Satellite project facing burn-up over private investment dispute

Date: 29/11/01

By Laurence Frost

THE European Commission is facing a rebellion by EU governments over plans to let companies buy seats on the board of the public-private partnership developing the €3.6-billion Galileo satellite navigation project.

The Netherlands and the UK have both lodged formal objections to the proposal to set up a so-called "joint undertaking" under EU law, allowing private firms to sign up as members in exchange for contributions of €20 million each to the operating company's capital.

Germany, Austria, Portugal and Finland are understood to share concerns over possible conflicts of interest, which are set to surface when transport ministers meet to approve the plan next Thursday (6 December).

"We've always said the private sector should be involved," said one EU diplomat. "But what's completely off limits is that you invite [companies] to stump up a few euros and they get a seat on the board." There are worries that the private backers could wield unfair influence on decision-making - including the award of lucrative contracts for which some of the same firms could end up competing.

"If you allow companies to participate in the decision-making bodies they might subscribe to the tenders they have helped to develop," said another member state official. "We don't want to create a conflict of interests. We need to sort out what membership will mean for companies and what they will get in return."

The proposal, which was tabled by Loyola de Palacio, the EU transport commissioner, promises investors "preferential treatment" when another new company is set up in 2005 to deploy the 30 Galileo satellites and launch the service three years later. But it does not exclude them from bidding for contracts from the operating company during the earlier development phase.

The Galileo programme is designed to give the EU an independent and more accurate rival to America's Global Positioning Satellite (GPS).

But the crisis of confidence in the Commission's handling of the project could threaten its entire future, after de Palacio said she would pull the plug if her proposals did not win unanimous backing next week.

"We cannot postpone again the question," the Spanish commissioner said. "We must say yes or no. I am ready to propose to the Commission that we withdraw our proposal."

An independent study by PricewaterhouseCoopers (PwC) last week endorsed the long-term financial viability of the Galileo project but said the Commission's model for the operating company raised "potential conflict between the public sector's financial interest [in the body] and the wider public interest role of a regulator". Instead, it advocated a stricter contract-based relationship with the EU executive with "a clearer separation between public and private sectors".

De Palacio's spokesman, Gilles Gantelet, said contract tenders would be handled independently of the operating company's administrative board, but dismissed calls for investors to be denied decision-making rights. "Everybody has been telling us we need private investment," Gantelet added, "but private companies don't put money into something they have no interest in."

French companies Thales and Alcatel Space, Italy's Telespaziale and Enav, Spain's Aena and consortium Galileo Industries are understood to be among those who have signed non-binding investment pledges worth a total of €200 million for Galileo's development phase.

Galileo Industries - which comprises major European space companies Astrium, Alcatel Space and Alenia Spazio - was recognised in the PwC report as the only credible main contractor.

The European Commission is facing a rebellion by EU governments over plans to let companies buy seats on the board of the public-private partnership developing the €3.6 billion Galileo satellite navigation project.