EURO 2012: A costly lesson

Poland is to spend PLN 88 bln on co-hosting  Euro 2012. The expenditure earmarked for the stadiums alone amounts to as much as  PLN 5 bln. For general contractors it should have been a construction bonanza. But perhaps the experience gained will be more valuable than the financial benefits

Zuzanna Wiak

In a year's time, on June 8th 2012, millions of Europeans will be transfixed in front of their TV sets, while those who have been lucky enough in the ticket lottery will be seated in Warsaw's National Stadium to see the kick off of Euro 2012 - the European football championships. Poland is to be the host of 16 of the  31 scheduled matches. Apart from the opening game in Warsaw, the country will host eleven matches in the group phase, three quarter-finals and one semi-final. Competing teams will meet five times at the Warsaw venue, four times at the PGE Arena in Gdańsk and three times apiece in Wrocław and Poznań. The decision to entrust Poland and Ukraine with the tournament was the catalyst to start sports projects on an as yet unheard of scale. So who has gained the most from organising the championships?

Money piled up in the stadiums
The biggest beneficiaries of the money designated for the construction of stadiums are undoubtedly Hydrobudowa and Alpine Bau. As members of a variety of consortiums they have scooped up three of the biggest contracts. "Projects directly connected with Euro 2012 that have been won for our portfolio include those for the construction of stadiums in Poznań, Gdańsk and Warsaw. The total value of these contracts comes to almost PLN 2.1 bln net," claims Rafał Damasiewicz, a board member of  Hydrobudowa Polska and financial director of the National Stadium project in Warsaw.  A consortium made up of JSK Architekci,  gmp International and Schlaich Bergermann und Partner designed the capital city arena, while another consortium consisting of Hydrobudowa Polska,  Alpine Bau Deutschland AG, Alpine Bau GmbH, Alpine Construction Polska and PGB has been commissioned with erecting the structure. The facility is being built on the 18 ha site of the former 10th Anniversary Stadium (Stadion Dziesięciolecia), which was built in 1955, but ceased to function as a sports venue in the mid-1980s. Its stands will accommodate 55,000 spectators. The PGE Arena Gdańsk stadium, which is to have a useable area of 36,000 sqm, will have seating for 42,000 spectators. It is  being constructed by a consortium made up of Hydrobudowa Polska, Hydrobudowa 9, Alpine Bau Deutschland and Alpine Bau, according to a design drawn up by the Rhode-Kellermann-Wawrowsky architectural studio. Meanwhile, Poznań's city stadium, which has been operating for 30 years, has been modernised according to a design by Modern Construction Systems. This 43,000-seater facility also features 45 private boxes and 1,100 business seats. The contract for the construction work was given to a consortium consisting of Hydrobudowa Polska, PBG, AK-BUD Kurant, Alpine Construction Polska, Alpine Bau Deutschland and Alpine Bau. So far, the majority of the stadium projects are progressing without disruption, but things have recently become more tense regarding the National Stadium. Everything is indicating that due to construction errors the structure will not be finished on time. However, the construction of the stadium in Wrocław has had the least luck of all. The facility was to have been built by a consortium made up of Mostostal Warszawa, J&P Avax, Wrocławskie Przedsiębiorstwo Budownictwa Przemysłowego  nr 2 Wrobis and Modern Construction Design in a contract worth PLN 730 mln gross. A year after the project launch, the stadium should have been 40 pct completed, but by this time only 7 pct of it was in fact done. Due to the delays the city of Wrocław decided to throw the companies off the construction site and hand the project over to Max Bögl Bauunternehmung. The stadium is now expected to be opened in September this year. Hydrobudowa Polska was one of the parties that originally entered the bidding for the construction contract. "We successfully completed the prequalification, which had very strict conditions. In the second stage, it was the price that was the decisive factor. Our competitors offered a lower price, so they won," recollects Rafał Damasiewicz. Wrocław's venue, also designed by JSK Architekci, will have six tiers, 43,000 roofed seats and an area of over 4,100 sqm.

Highway to the Euros?
The run up to Euro 2012 is a time of intense effort for construction companies, and the fight for the lucrative construction contracts for stadium projects is not the only chance they have to earn good money. "If we look at the preparations for the tournament in a broader context and include the construction of motorways and expressways, we can conclude that thanks to Euro 2012,  Hydrobudowa and its partners are working on projects worth PLN 3.7 bln. This is the combined value of the contracts for the construction of the A1 motorway between Toruń and Kowal, the  A4 motorway from Tarnów to Dębica and the  S5 expressway forming the ring road of Bojanów and Rawicz," explains Rafał Damasiewicz.  However, at the same time he emphasises that the contracts did not include any provision that the above-mentioned sections had to be finished in time for the tournament.
One of the most important roads which is to be built for the championships is the A2 motorway. But whether it will be completed on time is unclear. The General Directorate of National Roads and Motorways (GDDKiA) estimated in 2009 that it would spend app. PLN 5.7 bln on the construction of the 90 km section between Warsaw and Łódź. Much to their surprise, Chinese consortium China Overseas Engineering (COVEC) offered to construct a 50 km section for just PLN 1.3 bln. The motorway was supposed to be opened in May 2012, a month before Euro 2012 kicks off. But the Chinese contractor had lowered its bid so much that it was very hard for it to find subcontractors at the right price. The Chinese also had difficulty finding construction materials, which they wanted to buy at a low cost. As a result the project suffered delays from the outset. Since January this year, Chinese construction teams have been arriving in Poland as the local workers were too expensive for the consortium. After a while even the Chinese that had been drafted in stopped receiving salaries. In mid-May, ?Gazeta Wyborcza' revealed that the consortium had sent a letter to its subcontractors stating that due to a lack of imbursement from the GDDKiA it was cancelling contracts with subcontractors as of May 18th. The ordering party, however, insisted that all the payments had been settled on time. And then, two days later the GDDKiA announced that the COVEC consortium would complete the project on time. The pace of construction is apparently to be speeded up so the motorway can be in use during Euro 2012.

