Legal Insights in Russian Stadium Development
 

Legal Insights in Russian Stadium Development

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The legal landscape for stadium construction projects differs significantly in Russia from the rest of Europe. Ahead of the Stadium Design and Development Russia &CIS Conference in Kiev this October ...

The legal landscape for stadium construction projects differs significantly in Russia from the rest of Europe. Ahead of the Stadium Design and Development Russia &CIS Conference in Kiev this October 28-30 we speak to Karina Chichkanova and Tair Suleymanov. Karina is an expert in Public Private Partnerships (PPP) and has significant experience in large construction projects. The topics covered include: legal causes of delays, Russian PPP legislation and the keys to a smooth legal process in stadium development.

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Legal Insights in Russian Stadium Development Legal Insights in Russian Stadium Development Document Transcript

  • Legal Insights in Russian Stadium Development An Interview With Karina Chichkanova & Tair Suleymanov www.stadiumdevelopmentrussia.com The legal landscape for stadium construction projects differs significantly in Russia from the rest of Europe. Ahead of the Stadium Design and Development Russia &CIS Conference in Kiev this October 28-30 we speak to Karina Chichkanova and Tair Suleymanov. Karina is an expert in Public Private Partnerships (PPP) and has significant experience in large construction projects. The topics covered include: legal causes of delays, Russian PPP legislation and the keys to a smooth legal process in stadium development. Karina Chichkanova, Dentons St. Petersburg Partner, Head of Russian PPP Practice  With the world cup and the winter Olympics, would you agree that it is a busy time for stadium and venue development? What changes do you think this has brought about? The choice of the Russian Federation as the host of the XXII Winter Olympic Games and XI Winter Paralympic Games in 2014, and the FIFA Confederations Cup in 2017 and the FIFA World Cup in 2018, has kick started tremendous efforts in stadium and venue development in Russia, including the development of a suitable legislative platform. With no doubts now it is a busy time for stadium and venue development, since available sport infrastructure in Russia remains quite far from that required to host the aforesaid events. The social importance of sport infrastructure development has long been recognized in the Russian Federation, as shown by the adoption in 2006 of the “Development of physical culture and sport in the Russian Federation from 2006-2015” Federal Target Program, which inter alia provided for extensive public investments in the development of sport infrastructure. However, the existing legal framework is far from creating a strongly positive environment to implement the aforesaid plans. Russia’s nomination as the host of both the Winter Olympics and the World Cup has given rise to a need to fast track the development of sport infrastructure and venues, including through the adaptation of current law. Evidently, a comprehensive revision of current law is not realistic time-wise, while the complexity and inflexibility of statutory regulation of design and development processes would not allow the challenges of Tair Suleymanov, Dentons St. Petersburg Associate
  • Legal Insights in Russian Stadium Development An Interview With Karina Chichkanova & Tair Suleymanov www.stadiumdevelopmentrussia.com hosting the Winter Olympics and World Cup to be met. In view of the above, Russian law-makers have chosen to simply make exemptions to existing rules for these events, rather than revising laws in their entirety. This resulted in the adoption in 2007 and 2013 of two Federal laws with respect to the preparation and staging of the Winter Olympics and World Cup accordingly. The said laws stipulated simplified (both from the timing and organizational perspectives) procedures for inter alia provision of land plots for construction (without tender), preparation of town-planning documentation necessary for construction of stadia and other venues, state expert review of design documentation, and obtainment of construction permits. However, these introductions are applicable only with respect to the aforesaid events and, we presume, unfortunately will not influence long-term construction of stadia and other venues other than those developed as part of the Winter Olympics and World Cup.  What are the greatest legal challenges for the design and development of a stadium? In addition to traditional development issues, which are quite similar (zoning laws, consents, permits, etc.) in respect of design and construction of real estate in general, the key commercial issue will usually be that of funding, i.e. how gate and other income risk is apportioned between owner/developer and tenant/occupier in the absence of a predictable long-term revenue source. Another challenging area is further operation (management) of sport properties. Since sport events themselves are less profitable, stadia and other venues usually include commercial property. The allocation of ownership and maintenance responsibilities for such property and underlying land plots requires careful structuring of relations between owner and occupier, including through PPP/PFI arrangements, as it is usually done in Europe. This issue is of special importance due to the idiosyncrasies of stadia and other venues as real estate (for example, when all properties comprising a stadium, such as the playing field, “commercial” premises etc., are considered a single object from the legal standpoint). The design and construction of the Wembley Stadium in London, and more recently the on-going problem- plagued development of the Zenit Arena in St. Petersburg, demonstrate that regardless of the location the key challenges related to design and construction of large and complex sport properties remain the same: poor planning and organization of design and construction processes always cause delays, disputes and disagreements and substantially increase construction costs. The need to deal with the aforesaid issues in any case where a stadium and venue are developed creates a huge area for legal consultants to step in, as the precise legal elaboration of each and every stage of development is key to the smooth implementation of the project.  What are the challenges that are specific to Russia that foreign companies should bear in mind when working in the country? General challenges concerning design and construction in Russia are the same for any real estate development: the complexity of the procedure and large timescales to obtain consents and permits required for design and construction coupled with the expense of connecting to utilities can dent the enthusiasm of any potential
