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Drowning in World Cup debt

18 January 2013
Schalk Mouton

AS a wide-ranging investigation into bid-rigging and price-fixing at 2010 Soccer World Cup stadiums continues, smaller host cities are spiralling into financial distress, bordering on bankruptcy.

But in Port Elizabeth there is optimism that the stadium might break even in the next two years.

“We are lucky because we have all the rugby and soccer that used to be played at the old Telkom Park [Boet Erasmus] Stadium, and all live music events [at the Nelson Mandela Bay Stadium which was built for the World Cup],” Mandela Bay Development Agency (MBDA) head Pierre Voges said.

Soccer City in Soweto is the only venue that has not drawn a subsidy from its host municipality.

All the other newly built stadiums have become a financial burden from which South Africa might never recover – as was forewarned when the country won the right to host the tournament.

“If you build a stadium, you are never going to get your money back,” said Barry Pollen, director of Stadium Management SA, who has worked as a freelance consultant for stadium operations globally.

“If you borrow R3-billion to build a stadium at 10% interest, the stadium has to make R300-million a year just to pay the interest.”

Municipalities – which effectively became owners of the stadiums after the soccer tournament – have been forced to cover the shortfall for losses incurred by stadiums and World Cup-related costs.

They have been driven into dire circumstances and desperate measures, like:

ýThe Mbombela Municipality is struggling to repay a R200-million loan from the Development Bank taken to cover World Cup costs;

ýThe Polokwane Municipality is still waiting for a R200-million payout from the Limpopo government to cover its World Cup costs;

ýCape Town and Durban continue to struggle to draw events. The future of the Cape Town Stadium, whose R82000- a-seat construction cost makes it one of the most expensive stadiums in the world, is being debated.

Cosatu has called for it to be turned into low-cost housing; and

ýDurban (R72000 a seat) came in for heavy criticism this week for having sold only a quarter of the seats allocated for the Afcon tournament, which starts tomorrow. The city has spent vast amounts to secure events. It is estimated it paid R37-million for the privilege of hosting the Top Gear car show in June.

Competition Commission spokeswoman Trudi Makhaya yesterday confirmed a wide-ranging investigation into the construction companies that built the World Cup stadiums. There had not been any findings yet.

The investigation into 65 bid-rigging cases, involving more than 70 projects with an estimated value of R29-billion, started in 2009, before most of the stadiums had been completed.

Makhaya refrained from naming companies, but Group Five has reportedly applied for corporate leniency and has allegedly implicated others.

“In the original bid documents, the total cost to build all the new World Cup stadiums was R1.6-billion,” Pollen said. “It went up to more than R20-billion.”

According to Mbombela DA whip Jo Koster, the city has dire cash-flow problems because of the World Cup.

The municipality took a R200-million loan from the Development Bank, with annual instalments of R26-million for the next decade.

The Mbombela Stadium cost R1-billion to build, she said. It is running at a loss of about R10-million. While it has an operational budget of about R12-million, it generates income of up to R3-million only.

In Polokwane, the council paid more than R64-million for the maintenance of the Peter Mokaba Stadium between 2010 and last year. The municipality has paid out a further R6.4-million for maintenance since March last year. Over the same period, the stadium made R2.3-million.

The city pays soccer clubs Kaizer Chiefs, Black Leopards and Supersport United R10-million to use the venue.

“Before [the Peter Mokaba Stadium] was built, we recommended they didn’t build it here,” the DA’s Frank Haas said.

City spokesman Simon Mokoatedi had not responded to questions by yesterday.

Most stadiums did also not have business plans before commitments to build them were in place.

According to a report by the Institute for Security Studies, Moses Mabhida Stadium’s business plan was compiled only in 2006, after the city made commitments to Fifa to build the stadium.

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