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Tuesday, January 18, 2011

If the EU did satellites, they'd probably be...Part II

Back in October we estimated, based on leaked reports from a couple of European governments, that the EU's mismanaged Galileo project - aimed at creating a global satellite navigation system – was way over budget (and possibly ten years behind schedule).

We said that the EU Commission was under-estimating the deployment cost of the project and would in fact need an extra €1.5 billion to €1.7 billion, on top of the existing €3.4 billion, to keep the party going. In addition, we noted that the annual operational cost of Galileo could be in the area of €750 million.

Following our investigation and other reports in the media, the EU Commission hit back (as it usually does) with Industry Commissioner Antonio Tajani himself denying - with a straight face - that the project was over budget in any way. In his words:

I don't know where these figures come from

Tajani described the estimates as "exorbitant" and "unimaginable", and insisted that the deployment budget (which is only part of the cost) remained at €3.4 billion.

Well, we're forced to admit, it turns out that our estimates weren't quite correct.

In fact, as Mr. Tajani and the Commission finally admitted today, the Galileo project needs not another €1.5-1.7 billion as we claimed, but an extra €1.9 billion of taxpayers’ cash to cover the booming deployment cost. At the same time, the Commission now puts the annual operation cost at €800 million (not €750 million as we foolishly thought).

We do apologise to the Commission for having misrepresented the cost of the project.

But what's going on here? Either Tajani lied to taxpayers back in October or he displayed extraordinary incompetence. We're not sure what's worse.

And it turns out that the leaked estimates were more or less spot-on (we're now eagerly awaiting Tajani's appearance on the Commission's euromyths list for spreading 'half-truths', 'rumours' etc.)

Just to reiterate how badly managed this project has been from the very start. According to our under-estimates from October, the total cost of Galileo from start to completion, and then running it over a 20 year period, is a staggering €22.2 billion – a cost which will be borne entirely by taxpayers and which now has to be revised upwards yet again.

Under the original estimates (from 2000) this cost would have been €7.7 billion, of which only €2.6 billion was to be borne by taxpayers and the rest by private investors (the private investors pulled out in 2007, citing lack of commercial prospects). The project has been beset with delays and cost over-runs at every single stage of its history.

Perhaps it should come as no surprise, then, that even people who are benefitting from the project are raising doubts. According to American diplomatic cables, released by WikiLeaks (first revealed last week by Norwegian paper Aftenposten), Berry Smutny, the CEO of OHB Technology, a company that has a £475 million contract to build 14 Galileo satellites, is claimed to have said:

I think Galileo is a stupid idea that primarily serves French interests.


Mr Smutny also told US officials that in "his opinion the final cost [for the deployment cost] will balloon to around" €10 billion before all is said and done.

It's not getting any better.

Tajani is now asking European governments to cough up yet more cash to cover the shortfall. Sensibly, the UK Government is saying No - and will probably be joined by several other Governments. And they are right. Not a single penny more should be given to the Galileo project until we see a final, robust analysis of what the project will finally cost relative to the benefits it will generate.

Of course, Tajani is keen to point out that the satellite is expected to bring €90 billion to the European economy over 20 years. This has been revised down radically from the Commission's ridiculous original estimate of €275 billion per year in revenues worldwide by 2020 (in addition to the equally delusional 3 billion users and the creation of 150,000 new jobs).

Forgive us for not quite trusting Tajani on this one.


DavidM31 said...

The whole Galileo satellite mission is a huge waste of money and should be cancelled immediately. There are too many things going wrong down here on planet earth, for us to remain remotely interested in what is going on in space, especially in a very large gaseous object called Jupiter. If the kind of astronomical (no pun intended) money needed to deploy and operate this thing is available lets put it to use where its needed.

Anonymous said...

No doubt the EU is not the most economical project manager. However there is more to it than that. If the European military are ever to be truly independant then they must have Galileo.

Britain is against because we are broke but also acting in the role of US agent in the EU. Washington does not want Europe to have an independant satellite system. In my view in this instance the EU is right. We need to escape from US miltary dominance.

Anonymous said...

EU Project in cost overrun shocker! To be fair, the tax payer immediately bore the brunt when private industry could see no way to make money out of it, having had that happen, the question was simply do we really want it, and I think the answer is unequivocably yes. We need to be independant from the US (excepting the 51st state) and Galileo will provide that. Value for money, only time will tell, and if the US ever switches of GPS it will be worth every cent.