Monday, June 27, 2005

Prizes for everyone

In May of this year, we picked up on a Financial Times story about how the competition to build the Galileo satellite navigation system had ended in a classic political fudge.

We had visited the story in January when permission had been given to build the Galileo system and two rival consortia were vying for a contract to deploy and operate the equipment. Bids had been submitted in February but then, when the result had been expected in March, the competition was deferred.

According to the FT, it was a phoney battle anyway. The competitors for the €7 billion contract were iNavSat, made up from France's Thales and the Franco-German EADS plus the British based satellite communications group Inmarsat, against Eurely, composed of Italy's Finmeccanica, France's Alcatel and Spain's AENA and Hispasat.

But when the competition had been postponed in March, the EU had commission claimed that the contest was so close it could not make up its mind. It argued that a further extension would allow the rivals to improve their offers.

But the real reason was to persuade the two rivals to join forces and put forward a single offer, thus avoiding the risk of political conflict - the last thing the EU and leading member states wanted as they struggled to win popular approval for the new European constitution.

Now the latest act in this particular pantomime is being played out, with Reuters reporting that the long (pseudo) battle to win the rights to build and operate Galileo ended on Monday with approval for the two former rival consortiums to make a joint bid.

The Galileo Joint Undertaking (GJU) is now claiming that the combined bid was of better value to the public and aims to have completed talks on the concession contract before the end of 2005.

"The evaluation of this joint proposal, compared to both individual offers, showed a significant reduction in the financial contribution from the public sector and an increase in the foreseen commercial revenue," the GJU said in a statement. Documents provided by the commission showed the joint bid would lead to a 20 percent increase in expected commercial revenues, thanks to combining know-how in areas like telecommunications, transport, and receivers.

More likely, the non-competing contractors have found a way of milking more money from the system's eventual customers and, therefore, will not need to bill the EU for quite as much as they originally thought, especially as – courtesy of Mr Darling – they are likely to get a sizeable chunk of revenue out of the proposed road charging scheme in the UK.

The lucky non-competitors are to be awarded a 20 year concession, from 2006 to 2026, which will give them plenty of time to recover their original investment – a modern version of "prizes for everyone", except the taxpayer of course.

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