A Bankrupt PPP

As Europe’s biggest project yet undertaken, the Galileo programme has been subject to ongoing query from the outset, including reservations about the (final) cost. Why add a third Global Navigation Satellite System (GNSS) to those already operational, GPS and Glonass? Why should Europe reinvent the wheel? There is nothing wrong with reinventing the wheel and it has been done countless times: why else the many manifestations of the wheel? Galileo is not just a copy of GPS or Glonass: the differences are significant. In reinventing the global navigation wheel Europe has introduced a number of new features in satellite positioning, bringing with them an incremental step forward in performance. They include greater accuracy, down to a metre and less, greater penetration in urban centres, inside buildings and under trees, and greater integrity through informing users of errors that could compromise performance. The constellation is designed to optimise coverage of the entire planet, a feature not offered by the current GPS and Glonass constellations. Furthermore, in tandem use of GPS, Glonass and Galileo together will enable a further jump in performance.

Triple Redundancy
One big advantage offered by three operational constellations is enhanced reliability. Triple redundancy as a prerequisite for risk reduction was already recognised over four hundred years back by Christopher Columbus, when he sailed away from Europe with three hulls to land on what he thought to be Japan. Nine blocks of risk have been identified in the Galileo programme: cost overrun, construction, performance, design, revenue and markets, deployment, coverage of project risks, compensation in the event of termination of the project, and refinancing.

GNSS constitutes a formidable growth market: since the early years of this millennium there have been annual growth rates in the satellite positioning industry reaching 25%, resulting in tripling within five years. It is forecast that by 2020 annual worldwide turnover will be Euro 300 billion, that is 3% of the present Gross National Product of the European Union, and one receiver for every two citizens on the globe. Sceptics debate these figures and question the true scale of the revenue opportunities: who wants to pay for services provided by others for free?

From Four to One
The Galileo programme consists of three phases. The first is development and validation of the space and ground segments. Budgeted at Euro 1,500 million, this phase is scheduled for readiness in 2009. Over the subsequent two years, the deployment phase, thirty satellites will be launched and the ground segment installed, after which begins the commercial operating phase. The total programme is costing some Euro 3.4 billion and the financing of such a mammoth operation comes from public-private partnership (PPP), the first ever at European scale. The PPP model entails awarding the private-sector exclusive rights to the use of the infrastructure for a period of twenty years, in return for which it has to bear at least two thirds of the infrastructure construction costs. To realise the PPP the Galileo Joint Undertaking on 15th October 2003 launched a tender for the first two phases, resulting in December 2003 in four initial bids from the private-sector. One was eliminated during pre-selection and another was withdrawn. The remaining two consortia, consisting in total of eight companies, AENA, Alcatel, EADS, Finmeccanica, Hispasat, Immarsat, TeleOp and Thales, proposed a merger of their bids, which was accepted on 4th July 2005. A partial and incomplete version of Heads of Terms was signed on 23rd November 2006, so that major issues are still open, including both design and market risk.

Partial and Incomplete
Partial and incomplete: if that sounds ominous and worrisome, it is. “There is no single company structure that regroups the eight partners, nor is there a single negotiator representing the such single company in the negotiations with the Galileo Joint Undertaking,” signals Transport Commissioner Jacques Barrot in his letter of 14th March 2007 to the German EU presidency, addressing Minister Tiefensee. Barrot continues, “Since January 2007 there has not been any further progress in the negotiations,” and as a consequence he fears that the concession contract will not be signed before the end of 2008. The reaction pending from the private side of the PPP, and resultant delays, are a cause of considerable annoyance to him and he threatens, “I do not exclude that we may have to revisit some fundamental aspects of our earlier assumptions and approach. A number of options are available for such alternatives and I would not want to exclude any of them at this stage.” Barrot gives the consortia until 10th May 2007 to get into place a single Galileo operating company structure and appoint its chief executive. Official signing of the terms of the contract should take place by 15th September 2007. If the private-sector is unable to reach these deadlines he expects the Council “to provide the Commission with a clear political mandate to review the situation”. 

PPP was hoisted into the zenith in the nineteen nineties as a panacea against national treasuries hitting rock bottom. Are Barrot’s words a prelude to the bankruptcy of the concept of the PPP in general? Or do they simply indicate the stillborn nature of the idea of a PPP financing a project the size of Galileo within the context of a non-federal political constellation in which so many nations have decisive votes? One thing is for sure: however high the risks, the private-sector strives for monopoly.