Soccer as anti-crisis measure

Polish Minister for Sports Miroslaw Drzewiecki recently said on TVN24 that Poland and the UEFA are preparing to carry out what is known as Plan B under which Poland will host most of the games of the socer championships, because Ukraine is experiencing economic and political problems.

UNIAN reports that the Polish newspaper Gazeta Wyborcza cited a UEFA source as saying that the Euro 2012 matches will take place in six Polish and two Ukrainian cities because, except for Kyiv and Donetsk, the other slated cities will not be able to get adequately prepared for the games in a timely fashion due to the economic crisis.

Although this information was promptly refuted, the nerves of the potential host countries are frayed: in May the UEFA is scheduled to name four Ukrainian cities that will host the championship games. What progress are our candidate cities making to prepare for the event? Will the economic crisis be an impediment for big-time commercial soccer in Ukraine? These and other questions were answered by Deputy Prime Minister of Ukraine Ivan VASIUNYK, who is tasked with supervising preparations for Euro 2012, in the following interview to The Day.

How do you feel about sentiments against holding Euro 2012 soccer games in Ukraine? It is speculated that because of our budget deficit we should cancel our involvement or at least give up most of the games in Poland’s favor.

“These sentiments are explained by superficial knowledge of the crisis and Euro 2012. A crisis is usually portrayed as a lack of funds, although in time of crisis money does not vanish into thin air; rather, it keeps working somewhere. I hope to God that the bad stereotypes in financial management and old patterns of state administration will be the only ones to vanish into thin air. I’m sure that this crisis will mark the beginning of progress in our country. Paradoxically, in time of global crisis Ukraine may the last who will become the first.

“What concerns Euro 2012, competitions of this caliber are held all over the world not to deplete the central budget but to replenish it. Our estimates show that the championship will preserve or create two million jobs, slow down the decline in production, provide steel and construction companies with large-scale, long-term contracts, and attract fresh investments in the face of the opposite trend when investors are withdrawing their assets. The government is prepared to give guarantees to all investors who will make financial injections in the key infrastructure projects.

“Until recently Ukraine had to struggle for its right to host the championship and prove that it is capable of doing so. I think that this year, thanks to the championship, our society will have an opportunity to heal its economic organism, awaken public initiatives, and smooth over the political and social conflicts. In conditions of world crisis, Euro 2012 is actually Noah’s Ark that Ukraine has received. It is an opportunity to get a new lease on life and complete our mission. Therefore, the question whether or not to hold Euro 2012 in Ukraine is not on the agenda. The championship will be a truly colossal chance for Ukraine to mitigate the consequences of the economic crisis.”

The European championships have never been held at a time of such a deep economic crisis. Considering this factor, has the government revised the state financing package for Euro 2012? Has it updated its revenue index regarding Ukraine?

“I regard preparations for the championships as a long-term project. By the time Euro 2012 is scheduled to begin we will have built air terminals, hotels, and a transport infrastructure that will remain functioning for the benefit of Ukrainians after the championship. The state program of financing the championship was revised and adopted before the fall of 2008. The overall amount of state investments is close to $10 billion plus $20 billion worth of private investments.

“Is the state making adjustments? It has been and will continue making them, depending on progress in the implementation of construction projects. We have recently received information about subcontracts signed with Kyivmiskbud (the company is the general contractor in the Olimpiiskyo National Sports Complex construction project). Subcontractors bidding for material purchase contracts have lowered the prices by 8-10 percent as compared to the initial figures.

“In addition, the state will increase its share in projects that will have problems with private investments, so as to guarantee its commitments before the UEFA. After the UEFA names the four main cities (May 8, 2009), budget funds will be redistributed between them. I will, however, insist on the completion of projects started by the state in the two cities that will lose the competition.”

How will the crisis affect the commercial success of Euro 2012? Are there any risks of going broke?

“We are faced with such risks every day, going for each other’s jugular in politics instead of taking care of things that really matter. However, this has nothing to do with the crisis or Euro 2012. Regarding the championship’ commercial success, I would like this notion to be correctly understood. A [sports] tournament is not something you do to earn a quick buck and be off with it, although there will be this attitude, too. However, this is not the main point. Euro 2012 is a strategic investment intended to produce a steady income and secure sustained development of this country. The championship is opening up horizons for reconsidering the economic policy as a whole, in terms of new post-industrial endeavors such as recreation and leisure, sports, tourism, and so on. Elsewhere in the world these sectors produce better revenues than traditional businesses. The state and society will benefit from them on a much greater scale.

“Today we hear about Euro 2012 in conjunction with the crisis, but the championship will be held three years from now and all experts predict economic recovery for Ukraine and the rest of the world at this time. I have no doubts at all that Euro 2012 will be one of the most profitable projects ever undertaken by the Ukrainian government. By the way, UEFA experts think so, too. Each such competition has produced more profits for this organization than the previous one. We have started working on a strategy to develop tourism in Ukraine in order to make it attractive to foreign tourists and vacationers.”

