Olympic games

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Czech business weekly | 9.5.2005 | rubrika: Titulní strana | strana: 1 | autor: BY SEAN B. CARNEY AND PETRA BREYEROVÁ

Prague may never host an Olympics, but officials are already making required zoning changes that could alter the landscape and sink the city deeper into debt.

Prague Mayor Pavel Bém created a flurry of excitement in 2003 when he announced at the International Olympic Committee's (IOC) conference in Prague that the city would be a candidate for a future Olympiad. While little has been mentioned about an Olympic bid since Bém's remarks, politicians have quietly but busily begun carving up the city behind closed doors at City Hall.
It remains to be seen who stands to benefit from an Olympic push. Last November PricewaterhouseCoopers published the results of a city-commissioned cost analysis of hosting the Games in 2016 or, more likely, in 2020. The total cost was estimated at Kč 132 billion (E 4.4 billion), but that muchpublicized figure doesn't include the extra Kč 500 billion-Kč 600 billion that would have to be invested in infrastructure, a cost economists say would send the city spiraling deeper into debt and potentially into insolvency. Meanwhile, City Hall's public relations strategy has been to lowball the costs for the public while saying only small shifts in zoning would enable the city to accommodate the Games. The city spent Kč 15 million on the PwC study. First steps Zoning remains the most urgent and controversial issue. Because the city plans to submit its application in July 2007 to host the 2016 or 2020 Summer Games, city councilors have to apply this summer for any necessary zoning changes. Implementing changes to municipal zoning usually takes up to two years.
The city has already made the initial assessments of possible Olympic venues and Deputy Mayor Jan Bürgermeister (ODS), who is responsible for development and zoning, said the development projects for the Olympic Games are in harmony with Prague zoning or with ongoing plans for the city's development.
Opposition politicians warn that if the city approves zoning changes for the Olympics, the moves will permanently affect the capital, whether the Olympics take place or not. "Once an
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area in Prague is designated for Olympic Games development, its function can be easily changed " for example, to building shopping malls," said Michal Hvížďala, an independent City Assembly member and a vocal opponent of hosting the Games in Prague. He said Prague representatives should invest in projects beneficial for citizens, like parks, rather than "take steps to meet the interests of construction companies and developers."
Jiří Witzany (European Democrats), a Prague City Assemblyman and a member of City Hall's financial and controlling committees, warned that the benefits are being touted by companies with something to gain. "There is a clear conflict of interest when consulting firms are openly lobbying for the Olympics," he said. The head of one consulting firm operating here is also a lobbyist for the Games. "While there is nothing wrong with companies profiting from the Olympics, the conflict lies in their lobbying politicians for it as well."
But at City Hall, the planning continues. Municipal planners are working out development studies for eight sports venues throughout the city to host the Olympics (see map). The likely location for the Olympic Village is Prague 6-Bubny. Bürgermeister said the project, a housing development for about 30,000 people, would be suitable for a publicprivate partnership. He added that several private companies have already shown interest but no concrete negotiations are ongoing. According to the PwC study, the private sector would likely finance about 20 percent of the total direct expenses connected with the Games.
Letňany was selected as a viable location for building the core of the new development and an Olympic stadium seating at least 60,000 spectators. The area has potential, but also logistical problems. Metro line C is being extended there. The end-station, which will be a transportation hub with buses and a park-and-ride garage, should be in operation by 2007. Adjacent to the future station, however, a permanent exhibition area that would be converted into temporary Olympic grounds should already be complete. Yet after several years, ABF, the company the city hired to find an investor and develop the site, has failed to fulfill its contractual obligations and hasn't moved forward on the site. That could throw a wrench into Olympic plans, given that City Hall has no power to evict ABF from Letňany.
Bürgermeister refused to name a second location where the city could build a stadium should the northern Prague location fall through. But he said that if a stadium were to be built, city officials would know how to use it after the Olympics, saying the Letňany developments could be transformed into exhibition sites.
Opposition member Hvížďala does not believe another stadium will be put to good use. "It is hard to fill the existing stadiums, like Strahov and Sazka Arena. What will the city do with another huge stadium after the Games are over?" he asked.
Strahov attracts only a few hundred people per Slavia football game and Sazka is filled only occasionally. Organizers say other stadiums around the country could be used for football after the Games, but football attendance is at an all-time low and stadiums throughout the country are mostly empty even during matches. What's more, many clubs renting those empty stadiums for a symbolic Kč 1 are on the verge of bankruptcy.
Bürgermeister claims the city lacks sports venues and that the Olympics are a good way to push through construction. He suggested building a swimming complex in Prague 8 on Rohanský Island, saying the existing swimming center in Prague 5's Podolí is not sufficient and its operation too costly. Jiří Zedníček, a former Olympian and now vice president of the Czech National Olympic Committee, agreed that multipurpose buildings have a future. "An Olympic arena that could be converted into an exhibition ground " it's possible," he said. He pointed out that the World Ice Hockey Championships now being played in Vienna are taking place in the same hall that last year hosted the World Diving Championships.
