The government-appointed agency negotiating the commercial contract for the Galileo satellite navigation project expects to complete its work by the end of the year with all the principal contract points agreed to, according to European government officials.

The Brussels-based Galileo Joint Undertaking (GJU), an agency created for the sole purpose of concluding an agreement on Galileo operations with the European industrial consortium that will manage the system, estimates that a formal contract signing could occur by mid-2007.

By then the GJU will, in principle, have been shut down. The contract will be signed by the industrial consortium and a new organization called the Galileo Supervisory Authority.

European government and industry officials in recent weeks have expressed concerns that the GJU-consortium negotiations are stalled on questions about which party — European governments or the private-sector Galileo concession manager — will be responsible for the various types of program risks.

But Carlo des Dorides, head of the GJU concession division, said these issues are being worked through one by one, with no major delays expected because of them.

“We don’t want to underestimate the problem, because it is a real issue,” des Dorides said. “But we expect an initial ‘Head of Terms’ agreement by late this year. We have already found agreement in principle on many of the major issues.”

Hans Peter Marchlewski, general counselor of the GJU, said the negotiations with the concession consortium are not being delayed by the European Union’s continuing debate over its 2007-2013 budget. The GJU, he said, expects to close up shop around the end of this year, as scheduled.

“The basic terms of the concession contract should be negotiated by the end of the year,” Marchlewski said. “Then the concession contractor needs to begin his financial negotiations with his banking syndicate, and these negotiations could take four, five or six months. So in the first half of 2007, the Galileo Supervisory Authority should be in a position to sign a final contract.”

Galileo is a constellation of 30 satellites in medium Earth orbit that will perform many of the same navigation and timing functions as the U.S. Global Positioning System. But Galileo is civilian-run and is intended to be operated at least in part as a commercial enterprise.

The European Union’s executive commission, mainly through European transport ministry budgets, has divided the early design and development costs of Galileo evenly with the European Space Agency (ESA).

These costs total about 1.5 billion euros ($1.9 billion) and include the full Galileo ground network of control and monitoring stations, plus two test satellites — one is already in orbit — and four initial Galileo operational spacecraft.

ESA recently signed a 1 billion-euro contract with Galileo Industries of Munich and Rome — a consortium of Europe’s largest space-hardware builders — to construct the four initial satellites and produce the ground network. The contract is for what is called Galileo’s In-Orbit Validation phase.

Guenter Stamerjohanns, chief executive of Galileo Industries, said about 85 percent of the In-Orbit Validation contracts have been negotiated, and the four initial satellites that are a part of that contract will be launched in 2008. The signing of that contract occurred more than a year later than expected because of a dispute among several European governments about which of those governments would host certain Galileo facilities.

“We are moving forward to try to make up for lost time, and most of those companies who we don’t yet have under contract have been working on ATPs [pre-contract Authorizations to Proceed],” Stamerjohanns said.

The first Galileo test satellite, Giove-A, was launched in December and is functioning well in orbit. Giuseppe Viriglio, who oversees the project for ESA, said the satellite has permitted European governments to meet the radio frequency reservation deadlines with international regulators.

Giove-B currently is scheduled for launch late this year. Stamerjohanns said Galileo Industries would like to see it launched as early as possible because, unlike Giove-A, it resembles the satellites that will form the Galileo operational system.

Galileo’s next phase — the construction and launch of the full 30-satellite constellation — is expected to cost 2.1 billion euros, with the concession contractor responsible for two-thirds of this, or 1.4 billion euros.

Current planning is that, if the concession contract is signed by mid-2007, then deployment could start around 2010 with operations to begin around 2012. The GJU stuck with its original in-service estimate of 2008 long after industry officials realized that this was impossible, and industry officials say now that the current official in-service date of 2010 is also not realistic.

There remain key concerns about the risks that must be addressed, including market risk and financial risk.

The market risk is the concern that the paying customers that are presumed to be ready to make Galileo a profitable business might not exist in sufficient numbers to permit the concession winner to generate enough revenue to pay its bank loan, maintain the constellation and produce a return for its investors.

Financial risk includes the possibility that the billion-plus-euro bank loan that will finance the deployment of the constellation may not be repayable on schedule.

The current estimated cost of operating the Galileo system is 220 million euros per year. The European Commission has agreed to pay part of these operations in the early years, but Galileo was sold to European governments as a project that eventually would be able to sustain itself by creating new and profitable markets.