Sochi redux? St. Petersburg stadium echoes battle between investment, corruption

Slated to be one of the host sites for the 2018 World Cup, Krestovsky Stadium has been plagued by cost overruns and opaque business dealings. The project could end up costing St. Petersburg more than $1 billion.

Locals call it "The Spaceship" – a gigantic, futuristic saucer perched on the edge of the Baltic Sea. Slated to host several high-profile, international soccer matches in this June's FIFA Confederations Cup and next year's World Cup in Russia, Krestovsky Stadium is one of Russia's longest-running construction projects.

And, as often seems to happen in this country, it is an almost bottomless sinkhole of financial scandal.

Vladimir Putin's government has used to drive basic infrastructure development while promoting Russia on the world stage. And the 68,134-seat stadium, also known as the Zenit Arena, is emblematic of that species of prestige projects tied to key international sporting events, such as the 2013 Kazan Universiade or the 2014 Sochi Olympics.

That strategy drew mixed reviews in Sochi, where there appear to have been improvements in quality of life, but at the cost of upwards of $50 billion and incessant allegations of corruption. And observers warn that the "Spaceship" could be charting a similar course.

"Nobody denies that the city needed a new stadium. But somehow they found the most wasteful, non-transparent, and expensive way to do it," says Lyubov Sobol, a lawyer with the Foundation for Struggle with Corruption, a group associated with opposition leader and anti-corruption crusader Alexei Navalny. "Now the authorities say the stadium is ready, and everything is OK. But they add that if there is more investment – how many billions more? – it will be absolutely ready. It is not ready, and it has a lot of defects."

'A slow-burn scandal'

It began in 2004 with a modest plan to replace the Soviet-era Kirov Stadium, home to St. Petersburg's Zenit soccer team, with a bigger and more modern structure capable of hosting international matches. The estimated price tag was 6.5 billion rubles ($120 million) at the time.

It has since gone through several design changes, contractors have been switched, vast sums of money appear unaccounted for, and the cost has soared at least seven times to 44 billion rubles (about $730 million). It was officially declared complete last month, though experts say it is far from ready, and the final price is likely to ring in at more than $1 billion for the city of St. Petersburg.

Twelve modern stadiums in 11 cities are nearing readiness, seven of them brand new, to accommodate the 2018 World Cup, which Russia is hosting. Moscow is officially spending around $11 billion to support stadium construction, high speed rail links, hotels, and other facilities for the FIFA games. In an indication that not all is going well, the Russian government suddenly boosted its spending last month by $325 million, without offering any explanation.

The Krestovsky Stadium is now purposed as part of the World Cup project, and a great deal of money has been spent to bring it up to FIFA standards. However, unlike all the others, the St. Petersburg stadium receives no subsidies from Moscow and is being built entirely at the expense of the local budget, because it's been a city project all along.

"This is one of the biggest puzzles for people around here. All the other cities are building or refurbishing their stadiums on federal money. But we're paying the whole cost," says Dmitry Sukharev, head of the St. Petersburg branch of Transparency International, the global anticorruption watchdog. "When the price of the stadium rises, the city has to take money out of the budget for schools and hospitals because finishing it is a political priority."

There haven't been public protests over it, unlike the local government's controversial decision to transfer the iconic St. Isaac's cathedral from a museum to an active church, "because the stadium is a slow-burn kind of scandal," he says. "Everyone wants a new stadium. This just drags on, keeps getting more expensive, and it's hard to know who's to blame for all the starts and stops. It's not a flashpoint kind of issue, but everyone is aware of it."

The stadium needs to be completely ready by June for the FIFA Confederations Cup, a de facto rehearsal for the World Cup, when eight games are slated to take place there. Last month it was officially declared to be finished for the second time, and two showpiece events took place, after news reports that Mr. Putin had personally intervened to give local authorities "a kick up the backside" over all the delays.

Missing money, bitter lawsuits

That something is amiss with the Krestovsky Stadium is apparent from the fact that its cost is about three times higher than any of the other stadiums being built for the FIFA games. It's supposed to be a technological marvel, with a moveable pitch and a retractable roof that melts snow. But no one really seems able to explain why it costs so much and where all the money has gone.

Vice Governor Igor Albin, who is responsible for the construction, blames several design changes, and points to Moscow's decision to designate the stadium as a host for the FIFA games as a major source of expensive new challenges. In a letter to the Monitor, his office also blamed feckless subcontractors and "inflation processes during construction and new requirements for the safety" of the stadium, laid down in fresh government decrees.

Mr. Albin's predecessor, Marat Oganesyan, was arrested last November and charged with running a 50 million ruble (about $1 million) construction kickback scheme with stadium contractors. Russian media quote Albin as admitting that as much as 700 million rubles ($14 million) has gone missing from the stadium budget.

Boris Vishnevsky, a liberal deputy of the St. Petersburg Legislative Assembly, says the amount of money that has vanished is much higher. "All the strings are pulled at the very top of the country, and there is no responsibility for anything," he says.

Another question mark concerns the abrupt firing last year of the stadium's main contractor, Transstroy, a firm owned by Russian oligarch Oleg Deripaska, and its replacement with a local construction firm, Metrostroy, a former state company that was recently privatized.

The St. Petersburg government is suing Transstroy for failure to meet its contractual obligations, while Transstroy has launched a counter-suit claiming it has not been paid.

In an emailed answer to the Monitor, a spokesperson for Transstroy blamed constant design changes, bad administration, and the changing ruble rate. "This situation was complicated by the difficult financial situation, the insolvency of major contractors and, in some cases, their dishonesty," it said.

Anticorruption activists say the dueling lawsuits may open a window on the long saga of Krestovsky Stadium, which has so far been opaque to outside scrutiny.

"We have not been able to work with documents, information is scarce, and different sources give different explanations," says Ms. Sobol, the anticorruption lawyer. "What is needed here is a complex audit of everything, though I doubt we shall ever see it."