Finance and downgrades Whether the Olympics take place here largely depends on the Cabinet because the state will have to either finance or at least guarantee close to half of the direct expenses and cover the Kč 600 billion needed for infrastructure, analysts said. "If the state keeps to its set schedule of investments into infrastructure, at the time of the Olympics, Prague should have no problems connecting with the European infrastructure network," Bürgermeister said. He added that the natural boom in hotel development is likely to continue and would be able to accommodate visitors to the Olympics.
But the spending ideas of politicians rarely please economists, and the Olympic vision is no exception. Markéta Šichtářová, chief economist at NextFinance, said the city might be able to host the Games, but doing so would hurt its credit rating on foreign markets. "We are still waiting and trying to get in the eurozone. We still need to reform public finances and lower public debt, not increase it. Hosting the Games would surely cause more debt," she said.
Assemblyman Witzany, who is also a credit-risk manager for Komerční banka, said the city is almost beyond a tolerable level of indebtedness in the eyes of credit-rating agencies. City debt, together with the debt of the city-subsidized municipal transit company and the city-subsidized Kongresové centrum (Prague Congress Center), has eaten up almost 100 percent of city finances and any more debt could spell disaster.
"The norm with rating agencies is that municipal indebtedness shouldn't exceed the city's annual income," Witzany said. He said most European cities' debts do not exceed revenue. But for Prague, debt is starting to outpace income and any further shortfall would lead to a downgrading of the city's rating, which would have consequences such as major cuts in public services, transit, public works or schools. "Or the city could be forced to halt new projects altogether," Witzany said.
The city is already tied down in other projects, including a new wastewater-treatment facility costing Kč 10 billion for the first phase alone, and the continuation of the inner ring highway through Prague 7 in Letná and Stromovka costing Kč 25 billion. Connecting the inner and outer rings will cost tens of billions of crowns more.
Prague City Hall opposition member Marián Hošek (KDU-ČSL) said the idea of organizing an Olympics in Prague could be beneficial for the city, but he warned that city representatives are not "mature enough" to make the Olympics economically efficient. He cited the reconstruction of the Kongresové centrum as an example, which the city undertook in order to host the World Bank and International Monetary Fund Conference in 2000. "The city still cannot recover from this investment " how can it handle the Olympics?" he asked.
If the city's credit rating is downgraded, Prague would find it more difficult to borrow money for new investments. Witzany said the city now pays only 0.3 percent more than the interbank rate, but if its credit rating were downgraded, the city could pay a full 2 percent over the interbank rate. It could become impossible for the city to borrow at all, depending on its credit risk assessment.
Mixed opinions Even if the city does move forward with construction there is no guarantee of controlled costs or profit. In Athens, total costs on the Olympics overran the original estimation by between 40 percent and 50 percent, said Miroslav Singer, the former director of the commercial services department at PwC, at a City Hall press conference on the Olympics last November. Some analysts say the actual costs even doubled original estimates, which were reportedly similar to the Prague estimates for hosting the Games.
Zedníček flatly disagreed with statements that a Prague Olympics would incur losses. He said the Games have been profitable for host cities since Los Angeles in 1984. "Every time the Olympics are held or bid for, cost is the most confusing issue," Zedníček said. He said a key point was differentiating between the costs directly associated with holding the Games and the costs for infrastructure, which cities or countries would likely invest anyway. He said people needed to approach the Games with common sense.
Some of the benefits of holding the Games, according to Zedníček, are that much-needed municipal projects get sped up and tourism and foreign direct investment get a big boost.
The former basketball star, who played in the 1972 Games in Munich, said people should view the Olympics as a good thing for the country. "While corruption exists, it is a problem that can be overcome, should be overcome and is correctable," he said. "Holding the Olympics is something to strive for; either we put things right or we don't."
But Witzany and others aren't so optimistic and think the state won't accept Kč 500 billion in debt to build up infrastructure, a figure that amounts to 20 percent of GDP. "Such propositions are not realistic when the state is supposedly reducing the deficit, reforming the pension system and preparing to switch to the European currency," he said. "Bidding for the Olympics is not realistic, financially speaking." Šichtářová of NextFinance said it was simply a matter of priorities, and that money is more needed elsewhere. "The Czech economy should concentrate on reforming taxes, the pension and health-care systems, and controlling public spending," she said.
"The emphasis should not be to spend on the Games, which are just that " games."

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Estimated costs for the Olympic Games in Prague in comparison with costs of Olympic Games between 1996 and 2008
     Atlanta  1996     1.72
    Nagano    1998   1.14
     Sydney   2000     1.50
Salt Lake City 2002       1.90
     Athens   2004                    8.0-12.0 estimate
      Turin   2006             3.19 estimate
     Beijing  2008                                 33.8 estimate
     Prague   2020?                              27.7 estimate
Costs in billions USD
Data do not always include costs for public works

Foto autor| Luděk Vycpálek

Foto popis| Jiří Zedníček, National Olympic Committee

Foto popis| Critics of an Olympic bid say new arenas would fall into disuse like Strahov stadium
Foto autor| ČTK


Foto autor| Martin Siebert / photo montage by Jan Wasserbauer