Poland, Ukraine Suffer As Euro Soccer Hosts

WARSAW, Poland -- Even as the Euro 2012 soccer championships kick off Friday, it’s already clear there will be big losers in host countries Poland and Ukraine.

Supporters of the Polish national soccer team at the National Stadium in Warsaw on June 8 prepare for the UEFA Euro 2012 tournament's opening match between Poland and Greece.

The first former Soviet-bloc nations to host the quadrennial tournament have spent almost $39 billion getting ready, including $25 billion in Poland and $14 billion in Ukraine.

Besides accommodating an expected 1 million soccer fans, the two countries are betting that new stadiums, roads, and other infrastructure will help give a nice boost to their economies and local companies.

So far, it hasn’t worked out that way.

Three of Poland’s biggest construction companies have declared bankruptcy in recent weeks after running up hundreds of millions in losses on Euro 2012 projects.

Engineering group PBG (PBG), which built three of four new Polish stadiums for the tournament, on June 4 asked to restructure $427 million in debt, much of it held by Polish banks.

“Who’s going to pay for this? PBG’s example shows it will be banks,” Piotr Czarnecki, chief executive of Raiffeisen International’s (RBI) Polish unit, said on the TVN CNBC channel on June 5.

Problems of racism and politics also dog the games.

Polish and Ukrainian fans have been the subject of TV coverage showing racist behavior toward nonwhite fans.

Other press stories have related assaults on Africans living in Kiev.

Officials in both countries say the coverage exaggerates the extent of the problem.

Ukraine also has a political issue.

Former Premier Yulia Tymoshenko is in prison on corruption charges, which many in the West say are highly questionable.

The French as a result refuse to send an official delegation to the Ukrainian part of the tournament.

Polish builders got in trouble because they competed fiercely for contracts, submitting bids as much as 40 percent below what the government had expected to spend.

Rising costs, including a spike in oil prices over the past four years, wiped out their profits and sent them deeply into debt.

PBG had ventured out of its traditional oil and gas engineering business to build roads and stadiums including the National Stadium in Warsaw where the opening game will be played.

The two other bankrupt Polish contractors are DSS (DSS), which built part of a highway from Berlin to Warsaw for the tournament, and Poldim, which worked on a road project in Ukraine.

Ukraine, meanwhile, is saddled with $6 billion to $8 billion in debt from the championships—more than the $4 billion Greece lost on its financially ruinous 2004 Olympics, says Anatolii Baronin, an analyst at Kiev-based research group Da Vinci.

In contrast to Poland, where European Union aid and loans covered more than half of Euro 2012 costs, national and local governments in Ukraine footed the bill for almost two-thirds of expenditures.

The added debt is manageable, Baronin says, “but it is a dangerous trend that soaks up financial resources” from the country’s private sector.

Ukrainian officials have predicted that public-works improvements connected to the tournament will help attract foreign investment.

But, says Baronin, the biggest obstacle to investment isn’t lack of infrastructure—it’s a business climate marred by corruption and excessive government regulation.

Ukraine’s spending on Euro 2012 suggests how serious the financial problem is.

An analysis by Bloomberg News shows that, on a per-seat basis, Ukraine spent twice as much as Poland did on building and renovating stadiums for the tournament.

Per-seat costs in Ukraine were also far higher than those for stadiums for the 2010 World Cup in South Africa.

Ukrainian officials did not respond to repeated requests for an explanation of the higher costs.

Many of the contracts in Ukraine were awarded without competitive bidding.

Was there corruption?

“Of course, yes,” says Erik Nayman, a managing director of Capital Times Investment in Kiev.

Since 2010, Ukraine has slipped to 152nd from 134th in Transparency International’s ranking of the perception of corruption in 182 countries around the world.

“The government doesn’t have real political will to act against corruption,” says Olga Savran, manager of the Organization for Economic Cooperation and Development’s Anti-Corruption Network for Eastern Europe.

Poland, which ranks 41st on the Transparency International index, is far more likely than Ukraine to see an influx of new investment, says Petr Bittner, a Prague-based analyst at Erste Group.

Poland poured more than 90 percent of its Euro 2012 spending into transportation improvements, including the addition of hundreds of miles of new highways.

Poor roads and outmoded rail and airport facilities have long been a deterrent to foreign investment, Bittner says.

“This will have an impact on the profitability of Polish companies and the entire economy.”

Source: Bloomberg