The organization of Europe’s Galileo satellite navigation project is so bad that taxpayers will actually save money in the long term if European governments pay 100 percent of the system’s development instead of sharing the costs with the private sector, the European Commission


In an assessment made public May 16

, the commission said

Galileo’s structural problems are too deep to be solved by modifying the private-public partnership that has been the project’s showcase feature since the late 1990s.

As expected, the commission is asking the

European Union transport ministers, who are scheduled to meet June 7, to change course and permit Galileo to be built solely with public funds. Once the 30-satellite system is in operation – by late 2012 if the proposal is accepted quickly – a private operator can be found to manage it, the commission says.

Changing course at this point will require more up

front financing by governments, and the commission is unclear about where the needed money

might be found. It nonetheless urges that a solution be agreed to quickly to prevent Galileo from further delays and cost overruns.

In particular, the commission says the industrial team now building Galileo’s first four satellites cannot hold together given the two-year gap that has developed between the completion of those

spacecraft and the likely start of production of the remaining 26 satellites. As a result, certain builders of key components will move their personnel and production capacity to other programs. Getting them to return to Galileo later on will be costly. The commission says this phenomenon

already has started.

“A production-line gap is … appearing, with several subcontractors putting a halt to their specific Galileo capacities,” the commission says. “The cost of resuming such activities is substantial.”

Full public funding of the Galileo constellation will solve this problem by assuring that contracts for key components are signed in the coming months.

In one of several examples of the costs associated with continuing with the public-private partnership, the commission says staying the current course will force governments to order an additional four satellites almost immediately to prevent a collapse of the Galileo satellite manufacturing expertise. The private-sector consortium that was to manage Galileo will not be contracted until April 2009 at the earliest, and will be unable to order satellites until sometime after that, the commission says.

The commission studied several Galileo scenarios to determine what formula presented the best combination of cost, performance and schedule characteristics. It even looked at abandoning the project immediately, but concluded that positioning, navigation and timing systems are too important to modern societies to be left to outsiders – in this case, the U.S. GPS, Chinese Beidou/Compass and Russian Glonass satellite navigation systems.

Once operational, the Galileo project will be able to return about 10 billion euros ($13.5 billion)

to the public sector from revenues generated by 2030 through the sale of guaranteed Galileo signal accuracy, mainly to governments. But most of these profits will be made toward the end of this period.

Staying the course of a public-private partnership will cost up to 14 billion euros, with the system unlikely to be in service before 2014. After accounting for revenues from the project through 2020, the net cost to taxpayers would be around 1.8 billion euros, the commission says.

Procuring the Galileo system with public funds will – if a decision to do so is made this year – result in a service start in late 2012 and cost around 10 billion euros. Given the time value of money – government funds paid early in the project’s life, and revenues generated only much later – the net cost to taxpayers by 2030 would be around 1 billion euros, according to commission estimates.

The commission proposes to take full control of Galileo and to delegate procurement oversight to the European Space Agency (ESA). It says the monopoly consortium now building the initial Galileo satellites should be shaken up to introduce competitive bidding for the 26 satellites needed after the first four are built.

The commission is unsparing in its criticism of the two industrial consortia now involved with Galileo. But it is more indulgent of individual European governments that have encouraged industrial foot-dragging in search of a better return for their national industries.

“The current industrial organizations are neither efficient nor capable of reaching decisions, largely due to disputes on roles, responsibilities and program work share,” the May 16 document says.

An eight-company grouping has been negotiating the contract to manage the project in a 20-year concession, but its members have been unable to agree among themselves on negotiating terms.

A separate consortium is under contract to ESA to build the first four Galileo satellites and a part of the project’s ground installations. This group is behind schedule and substantial cost overruns are forecast in its billion-euro contract.

“There are serious doubts” about whether this manufacturing consortium can be reformed, the commission says. “In the current scenario, the public sector is confronted with a number of monopolistic industrial organizations set up on the basis of politically inspired and supported agreements over which it has little leverage.”

The commission says competition must be introduced into Galileo’s manufacturing contract once the first four satellites are delivered.

If the commission’s proposals are accepted, Galileo contracts will be run under commission rules, not ESA’s geographic-return policy that guarantees that each investing nation receives a proportional work share.