Where are the biggest risks today?

“It is the construction of hotels because it involves private investments only. The state is not financially involved in any of these projects. Today the investors who have already launched these projects are faced with the problem of getting access to loans. The 2009 budget envisages money in the Stabilization Fund; it can be used to partially offset the loan interest rate that the private investor has to pay to build a hotel for Euro 2012. Pertinent procedures will be shortly adopted. In addition, the candidate cities have cut land lease fees to nearly zero and reduced a number of other local taxes.

“I recently met with World Bank Country Manager for Ukraine, Belarus and Moldova Martin Reiser. We agreed to organize a conference for foreign investors and Ukrainian officials in this crisis year to consider the possibilities of investments in the infrastructure projects, particularly hotels. Detailed information on this subject will be made available next month.”

Quite a few projects were planned to be built for Euro 2012 at the investors’ expense. What sum can Ukraine actually expect in terms of such investments? Where will this money come from?

“The hotel business constitutes the largest investment area. At the time when it was announced that Euro 2012 soccer games will take place in Ukraine there were but a few 4-5-star hotels available in cities other than Kyiv. Ukraine must have some 270 such hotels to accommodate the championship. Tentative estimates point to 50 billion hryvnias worth of investments. The situation with such hotels varies in various cities. There aren’t many censorial remarks addressing Kyiv. Good progress is being made in Lviv and Odesa.”

“Investment projects reached the realization stage as late as in the second half of 2008. In many cases they are still lacking investors. A number of investment forums with European countries have taken place. We are negotiating US investments using a credit mechanism via Ukraine’s Eximbank. We intend to discuss the possibilities of joint investments in Ukrainian Euro 2012 projects with Polish investors. Here one of the largest projects is the first conession turnpike, Krakovets–Lviv–Brody–Kyiv, which is worth several billion dollars of investments.

“We also plan to extend automobile concession practice to air terminals. There will be a tender for such a terminal at Lviv Airport and eventually for Ukraine’s central Boryspil Airport. I think that the most effective way to channel state investments into Boryspil ($200 million for Terminal D alone) would be by concession. Airports run by professional companies are standard international practice.

“To date not a single large-scale project agreed between Ukraine and international financial institutions (EBRD, EIB, and WB) has been stopped. This serves as a reply to criticism from those who claim that crisis kills the desire to make investments. Moreover, Ukraine is receiving new signals from these institutions. Lviv, for example, has signed a new agreement with the EBRD to receive €50 million for the preparation and acquisition of new ground transport and road construction.”

What about your negotiations with the European Investment Bank concerning a loan to finance 50 percent of municipal roads in the candidate cities?

“They are following a normal course. The last meeting took place several weeks ago.”

Which cities are likely to receive loans for road construction after Lviv?

“The EIB is working with both the government and municipal authorities. On the one hand, we are talking about a loan to the government that will cover half the costs of municipal road construction. On the other hand, the bank is working with individual cities.”

Could you please rank the prospective Euro 2012 host cities in terms of their readiness, in the light of the current economic conditions?

“There are pluses and minuses in each case, but the overall picture shows that each of the six cities has obviously made headway over the past 6-8 months. There is progress in terms of stadiums in every city. What we have is, essentially, a guarantee that the stadiums will be built before 2012. The Olimpiiskyi Complex is the only high risk, but the situation will stabilize before May 2009.

“Regarding the airports, work is underway in Boryspil without any problems there. In the case of Zhuliany Airport, the main thing is that the Kyiv City State Administration (KMDA) should make up its mind about participating in the construction projects, considering that the state has practically completed buildinng a runway at its own expense. In Kharkiv finishing touches are being put to the runway blueprints and the investor has started building the terminal. In Lviv work on the runway will start in a week or two. Several months from now there will be a tender for the construction of the terminal. In Dnipropetrovsk, work on the airport will start after the National Security and Defense Council lifts the ban on its privatization. This is the only way to attract investments to Dnipropetrovsk Airport. No investors in Donetsk so far, but we expect one to come before long and start building the terminal because the runway is ready. I don’t see any big risks with the hotel projects in Kyiv, Odesa, Lviv, and Donetsk. There are certain questions to be resolved in the construction of four-star hotels in Kharkiv and Dnipropetrovsk.

“In addition, every city is actively working on a backup strategy when preparing the airports and hotels. It boils down to the construction of reserve hotels and airports at a distance of up to 100 kilometers (one-hour bus ride) from the host cities. Poltava will be such a reserve city for Kharkiv; Zaporizhia, for Dnipropetrovsk; the resort areas of Truskavets, Morshyn, and Ivano-Frankivsk Airport for Lviv; comfortable modern passenger ships, for Odesa, and so on.