EU Should Reconsider Public-private Partnerships

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The European Union’s relationship with the public-private partnership (PPP) approach to contracting was seriously damaged by the Galileo experience between 2002 and 2007. At that time, the Global Navigation Satellite Systems flagship program was presented as the first PPP at EU level. Since the collapse of the PPP contract negotiation in May 2007, this kind of contract apparently has disappeared from EU decision-makers’ minds. Nevertheless, the introduction of the PPP into European procurement procedures should be reconsidered and could make it possible for the EU to overcome some of the difficulties and challenges it faces while trying to develop its own space infrastructure.

What is a PPP contract? Each EU member has its own definition. In a green paper published in 2004, the European Commission defines public-private partnerships as “forms of cooperation between public authorities and the world of business which aim to ensure the funding, construction, renovation, management or maintenance of an infrastructure or the provision of a service.” Basically, the PPP is a long-term, multitask contract between a public authority and the private sector to externalize the construction and/or the administration of an activity. The key characteristics of those contacts are:

  • Risk sharing. The private and the public contractor have to organize their respective shares of the risks, such as construction, design and responsibility of service.
  • The initial investment is fully supported by the private sector.
  • The private sector gets paid by the public authority.

The main example of a successful PPP is the construction of prisons. When the public sector needs a new prison, the private sector imagines the design and organizes the construction and maintenance, and could even employ the guards. Every month, during a long period of one, two or more decades, the public sector pays for this service provided by the private sector.

The Galileo contract never has been a PPP, for several |reasons.

First, during the Galileo negotiation, the idea was that the Galileo system would generate valuable services that would be paid by the users and not by the public sector.

Second, the design of the first satellites has been created by both the European Space Agency and the French space agency, CNES, and the private sector was obliged to keep those specifications, whereas usually the private operator defines the technical part on its own.

Furthermore, the political tensions between EU member states, the public and private governance, the question of the third-party liability, the turnover incertitude and the merge of the two consortia in competition transformed the PPP into a permanent public problem.

Why does EU need public-private partnerships? In this period of public debt troubles, pleading for a new way to finance projects seems paradoxical. In EU’s case, it is not. The European financial rules are very strict and prohibit any deficits. The EU budget is mainly composed of its member states’ contributions of around 1 percent of their respective GDP (145 billion euros per year, or $200 billion). Once agriculture, structural funds and research policy are paid, there is nearly not a single penny left for the acquisition of infrastructure.

As the European Union Council affirms, the EU aims to become a world-class space leader with autonomous access to space. It therefore develops many programs, such as Galileo and the Global Monitoring for Environment and Security (GMES) project, and even has the ambition to launch new ones, such as space situational awareness, support for the development of space services in Africa, not to mention space exploration. Actually, the funding for those programs depends on the goodwill of its members through the European Space Agency. The difficulty is that 11 EU member states are not members of ESA, which excludes their national industry from ESA contracts.

The PPP contract may allow the EU to develop its infrastructure by preventing the problems caused by the obligation to pay a very high price to buy all the equipment in a one-shot payment. The PPP for space activities already exists. Paradigm Secure Communications in the U.K. manages the British army telecommunication satellites. The French government also has introduced such a possibility in the French financial bill for 2010 to externalize the operations and the update of the Syracuse constellation within the next few years.

The EU, lacking technical capacities, strongly pushes for this kind of externalization in its security policy. In 2008, the EU launched a military operation named EUFOR in Darfur, Sudan. To accomplish this mission, the force needed 17 helicopters. As the EU does not own any military forces, it asked to borrow those helicopters from its member states. It took about eight months to constitute this force composed of four Puma and four Gazelle helicopters from the French army designed in the 1960s, two Irish Mi-8s and three Polish Mi-17s, as well as an international agreement with Russia for the participation of its army and four Russian Mi-8s. In this situation, a PPP contract would have allowed the EU first to get those helicopters quicker, second to have one single and modern model, and third to be |autonomous.

In May, the European Commission wrote a document about the European space industry, which it described as dependent on both public funding and U.S. technology. This representation is only partial as the EU also really needs a European industry to maintain its technological independence. The PPP appears to be the best way to build on a trusting relationship between EU and its space industry. As the Lisbon Treaty finally entered into force, the new space competency creates momentum to rethink EU-ESA relations in order to make ESA a development agency of the EU, while finding a mechanism to maintain the motivation of members states to continue to contribute directly to the financing of research and development programs. This could allow a fair competition for all European companies when it comes to EU-led operational programs.

The possibility for EU to hold strategic infrastructure in space and any other equipment for its security policy is the best way to sustain its role in international relations. The PPP seems to be one of the easiest ways to meet those challenges.

 

Aurélien Desingly is a lecturer at the University of Artois in France.