EU Officials Close to Giving Up On Private Financing of Galileo

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  Space News Business

EU Officials Close to Giving Up On Private Financing of Galileo

By PETER B. de SELDING
Space News Staff Writer
posted: 03 May 2007
06:44 pm ET


BRUSSELS — European Union governments appear ready to abandon the idea of managing the Galileo satellite navigation system as a partnership with the private sector and to finance the 30-satellite constellation with public funds, according to European Commission officials.

One high-ranking commission official said it has become clear that the industry consortium established to pay for two-thirds of the cost of building and launching the constellation will not be able to surmount the risks inherent in financing and managing the system.

“My personal view is that the only option is for the European public to provide the Galileo infrastructure and then, later on, a private-sector consortium can operate the system,” this official said. “Industry cannot provide the financing unless it gets a guarantee of a return on its investment, which of course it cannot get. Funding it completely through the public would mean we need to find new financing from public sources.”

The current Galileo funding model calls for a private-sector consortium to finance two-thirds of the cost — about 2.5 billion euros ($3.4 billion) — of building and launching the Galileo satellites. In return, the consortium would be given a 20-year concession to run Galileo as a profit-making business. Midway through the concession the industrial team would need to finance a second-generation Galileo constellation.

The consortium has spent nearly two years trying to structure a profitable Galileo business model that protects the investors against risks associated with Galileo’s performance. It has been unable to do so, in part because Galileo, when it enters full service around 2013, will face U.S., Russian, Chinese, Japanese and Indian regional or global navigation systems whose basic signals are offered free of charge.

European government negotiations with the concession industrial team have ground to a halt, risking further delays and cost increases in a program that has already suffered plenty of both.

European Commission Vice President Guenter Verheugen said here April 26 that Galileo is indispensable to Europe, but that insisting on hefty private-sector funding before the infrastructure has been built and tested was a mistake.

“We don’t have the option of giving up on Galileo,” Verheugen said. “Walking away from it is out of the question.”

European Transport Commissioner Jacques Barrot is scheduled to present a series of proposals in May and June to European transport ministers on how to put Galileo development back on track. The transport ministries are financing most of the European Union’s support for Galileo, with the European Space Agency matching that investment. Government and industry officials said Barrot is likely to propose that the public sector finance all, or at least the vast majority, of the cost of building and launching the satellites and finishing an elaborate ground infrastructure.

Such a scenario would allow governments to move forward with the buildout of the system, avoiding a long delay between the launch of four prototype satellites now under construction and the deployment of the full constellation.

In the meantime, negotiations with a private-sector consortium that will eventually manage the system could continue, but without pressure.

“What’s important is to keep at least the impression of private-sector participation,” one industry official involved in the program said. “Governments that have invested so much political capital in a public-private partnership will insist on keeping at least a semblance of that, whatever else we do.”

European governments already have committed around 1.5 billion euros to the project. Verheugen said Europe’s need for an independent satellite system for positioning, navigation and timing remains as strong as ever and that this strategic goal should take precedence over all others.

“The problem is that all kinds of commercial possibilities for Galileo were promised early on in the program,” one commission official said. “This may eventually be the case, but not for the immediate future.”