From: Reuters
Published November 23, 2007 05:31 PM

EU agrees public funding for satellite project

By Paul Taylor and Jeff Mason

BRUSSELS (Reuters) - European Union nations clinched a deal late on Friday to fund an ambitious satellite navigation project to rival the U.S. Global Positioning System using unspent cash from the EU budget, a presidency spokesman said.

The Portuguese spokesman said budget ministers agreed to finance a 2.4 billion euro ($3.55 billion) shortfall in start-up costs of the Galileo system by redeploying unspent money for farm subsidies and competitiveness projects.

"We have an agreement. All the money was taken out of unspent funds, mostly for agriculture," he said.

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An EU diplomat said Germany, the biggest net contributor to the 27-nation bloc's coffers, voted against the agreement but was outvoted.

The presidency spokesman confirmed the decision was not unanimous but declined to comment on who had voted against it.

The deal came after the European Commission proposed redividing the tenders for Galileo in a bid to meet German demands that no one aerospace firm should dominate the project.

The EU executive warned it would have to drop the prestige industrial project if there was no agreement among member states on public funding by the end of this year.

Supporters say it is a vital technological platform for Europe, but critics say it could be a costly white elephant because the U.S. system already has a dominant market position and Russia and China are working on their own systems.

Berlin had been blocking the use of unspent EU funds partly because it feared German firms could be shut out of major work under the initial tendering scheme, but also out of concern at the precedent of using unspent funds that would otherwise be repaid to member states.

TENDER REDIVIDED

To placate Germany, diplomats said EU leaders could issue a declaration next month pledging that the use of unspent funds for Galileo would remain an exception.

The total cost of Galileo -- 3.4 billion euro ($5.1 billion) -- is being raised from public funds after private companies declined to carry the risk.

The Commission proposed redividing the tenders for Galileo into six segments and barring any company from being the prime contractor on more than two of them.

"At the moment, there is no member state that showed any opposition ... so we are convinced that a solution can be found inside this framework," Michele Cercone, spokesman for EU Transport Commissioner Jacques Barrot, told a news conference.

He said the Commission aimed for a final deal at an EU transport ministers' meeting on November 29.

In Berlin, a German Transport Ministry spokesman welcomed the Commission proposal, saying it would secure competition and could lead to benefits for German companies.

"If a proposal like that comes through and the financing is secured, it would offer a decisive benefit for Germany's aerospace industry," he told a news conference.

A source close to Barrot said the project segments would include satellites, launchers, ground mission infrastructure and control, system software, and other tasks.

There would be the possibility of two tenders to build 26 satellites that make up the system, which is expected to have 30 satellites in total.

"The bidder will have to put an offer for all 26, but then we will contract only for a first batch of 10, for example," the source said.

The original consortium of companies charged with building Galileo included EADS, France's Thales and Alcatel-Lucent.

Britain-based Inmarsat, Italy's Finmeccanica, Spain's AENA and Hispasat and a German group that included Deutsche Telekom

were also involved but the consortium collapsed after the firms refused to foot a large chunk of the bill for the project.

(Additional reporting by Jeff Mason and Yves Clarisse in Brussels and Madeline Chambers in Berlin)

(Writing by Paul Taylor, editing by Leslie Gevirtz)

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