European Commission hopes reluctant governments will commit funding despite finance and management concerns

The European Commission (EC) hopes that a Galileo cost-benefit study recently released by business consultants PricewaterhouseCoopers (PWC) will persuade wavering European governments to back the continent's plans to develop the satellite navigation system.

European transport ministers are due to meet on 6 and 7 December to decide on further funding for the 30-satellite system, which is intended to provide Europe with an independent alternative to the US Department of Defense-controlled global positioning system.

European Space Agency (ESA) members approved €528 million ($463 million) in funding for the system last month, while European Union (EU) members are due to decide on the release of a further €450 million. A number of countries, including the UK, remain concerned about the project, particularly relating to financing and managing the system.

"I hope that they [EU transport ministers] will give the green light when there is a clear assessment from PricewaterhouseCoopers,"says Loyola de Palacio, EC transport and energy commissioner. Even if the project fails to get full EC member support, de Palacio is confident that Galileo will survive, suggesting that an ad hoc coalition of interested states - perhaps led by France and Germany – could continue with development.

The PWC study, commissioned by the EC and released late last month, concludes that the project has a benefit to cost ratio of 4.6:1, "a strongly positive ratio". The project will cost €3.6 billion, €1.25 billion of which has already been budgeted for by the EC and ESA, leaving €2.35 billion to be sourced to deploy the system from the public and private sectors. Public funds will be required for the deployment and operations phase and not just the development stage, says the report. Operating profits are expected from 2011, with total benefits estimated in the region of €17.8 billion.

PWC's revenue predictions rise from €66 million in 2010, to €370 million five years later and €515 million by 2020. Around 80% of the revenues will come from five applications, says the study: commercial aviation; personal communications and location; police and fire; oil and gas rig positioning; and oil and gas land and transition zone seismic exploration. In return, improvements in air traffic control, for example, are estimated to provide €7.5 billion in cost savings for airlines between 2008 and 2020.

PWC does not believe that the joint-venture model, where the public and private sectors jointly invest in a single entity to fund the project, is viable. Instead it proposes a concession company model, which "would build on the expertise and knowledge developed by ESA, fulfil the objectives of the public sector and address the concerns of industry" and would provide a separation between the sectors.

Under this model, a joint undertaking and ESA would manage the development phase, a public-private partnership (PPP) concession should be awarded in 2004 and a system contract should be awarded by the PPP concessionaire.

The UK is in danger of losing its share of Galileo work through its reluctance to provide funding. The British National Space Centre (BNSC) has agreed to commit up to €70 million, but the UK Government is balking at matching it.

Source: Flight International