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Nearing the end?

Posted by Richard Saturday, May 05, 2007 ,

It is definitely beginning to look as if the EU's Galileo satellite navigation system is in serious trouble.

From both the Financial Times and Reuters we learn that transport commissioner Jacques Barrot is serious about proposing to claw back the deployment phase of the project from the dysfunctional private sector consortium and put it in the hands of the public sector.

The final deadline to the consortium, to get its act together is on Wednesday and the next day, it appears, he will be looking for an additional €3.4 billion, from member states.

Initially, the deadline was seen as brinkmanship but, according to official sources, this is now the commission's preference. Once it has taken over, the plan is to issue a new tender to operate the system once it is built and in space, potentially by the end of 2012.

Under this option, the European Space Agency would oversee the construction and deployment of the satellites, though the original consortium companies would still be involved in supplying technology – but without assuming the financial risk.

Another option is to have the public sector launch 18 satellites and then hand the project over to industry to launch the remaining 12 - delaying final completion until the end of 2013. Then, the final option would leave things as they are, delaying the operation of the system to mid-2014 at the earliest. By that time, however, the upgraded US Navstar would be up and running, eroding any technological advantage Galileo might be able to offer.

In something of a Walter Mitty state, however, the commission, in going for the first option, believes it can then hand over the completed project to a new operating company and recover its expenditure by clawing back a percentage of the profits made from operations.

And therein lies the commission's greatest problem. Up against not only the US but Russia and, potentially China, all operating free to end user systems, it is going to be very hard for Galileo to cover its direct operating costs, much less make a profit.

Member states, therefore, are to be asked to sign what amounts to a blank cheque, something in the past they have been very reluctant to do. M. Barrot might find it even more difficult to extract the money, especially as budget commissioner, Dalia Grybauskaite, has said that the project was "under serious question" with doubts about "its ability to perform at all".

Although she adds that, "Galileo is very important and Europe needs to invest in it," an executive close to Galileo has declared that the market for commercial (paid) services "is just not there." We were too optimistic, he says: "GPS (Navstar)is fine for most purposes. Besides, who gets the money from satellite navigation services? Usually the maker of the device, not the satellite operator."

That, in fact, has been obvious from the start, and it now remains to be seen whether the member states will play ball and cought up with money they will almost certainly never recover. On current form, it looks unlikely which means that the Galileo project may, in fact, be nearing the end.

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