Taxpayers face €1.2bn bill for Galileo

location based services

By Andrew Bounds and George Parker in Brussels

Published: May 3 2007 22:07 | Last updated: May 3 2007 22:07

The European taxpayer will be asked to bail out an intended rival to the US global positioning system as its private builders have refused to take on the risk of the unproven technology.

An eight-member consortium is expected to fail to meet a deadline of next Thursday to sign a contract to build Galileo, European diplomats said, leaving little option but for the public sector to press ahead – or to cancel the project.

The consortium is made up of European aerospace giant EADS; France’s Thales and Alcatel-Lucent; Britain’s Inmarsat; Italy’s Finmeccanica; Spain’s AENA and Hispasat; and a German group led by Deutsche Telekom.

Jacques Barrot, EU transport commissioner, reckons as much as €1.2bn more public money may be needed, paying for up to 30 satellites to be put into orbit.

The EU’s 27 member states have already found an extra €388m to cover the cost of delays to date. But with Russia and China expected to have rivals in place by 2012 and GPS due for an upgrade, a decision cannot be long-postponed. Galileo’s completion has slipped from 2008 to 2011.

Dalia Grybauskaite, EU budget commissioner, has proposed a 51 per cent increase in spending on Galileo in the union’s 2008 budget, to €151m, but said more could be needed as the project was “under serious question” with doubts about “its ability to perform at all”.

She added: “Galileo is very important and Europe needs to invest in it.”

Mr Barrot will table alternatives to fellow commissioners within a fortnight, from cancellation of the €4bn space project to making it entirely state-funded.

His preferred option is for the taxpayer to underwrite costs of building the infrastructure, leaving the private sector to run the operation.

An executive close to Galileo confirmed that, despite forming a joint company in March, the consortium had no intention of signing a contract to require it to finance two-thirds of the project. “The market is just not there. We were too optimistic. GPS is fine for most purposes. Besides, who gets the money from satellite navigation services? Usually the maker of the device, not the satellite operator.”

The Commission says Galileo is needed since GPS, controlled by the US Pentagon, could be turned off at the whim of the US administration, and the EU needs a vibrant aerospace industry.