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EC Finds Galileo Project ‘Over Budget, Behind Schedule and Unprofitable’

By | October 8, 2010

      [Satellite News 10-08-10] A European Commission (EC) budgetary report released Oct. 8 found that the European Union‘s (EU) non-geostationary Galileo satellite navigation system is over budget, behind schedule and will be unprofitable for the first several years of operation.
          According to the EC, Galileo, Europe’s rival to the U.S. GPS constellation, has run up extra costs of up to 1.7 billion euros ($2.35 billion) and will not be ready for at least another seven years. The report also said that the Galileo project would be, “unprofitable over the long term, running at an annual loss of 750 million euros ($1.04 billion).”
      The EC report follows a study released by the European Court of Auditors in May, which criticized the project as “ill-prepared and badly managed” and was skeptical that the EC would be able to commence Galileo operations in 2014.
          Overall, the EC estimates that the Galileo project’s development, construction and operating costs will cost EU taxpayers about 20 billion euros ($27.7 billion) over the next 20 years in development.
           In June, Via Satellite Columnist and Hogan Lovells Partner Gerry Oberst broke down Galileo’s financing structure. “The EU has struggled to secure financing for the project, originally put at 3.4 billion euros and has had to tap unused funds from the bloc’s massive agricultural budget. Although the definition stage for Galileo was completed in 2001, progress was delayed in 2007 by the collapse of the public–private partnership that would have involved industry paying for two-thirds of the cost. The EU re-established a legal and financial framework in which Galileo will be owned by the EU government, and an EU budget of 3.4 billion euros ($4.5 billion) was approved for 2008-2013.”
          The EU’s mid-term review stems from the EC’s first report on the program issued in mid-2009. A working document prepared by the European Industry, Research and Energy Parliamentary Committee (ITRE) in March focused on “future challenges and financing perspectives” for Galileo, which included adjusting the project’s budget to cover the entire cost of deploying the full constellation 30 low-Earth orbiting satellite constellation.
          The ITRE paper found that four satellites, which are expected to be launched by the beginning of 2011 to finish the In-Orbit Validation stage (IOV), have cost overruns of 376 million euros ($500 million) that have eaten up most of the contingency funds planned for the entire system. The ITRE paper also found that it is “questionable” whether the remaining budget will allow the launch of the additional 26 satellites planned for the fully operational system.
          In January, medium-sized German space systems provider OHB Systems received a 566 million euro ($767.8 million) contract from the EC to build the first Galileo satellites. OHB spokesman Steffen Leuthold told Satellite News in April that the program was running smoothly. “Currently, the measures for implementation of the Galileo program are full swing. OHB will outsource 70 percent of its total contract to subcontractors all over Europe and will begin the assembly of the first satellite at OHB’s facility in Bremen no later than mid-2011.”
          Rachel Villain, director of space industry research at Euroconsult, said Europeans have to determine the price they are willing to pay for independence in global navigation satellite services (GNSS). “The delays to achieve operational capabilities will only add to costs and, equally concerning, competitors will be staking their claims in the meantime. There’s no guarantee, for example, that the military forces of all European governments will move over to Galileo once it’s up and running. Galileo promises more capabilities than existing GNSS systems but so does third-generation GPS.”
          Oberst also questions the commercial potential of Galileo. “Fees and royalties on the receivers probably will not work, because this approach likely would create trade barriers to U.S. terminals. Fees for providing the service are difficult to apply, because no system to date has proposed direct commercial revenues. Persuading a commercial entity to operate the system seems to be a daunting task.”

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