots, and equipment. The cost of constructing and modernizing airports and railroads is considered a separate expense.

But Russian officials weren't always so voracious. In 2002, Sergei Stepashin, the chairman of the Russian Accounts Chamber, told the media that hosting the European Football Championship (in which Russia was competing) would cost the country $1.2 billion, which included the construction of new airports, hotels, etc. But he was uncomfortable even with that number, and tried to justify it by claiming it was "not really a very large amount". But no one in government circles today is embarrassed by the idea of spending $10 billion on a single stadium. And experts have gotten the feeling that Prime Minister Putin just made a stab at a cost estimate for the 2018 World Cup, and then his subordinates created an estimate to match that number.

This is a convincing hypothesis, based on public officials' reaction to a request from "RusBusinessNews" to disclose exactly what transportation and sports infrastructure in Ekaterinburg will be renovated and to specify how many roads and interchanges will be built in the city with the use of this $800 million that has been allocated from the budget. According to Mikhail Feldman, the press secretary for BDO Group in Russia (the official consultant for the Russia 2018 bid committee) the organizing committee has not given its consent to release the information we requested.

There can be no doubt that in the absence of public control over how public money is spent, the actual costs of hosting the World Cup will depend entirely on the greed of the Russian ruling class.

Andrei Kashcha and Vladimir Terletsky

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