Published: July 18, 2008
By Julian Evans
As soon as the final whistle blew in the Euro2008 final in Vienna, anxious attention turned to the 2012 championship, scheduled to be held in Ukraine and Poland. The head of UEFA, Michel Platini, said Ukraine and Poland’s right to hold the next championship, in 2012, could be in jeopardy.
Platini, who heads out to Kiev in July, warned that delays in building stadiums in Kiev and Warsaw could force UEFA to hold the tournament elsewhere. He said: “"We'll do everything we can to hold it in Poland and Ukraine. The only thing which would make me decide not to go is if there is no stadiums in the capitals, Warsaw and Kiev. If there are no stadiums there, no tournament."
At the moment, the Ukrainian government is in the middle of a bitter dispute over the Olympic Stadium in Kiev, where the Euro2012 final is meant to be held. The stadium is supposed to be renovated, and a Taiwanese architectural firm, Archasia, won the contract to renovate it.
However, so far, no work has begun on the stadium site, because of a shopping centre built near to the stadium. The Ukrainian government has ruled that the shopping mall, which is being constructed, has to be knocked down to allow easier access to the stadium. UEFA has also said that if the shopping mall is not knocked down, Ukraine will not be able to hold the final there.
The owner of the mall, the Russian investor Vadim Novinsky, wants US$250mn in compensation if his mall is going to be knocked down. If the issue went to court, it would take at least two years to resolve, and would mean it was impossible to hold the final at the Olympic Stadium.
Armen Khachaturyan, a partner at Ukrainian law firm Asters, which is acting for Novinsky, says: "Novinsky wants to act in good faith, and to preserve his good reputation in Ukraine. So he and the government signed an agreement in February that he would be compensated with US$250m of land elsewhere in Kiev." However, the new land has still not been found, and until it has, Novinsky will not knock down the mall.
Khachaturyan says: "There are so many urgent issues facing the government in its preparations - there are no roads, no airports, no PPP law. But everyone is blaming this one shopping mall for the delays. It's a creative problem."
The government also has legal problems with Archasia, the Taiwanese architect. The firm was given a few weeks to fill in several forms which the government sent it, and told it would lose its license if it didn’t complete the forms in by mid-June.
Archasia failed to meet this deadline, and now looks like losing the US$200mn contract to re-furbish the stadium. It is now threatening legal action, saying: "This request [to complete the paperwork by June] is neither lawful nor reasonable because it takes many days to complete the verification due to our two countries' lack of diplomatic ties.”
Two international architect firms, Foster & Partners from the UK and GMP from Germany, are now bidding for the contract, according to the Ukraine sports ministry.
Surprise winners
When Ukraine and Poland won the right to hold Euro2012 last year, it was a surprise. Italy had been the front-runner, and Hungary and Croatia, whose economies are far more advanced than Ukraine's, also had a strong bid. Ukraine's economy is, most analysts agree, at least five years behind Russia in terms of maturity, and yet even Russia has yet to hold a major sporting event since it attained independence in 1991. Ukraine, meanwhile, has so far hosted only the Eurovision Song Contest.
Sarah C. Carey, CIS partner at the law firm Squire Saunders, says: "Both Ukraine and Poland need to build new highways, new hotels, stadiums, healthcare facilities, security infrastructure. There's a huge amount of preparation for this sort of major sporting event. The challenge is huge."
Both Ukraine and Poland have big spending plans for the Cup, which will provide a major boost to the local construction markets. Robert Obetkon, construction market analyst at PMR Consulting in Poland, says: "The combined amount of money invested in the organization of Euro2012 in Ukraine and Poland will be close to Eu38bn. One third of this will be for new roads, another third for railways, and the rest for hotels, airports and stadiums."
How will the two countries finance these projects? Both have considered using public private partnerships (PPP) to help attract private financing on a concession basis.
But the problem with PPP is that neither county yet has the legal framework in place to do PPP deals, and time is running out.
Hanna Gronkiewicz-Waltz, mayor of Warsaw, says: "Of course, we're trying to improve our PPP laws, but I don't think PPP is the best solution. At the moment, we don't have a good legal framework, so there will be a lack of investor confidence. It's better to go the normal way, funding projects off our own balance sheet." Gronkiewicz-Waltz says the Warsaw Stadium, where one of the semi-finals will be held, will cost Eu330m, which is being financed through the Federal and municipal budget.
In Ukraine, however, president Viktor Yushchenko has said that the government needs to attract private investment into infrastructure projects rather than financing them from the government's own balance sheet. He told a conference in May: "We must get funding from private industry...the government does not have it."
However, the director of the national agency for 2012, Erhen Chervonenko, says the government is dragging its feet on passing the necessary concession legislation to attract PPP financing. He told the same conference: "We have an offer in hand from American investors, and if we get approval from the Ministry of Transport work could begin. But they seem to have their own plans, and nothing is being done. If we don't solve the road problem, we can't host the tournament."
Ukraine seems to be struggling to get its Euro2012 preparations off the ground. It is not just that the government has not yet passed a concession law. It hasn't even passed a land acquisition law, which is a serious obstacle for the purchasing of land for the construction of the Grand Ring-Road around Kiev. The main problem facing Ukraine's preparations is the disunity and infighting within its government, and particularly between prime minister Yulia Timoshenko and president Viktor Yushchenko. The balance of power between the government and the presidency is very unsettled, because of a rushed constitutional reform that was passed during the Orange Revolution.
Because of the bitter competition between the two leaders of the Orange Revolution, government has been in paralysis since 2004, and hardly any serious legislation has been passed. Obetkon says: 'The absence of a clear division of decision-making powers on the part of the authorities is currently the greatest threat to the timely completion of investment projects in this country."
Armen Khachaturyan, partner at Asters, says: "Because of the political situation in Ukraine, I have a feeling that the government doesn't act properly, because its attention is deflected by the war between the prime minister and president. The government eventually created a special agency, headed up by Chervonenko. But he complains he hasn't been given full authority." Indeed, at a special EBRD panel on Euro2012, held during the EBRD annual conference in Kiev, Chervonenko didn't even turn up.