Private cash key to launch of Galileo satellite

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Series Details Vol.7, No.20, 17.5.01, p19
Publication Date 17/05/2001
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Date: 17/05/01

Cost analysis will test mass-market potential

By Renée Cordes

THE European Commission has ?100 million to spend on the European satellite navigation system, the ambitious and expensive Galileo project, but it is going to need an injection of public and private cash before it gets off the ground.

EU transport ministers will consider giving Galileo another ?450 million by the end of this year, but only if the Union executive can secure long-term financing for a project scheduled to be deployed by 2007.

It will have to win firm commitments from the private sector well before then. To do that, policymakers will have to draw up a detailed cost-benefit analysis very soon - and convince companies that there is real money to be made.

But as policymakers have discovered numerous times in the past, financing transport projects through public-private partnerships (PPP) is far from easy.

"PPPs have too often been seen as the miracle solution for accelerating the realisation of large infrastructure projects," said Domenico Campogrande of European construction lobby FIEC.

"The problem is that most of such projects have a very low profitability and therefore do not attract private capital."

Named after the Italian astronomer who proved Copernicus' theory that the planets revolve around the sun, Galileo is supposed to assure European independence from existing systems funded by the US and Russia.

Proponents of the plan are convinced of huge mass-market potential in the form of in-car navigation systems, logistics planning, tracking systems for prisoners, telemedicine and monitoring the use of fertiliser on farms.

But one EU transport official warns that private investors will be hard-pressed to sign onto the scheme. "They will scrutinise any investment with a very sharp eye, with no sentiment whatsoever except greed," he said.

The whole idea behind PPPs is to spread the risk with lower borrowing costs - especially at the start - and create a transparent management structure.

Ideally, private investors become much more aware of projects' public service aspects, while public authorities are more likely to keep an eye on the bottom line and making profits.

The EU executive is also counting on the private sector to provide much of the financing for the Trans-European Network (TEN), claiming that public funding is nowhere near enough to cover the expected ?400 billion-?500 billion total bill.

In some instances, public-private partnerships appear to have revived hopes for initiatives that had been in danger of being scrapped, such as the planned high-speed rail link between London and the Channel Tunnel.

But with about less than half of the funding assured for 14 priority TEN transport projects by the end of 1999, private sector participation on the whole remains minimal.

Despite the difficulties in winning over investors, government authorities are often willing to take the risk. This week, the German and Danish governments were due to issue a call to potential private investors to participate in a planned road-rail project connecting Denmark and Germany.

Gregers Jensen, in charge of financing for the Fehmarn Belt Fixed Link, expects interest to be relatively strong.

"I think there will be a fair amount of interest among contractors and financial institutions," he said.

Meanwhile, project planners are proceeding with the market research they know they will need to seal the deal.

Article forms part of a survey on European transport issues.

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