Refusing to take the train
There are around a thousand railway stations in Poland. The Polish State Railways (PKP) took the decision to modernise 77 of them over the period 2010-2012 in a total investment of PLN 1.2 bln. Some of these stations were intended to be showpieces for Poland during Euro 2012. Among the most important railway projects is the renovation of the 30-year-old Central Station in Warsaw, a contract worth app. PLN 47 mln won by Porr Poland. This is a relatively small amount taking into consideration that initially talks were being held about the construction of a completely new station, but the final project turned out to be just a face-lift. Other railway projects were also unlucky. PKP did not manage to finalise an agreement with French company Nexity, which was poised to redevelop Warsaw's Dworzec Zachodni station. Negotiations were then switched to Slovakian developer HB Reavis, which is planning to build an underground railway terminal, offices and a small hopping centre on the 1.6 ha site. However, the project has no chance of being completed before the tournament as its construction will take at least two years. "The biggest disappointment of the preparations for Euro 2012 is the situation with the railways. When the  Germans held the event in 2006, their railways were brilliantly prepared for it. Thanks to this they registered a 30 pct growth in profit y-o-y.  It once seemed that the situation might be similar in Poland. However, it is the airport infrastructure which is developing in a much better way," explains Jacek Bochenek, the director responsible for the Euro 2012 Project at Deloitte.

Trouble in store
Although not all the projects that were supposed to be finished for Euro 2012 have been realised, some did not matter much anyway. "A lot of projects which were described as Euro 2012-related enterprises had nothing to do with the event. Councils wanted to use as many EU funds as possible - however, they did not take into account the fact that they would need to make their own contributions to such projects. When they realised this, they started cancelling these projects. Some schemes were abandoned due to the sluggishness of officials, who turned out to be incompetent when it came to organising projects of this type. However, I think that Euro 2012 will prove to be something of a learning curve for public officials regarding the organisation of big, international events. UEFA has left us with a lot of accumulated knowledge and it is now up to us whether we manage to use it in the future," believes Jacek Bochenek. According to the PL 2012 company, the tournament has speeded up road infrastructure projects by three or four years. Meanwhile, according to the Impact report prepared by scientists from the Warsaw School of Economics, the Jagiellonian University in Kraków and Łódź University, over the 2008-2020 period Euro 2012 will contribute to a growth in GDP of 2.1 pct - an injection of PLN 27.9 bln into our economy. Therefore the PLN 88 bln spent on organising the event does not seem to be such a crippling amount. "Even though projects connected with Euro 2012 have had a significant influence on the development of Hydrobudowa Polska, their influence on the development of the entire construction industry has been rather moderate. Admittedly, the last two years were a boom period in infrastructure construction, but the majority of projects would have been carried out anyway thanks to the stream of money flowing in from European funds. Nevertheless, Euro 2012 has undoubtedly been an additional, positive stimulus. Moreover, it has partially alleviated the effects of the stalled residential construction market," claims Rafał Damasiewicz. But the resuscitated construction industry is already viewing dark clouds on the horizon. "The worst time for Polish construction companies could be 2013. This is evident from both government and EU announcements, which are encouraging us to save money. There will be less and less European money available for such investment. Companies operating globally will manage - if they cannot carry out projects in Poland, they will focus on work abroad. Construction companies approached Euro 2012 as though it were a cash bonanza. They knew that certain facilities would have to be built, so they pushed up the prices. If they hadn't forced the prices up, they might have been able to diversify their order portfolios in a better way and perhaps more facilities would have been built. A lot of infrastructure projects are being developed at huge prices, and these developments could have been postponed to a later date when prices on the market are not so high," argues Jacek Bochenek. Hydrobudowa Polska is planning to use the experience gained to turn itself into a force on the global construction market. "In the past, our core business was with environmental protection projects, such as sewage treatment plants or waterworks infrastructure. Thanks to winning the stadium and motorway contracts, not only have we successfully filled in the gap after finishing the contracts in our core business, but we also had record financial results in 2009 and maintained our revenues at a high level in 2010. This year we are finishing the construction of the stadiums in Gdańsk and Warsaw (the stadium in Poznań was opened last year) and we are continuing with the remaining infrastructure projects. The revenues of the group in 2011 will not be lower than last year's, and will amount to app. PLN 1.6 bln. And it is not only measurable financial benefits that these contracts have given us. Our staff have gained invaluable experience and obtained the references that will make it easier to participate in future tenders for the construction of sports facilities in the country, thus opening the road for us to international markets such as Russia, Saudi Arabia and Qatar, where stadiums will have to be built for future World Cups and other sporting events," claims Rafał Damasiewicz.