  • Legal Insights in Russian Stadium Development An Interview With Karina Chichkanova & Tair Suleymanov www.stadiumdevelopmentrussia.com investor or developer. Another issue related specifically to design and construction of stadia and other venues is the general obsolescence of statutory construction rules in Russia compared to foreign best practices such as Eurocodes. If a developer wants to apply foreign standards when constructing a stadium, as well as any other item of real estate in Russia, such possibility is greatly limited by the non-conformity of the statutory Russian regulatory environment to international practice. As for the general structuring of stadium and other venue construction projects (cash-flows, allocation of risks and responsibilities, etc.), which we believe is the most important issue to consider, Public-Private Partnerships (PPPs) seem to offer the most convenient mechanism for this purpose. Having said this, current federal law of the Russian Federation does not regulate this mechanism except for concessions. While there are examples of sport infrastructure development in Russia based on PPP structures, in the absence of a proper regulatory framework investors participating in PPP projects always bear certain risks related to the enforceability of respective contractual arrangements with the relevant public entity. Unfortunately, due to the experience gap in developing sport property and infrastructure, in particular stadia and other venues, the most common practice in Russia is the development of sport infrastructure via state procurement. In simple terms, public entities finance development of said infrastructure from the state budget, own it and are required to manage and operate it somehow. To the best of our knowledge, such approach cannot be considered optimal, given the limited nature of state budget funds and the lack of experience public entities have in effectively managing and operating sport infrastructure. As we see it, the development of a clear and transparent regulatory framework which would allow private financing and attract experienced developers of sport infrastructure on through PPP arrangements is of prime importance both from the economic and social standpoints.  How can legal firms or insurance policies protect against a project going over budget? Compliance with a project’s budget largely depends on precise initial elaboration of the project jointly with legal, technical and financial specialists which shall result in particular contractual arrangements between project participants (investors, developers, sub-contractors, banks, etc.). In this respect, careful drafting of respective provisions of contracts between project participants is a vital prerequisite for eliminating extensive cost implications. For example, stipulation in respective contracts of incentives to comply with estimated budgets and timelines may be a helpful instrument to ensure due performance.  What are the keys to ensuring a smooth legal process in stadium or venue construction? We believe that the following are essential to guaranteeing that stadium or venue construction proceeds trouble- free from the legal standpoint: 1. Effective cooperation between the customer and legal, technical and financial specialists on the very first stage of the project in order to develop the most effective and realistic plan for implementation. 2. Adequate estimation of the timeline and project objectives at the planning stage.
  • Legal Insights in Russian Stadium Development An Interview With Karina Chichkanova & Tair Suleymanov www.stadiumdevelopmentrussia.com 3. Careful choice of the site for project implementation, including legal and technical due diligence of the site, to avoid pitfalls when construction begins. 4. Precise contractual regulation of relations between project participants. 5. Special consideration for stipulation in respective contracts of procedures regulating introduction of major changes to the scope of works. 6. Reasonable allocation of risks, so each project participant bears the risks which it is most competent to deal with. A prime example of such an approach to contractual regulation resulting in compliance with budget and timeline is the “T5 Agreement” for construction of Heathrow airport’s Terminal 5. Naturally, construction of stadia or other venues has its own idiosyncrasies, but compliance with the general principles described above is vital to ensuring successful project implementation.  What do you predict for the future of this sector and how can companies prepare for these changes? It is unlikely that the above problems may (or will) be resolved within the framework of preparing for the Winter Olympics and World Cup due to immensity of the areas requiring improvement within the limited deadlines. However, the current course of events shows that general tendencies in the regulatory approach to the design and construction of sport infrastructure are broadly positive, and this sector may be interesting for investors even after the aforesaid flagship events. Firstly, the federal law of the Russian Federation on PPPs is in the process of follow-on revision and adoption. Adoption of the said law will create solid legal ground for the PPP-based implementation of stadium and other venue development projects. Secondly, the trend towards the eventual harmonization of Russian construction and technical regulations with foreign best practices also gives rise to a hope for the application of better standards in the design and construction of sport properties and infrastructure. Finally, the introduction of substantial amendments to Russian law simplifying the general procedure to obtain consents and permits required for design and construction and connection to utilities will without doubt have a positive influence on the investment climate in Russia and, in particular, help to destroy regulatory barriers in the construction sector. Despite the fact that the largest stadia will be developed in the course of preparing for the Winter Olympics and World Cup using exclusively state funds, our experience in the area of stadium and other venue construction, including legal support of the stadium developments in Le Mans, Bordeaux and Nice, leads us to believe that the future of this area lies with development of medium or even relatively small stadia and other venues through PPP mechanisms. If you are interested in learning more about this topic, visit our website at www.stadiumdevelopmentrussia.com