More expensive, worse, longer: Construction of stadiums for 2018 FIFA World Cup
Stadiums for 2018 FIFA World Cup become more and more expensive but still can’t be completed. All available means have been already used: additional funding, concessions from FIFA, even import substitution. No result. Stadiums are not completed, oligarchs – general contractors – ask for more money, while the time is running out.
Immediately after the jump in the currency exchange rate in 2014, general contractors involved into the construction of facilities for the 2018 FIFA World Cup started whining and complaining on soaring costs of equipment, construction materials, etc. According to RBC Information Systems, in April 2014 the estimated average cost of a stadium was some 14.37 billion rubles, but since the second half of that year it started increasing rapidly. In summer 2015 Aras Agalarov, the President of Crocus Group (the builder of stadiums in Kaliningrad and Rostov-on-Don), provided the updated cost of the facilities to Vedomosti newspaper – 17.5 and 18.74 billion rubles respectively. Then Mikhail Khryapov, the Principal General of Stroygas (a subsidiary company of Aleksander Timchenko) has also complained to the periodical: the estimated cost of arenas in Nizhny Novgorod (17 billion rubles) and Volgograd (16.3 billion rubles) might increase by 3 billion rubles. Appetites of other winners of governmental construction tenders are growing as well.
RBC Information Systems: Who builds stadiums for 2018 FIFA World Cup. Costs shown as of April 2014
It is necessary to note that the construction of stadiums is being funded from the state budget. Owners of factories, newspapers, and ships do not spend money on sports – instead, they prefer to enrich themselves by all means. The Government was hesitant how to spend the money in the best possible way. Therefore Anton Siluanov, the Finance Minister of the Russian Federation, had to comfort the oligarchs and assure them that the budget funding for the world championship will not be cut. The Vice Premier Shuvalov decided to comfort ordinary mortals as well and, according to Interfax, in June 2015 told at the session of the Council for Preparations to the 2018 FIFA World Cup that the budget costs for the championship will not exceed 335 billion rubles. Alas, today the state treasury is unable to finance such large-scale events as the Sochi 2014 Winter Olympics (which cost 1.5 trillion rubles). Oligarchs and officials have even remembered an almost forgotten slogan: “The economy must be economic”.
To avoid tightening belts too much, the FIFA has miraculously changed requirements to the Russian stadiums. In the past, these requirements used to be changed only towards the enlargement of arenas and increasing their comfort level – but not now. The mandatory number of seats has been reduced from 40 to 35 thousands for Ekaterinburg and Kaliningrad stadiums. The completion date was extended to the end of fall 2017. The consequent series of corruption scandals involving Joseph Blatter, then-President of FIFA, may explain this wonder. The main beneficiary of the FIFA decision was the Ekaterinburg arena. Dmitry Pumpyansky, the owner of Sinara-Development – the contractor reconstructing the Central Stadium, – was so eager to spend the budget funds, that he planned to demolish the old arena – which is, by the way, an architectural monument – leaving only the frontage. The watchdog authorities were closing eyes on the destructive plans of an oligarch so close to the Kremlin. The monument has been saved only thanks to the crisis and riddled with scandals Blatter.
FIFA requirements to stadiums before the revision in 2014
So the utter billionaires started saving the budget money using such methods as structural changes in the stadiums and import substitution – the sacred cow of the modern economy. For example, Aras Agalarov, the President of Crocus Group, told Vedomosti newspaper about savings techniques used at the arena construction in Rostov-on-Don. The builder had to moderate his gigantomania by simplifying and lightening the roof and reducing the number of elevators almost twice. Now the Rostov stadium has only 25 elevators. Agalarov did not explain why their original number was 45. He also kept silence on numerous issues with the Kaliningrad stadium which, in fact, is being erected on a swamp – although Aleksey Sorokin, Head of the Organizational Committee Russia–2018 had admitted back in 2014 that the island chosen for the stadium construction is flooded on the regular basis. There was enough time to find a new location, but Agalarov decided not to look for simple solutions. Instead, the billionaire has requested additional funding from the regional budget for sand and piles – while the estimated cost of Baltika-Arena was already 17.5 billion rubles. 850 million rubles out of that amount have already been spent of sand to drain the construction site. Agalarov believes that construction of stadiums is a kind of sports patronage from his side and provides Fisht Olympic Stadium with its cost of $600 million as an example of a real price for such facilities.
Doping for billionaire
The Fisht Stadium is a good example, indeed. Example of how much money can be pocketed from a single construction project. The Anti-corruption Foundation has already reported in detail how the Fisht price was growing and how much the cost of similar arenas is in Europe. Another interesting feature of modern corruption schemes is their rationalism. It is now considered a good style to use same facilities for money-making several times. The streets of Moscow can be renovated indefinitely, while Sochi is a true Klondike for regular upgrades of sports grounds. Apparently, the Fisht Stadium is only the first facility in a long series of future renovations. The construction of Fisht started after the decision to conduct the 2018 FIFA World Cup in Russia – so why was not it originally built in accordance with FIFA requirements? Actually because this would be like killing the goose that lays the golden eggs! It was much easier to equip the stadium with temporary stands for 3.54 billion rubles. A nice example of best construction practices.
It is surprising that the President of Crocus Group have not mentioned Zenith-Arena. This is a true example of a construction project beneficial for the contractor. The stadium whose construction has started 10 years ago is still not complete – an illustration of the total devastation in the country. The completeness of the facility is 85%, and there is no further progress. In fact, lots of work have been done and plenty of money spent. The cost of Zenith-Arena was growing faster than the construction progressed. The initial price of the project was 6.7 billion rubles, while its current cost has reached 39.2 billion rubles.
