Ukraine’s Euro 2012 preparations rife with corruption and overspending
Kyiv Olympic Stadium is one of the Ukrainian venues for the Euro 2012. Photo: NSC Olimpiyskiy, www.nsc-olimpiyskiy.com.ua
24.05.2012By Mark Rachkevych
The Euro 2012 countdown is almost over. After five years, co-host Ukraine has experienced political transformation, scandals and anticipation in tandem with large scale infrastructure projects that saw some 2,000 kilometers of roads get commissioned, airport capacity almost double in each host city, and four stadiums either get built or undergo renovation.
Extra plotlines have been heaped on Ukraine’s storied rocky road of preparation, while other narratives have collapsed. They’ve only magnified the myriad problems the nation faces to the outside world.
They range from corruption running amuck, rollbacks of basic freedoms, persecution and imprisonment of the nation’s opposition, and various human and animal rights abuses, all of which have nothing to do with football, and everything to do with Ukraine’s seemingly frustrating attempt to shed the last vestiges of its Soviet past.
Disappointingly, several original narratives have crumbled.
“The Euro was an excellent opportunity for Ukraine to show that it’s an open country, with an open economy that welcomes foreign visitors,” recalled Johannes Andersen, a Kyiv based Danish freelance foreign correspondent, consultant and contractor who has followed political affairs in Ukraine for years.
But the Danish expert lamented that instead Ukraine has failed to foster a favorable investment climate with clear rules, including an independent judiciary, unambiguous and predictable tax laws and solid property rights.
“But it totally missed the opportunity to harness the Euro and show it could manage organizational issues and modernize its infrastructure, it missed its chance, it made small drops in a big ocean of what could’ve been done,” he added.
Justified or unjustified costs
So to paraphrase poet Robert Frost, there are still promises to keep and miles to go before one can sleep.
And one person who definitely won’t be sleeping is European football honcho, UEFA president Michel Platini.
In response to whether he’ll breathe a sigh of relief once the mega event kicks off in Warsaw on June 8, Platini admitted he won’t relax until the curtains close in Kyiv on July 1. That feeling of anxiety is shared by many who wonder if Ukraine’s roads will be safe enough, if the airports will process passengers expeditiously, and if the police will be able to communicate in English and temporarily stop shaking down drivers or passerby for cash, among other concerns.
As for promises, many question whether the $10 billion taxpayer price tag to overhaul its outdated Soviet infrastructure is justified for such an impoverished nation as Ukraine where, according to the World Bank, 26 percent of the population lives in poverty, and an overall current GDP per capita of only $7,200 a year.
“Three weeks is a short window of opportunity for Ukraine so you want to invest in long-term projects and avoid single-use ones…but the way Ukraine has done it is that there’s a lot of dead weight on expenditures,” said Andrew Wilson, a professor of Ukrainian Studies at the School of Slavonic and East European Studies at University College London.
Authorities assert that the public needs much of what has been built. They say Ukraine has been running on its last resources since it gained independence in 1991. The roads, airports and railroad links should cut down on transportation costs and raise the profile of this nation of 46 million people as a competitive transportation hub.
As for the stadiums, mainly in Kyiv and Lviv, which cost taxpayers nearly $1 billion, experts have acknowledged that their costs will never be recouped.
Despite the stadiums’ limited uses, Alex Weigelt, a partner at Noerr Kyiv law firm said that, if managed wisely, they could earn substantial money, although they’re unlikely to compensate for overall costs.
“What investors look at first is population and purchasing power,” Weigelt said of the nation’s capital, and most populous and wealthy city.
Ukraine’s estimated Euro 2012 bill and widespread corruption
Still, nobody really knows how much public money has been spent, said lawmaker Ostap Sermerak, who sits on the legislature’s budget commission. He added that kickbacks on Euro construction projects range from 40 to 60 percent.
There are currently 120 criminal cases open related to Euro 2012 construction projects, Kyiv’s interior minister spokesperson announced on March 27.
Parliamentarian Semerak said that the state’s Euro 2012 budget has increased from $1 billion to $10 billion, or by a multiplier of 10 since 2007 when it was chosen as co-host with Poland. And the overall approach has also changed.
Earlier the so called Orange government of ex-President Viktor Yushchenko and former Prime Minister Yulia Tymoshenko envisioned that 80 percent of costs would be covered by private investors via public-private partnerships, such as concessions.
But political squabbling between their camps continued and foreign investors gradually lost interest, especially after the global financial crisis hit in late 2008. UEFA had even threatened several times to take away the tournament from some of the host cities.
When President Viktor Yanukovych was inaugurated in February 2010, he swiftly moved to draft a new Euro 2012 action plan and budget, and created the infrastructure ministry.
The most drastic change, according to lawmaker Semerak is that government cancelled competitive tenders for Euro 2012 jobs, which “opened up the Klondike for kickbacks that have resulted in inflated costs.”
Questionable public procurement projects ensued, some of which have no resemblance to football.
For example, journalists discovered that 10 wooden benches for a metro station in Kharkiv cost taxpayers $80,000. Another investigation revealed that Donetsk had purchased 10 portable toilets for $500,000 or $50,000 a toilet. Some $18.5 million was spent to build a helicopter aerodrome complete with at least six helipads 150 kilometers south of Kyiv. Moreover, the government started building three ice rinks under the Euro 2012 program altogether worth $11.5 million.
Semerak furthermore observed that 48 changes have been made to the official Euro 2012 plan since it was approved by the Cabinet of Ministers in April 2010, on average twice a month.
When asked what this means for the government’s project management skills, Semerak replied: “This indicates that they are skillfully corrupt people because the no-bid process allowed them to increase expenditures and benefit from large-scale kickback schemes.”
And only a handful of companies, mostly registered in Yanukovych and Infrastructure Minister Borys Kolesnikov’s home region of Donetsk have received the lion’s share of government orders.
One company, Altkom received some $1 billion in government orders in 2011-2012. It worked on the Lviv airport, and built roads and the new Lviv Arena, for example. Another company is AK Engineering, the general contractor for Kyiv’s reconstructed Olympic stadium which cost the public $600 million – $160 million more than Munich’s Allianz Arena that has a similar capacity size. There’s currently a criminal case open against the company’s former director.
“Ukraine is a notoriously corrupt country and the government isn’t held accountable by the people,” said Dirck Smits van Oyen, the former general manager of the successful Ukraine-Poland Euro 2012 bid who today runs a business start-up consultancy in Kyiv. “Also, had public relations been handled smarter, it would’ve been beneficial for Ukraine.”
Kolesnikov has defended the no-bid public procurement approach, insisting that he had to initiate no-bid tenders to speed up the process since the previous government fell behind schedule. He has admitted that 25 percent of public money could’ve been saved with tenders but that the process was too time consuming.
“The greedy man always pays more,” he told the English-language Kyiv Post newspaper. As for choosing Donetsk-based companies, Kolesnikov said he felt safer doing business with companies familiar to him.
In comparison, much wealthier Britain will spend about $16 billion on the 2012 summer Olympics in London, according to Simon Chadwick, a professor of sport business strategy and marketing at Coventry University – whereas, Ukraine is only hosting half the tournament.
Mark Rachkevych is a Ukraine-based journalist working for the English-language newspaper, the Kyiv Post.