The Zenith-Arena has become a black hole for the Federal Budget with active participation of another oligarch – Oleg Deripaska. In 2008 the previous Zenith-Arena general contractor – Avant company – has been replaced with Inzhtransstroy-Spb controlled by Bazel belonging to Deripaska. Perhaps, there were strong reasons to replace the contractor – but if so, Deripaska had to be replaced long ago as well. In 2009 Deripaska and the whole construction site were waiting anxiously. As soon as Russia has become the host of the 2018 FIFA World Cup, it was decided to make the Zenith-Arena the stadium for semi-final games. The project cost jumped to 23.7 billion rubles. A year later the FIFA has revised its requirements to the stadium – and Deripaska received more than 9 million rubles in additional funding for the construction. The process has stalled, and in 2013 the billionaire got an incentive of 2 billion rubles. This summer Smolny Palace has again provided additional funding of 4.3 billion rubles to complete the Zenith-Arena. The doping did not help – the neverending construction project on the Krestovsky island has not become a fully-featured stadium yet. Instead Inzhtransstroy-Spb has made in public a number of claims against the St. Petersburg Administration, including a complaint on insufficient funding, and announced that the works are being suspended. De facto the construction is on hold since April 2016.
Completeness of Zenith-Arena as of April 2016 (Photo: Aleksey Danichev/RIA Novosti)
Upon earning over 32 billion rubles on the construction of the Zenith-Arena, Oleg Deripaska decided to drop out of the game. The city administration – allegedly, angered by this démarche – is now looking for a new contractor. The change of contractors will inevitably lead to new costs. For the whole 8 years of blatant embezzlement of budget funds, there were no high-profile cases against structures affiliated with Deripaska. The only exception was a case related to swindling on an especially large scale – but it was rather a reaction to the open sabotage of the contract by Inzhtransstroy-Spb than real struggle against violations of the law. According to the St. Petersburg Chamber of Control and Accounts, not only was not the Municipal Committee for Construction monitoring the spending of funds, but also making decisions to provide additional financing. Such a benevolence to the contractor is just another proof that the funds ‘used’ by Inzhtransstroy-Spb will never be recovered.
Plenty of money in muddy water
Basically speaking, the replacement of the general contractor for the Zenith-Arena was a decision made by Inzhtransstroy-Spb – not by the authorities. But what happens if a contractor is not willing to give up such a tasty piece of the budget pie? In such cases, it is virtually impossible to replace it. It is important to remember that all these governmental contracts have been awarded to people from the Forbes list at a closed session of the government. And it is highly unlikely that a fair contest was held behind the closed doors.
PSO Kazan company owned by Ravil Ziganshin – the contractor for stadiums in Saransk and Samara – felt itself disadvantaged from the very beginning. And although, contrary to all expectations, the Federal Autonomous Institution ‘The General Directorate of State Expert Assessments’ has approved the cost of the Saransk arena at 17 billion rubles – consistent with projects of Timchenko and Agalarov, – the cost of the Samara stadium was only 13.4 billion rubles until recently. The general contractor was not happy to be a ‘budget underdog’. In May 2016 Vitaly Mutko, the Minister of Sport of the Russian Federation, has confirmed the total suspension of works by the contractor. Then the press service of the Governor of the Samara Region has announced that the contractor will be replaced. Grad (Hail) construction company recommended personally by Governor Nikolai Merkushkin was named as the successor to PSO Kazan.
Construction of the Samara stadium (Photo: Artem Filatov/TASS)
However, Ravil Ziganshin – although a novice in the Russian business elite – turned out to be tougher than expected. PSO Kazan is a part of TAIF group of companies controlled by the family of Mintimer Shaimiev, former President of the Republic of Tatarstan. It is not a coincidence that when the conflict between PSO Kazan and the Administration of the Samara Region has escalated in full, the Tatarstan authorities rushed to settle this issue with Igor Shuvalov, First Deputy Prime Minister of the Russian Federation, while regional media started praising Ziganshin. The efforts brought the desired result. Shortly after the attempt by Merkushkin to replace the general contractor, media announced a new decision of the Head of the General Directorate of State Expert Assessments approving the cost of 17.3 billion rubles. Igor Shuvalov, who visited the Samara region in July 2016, has added extra 900 million rubles to that amount. Apparently, the Vice Premier has forgotten his words about the 335 billion cap for the championship total budget. Based on recent scandals involving Shuvalov, such an amount is neglectable for him.
Most high-profile corruption scandals would probably erupt after the 2018 FIFA World Cup – but some details are popping-up already. For example, the Audit Chamber of the Russian Federation has reviewed spending on the design of sport facilities. It turned out that the design tenders had been won by companies unable to perform the required design works. The winners – Federal State Unitary Enterprise Sport Engineering, State Unitary Enterprise of the Samara Region TerrNIIgrazhdanproekt, and NPO Mostovik (Bridge Builder) Limited Liability Company – have engaged some 40 subcontractors, including foreign companies, into the implementation of the governmental contracts. The Federal State Unitary Enterprise Sport Engineering spent 75% of the received budget funds on subcontractors’ fees. The remaining 25% are, in fact, its commission for the brokerage between the client and actual contractors.
According to a T
ransparency International report, the lack of transparency in the financing of the 2018 FIFA World Cup is even worse than it was during preparations for the Sochi Olympics. The number of media resources publishing actual information in relation to the championship is low. All these resources are specializing in news and provide only general information. In fact, the only source of data on budget funds spending is the web-site of the Audit Chamber of the Russian Federation, which monitors the situation on the regular basis. Contracts between the general contractors and subcontractors are still a closely guarded secret. In fact, these efforts to hide the real cost of the 2018 FIFA World Cup are very well understandable. The Sochi scenario is being repeated now – despite the impoverishment of the country. The fat 2000s have passed, but luxury lifestyle habits can’t be abandoned.
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