UNSURPRISINGLY, GALILEO ALREADY LATE AND OVER

UNCLAS BRUSSELS 001153 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: CH EAIR ECON ETRD EUN PGOV PREL RS TSPA EINV SUBJECT: UNSURPRISINGLY, GALILEO ALREADY LATE AND OVER BUDGET REF: BERLIN 429 ¶1. (SBU) SUMMARY: A late June communication released with little fanfare by the European Commission to the European Parliament and Council, explained current cost overruns and delays in deployment of the Galileo satellite navigation system. At the moment, complete deployment of all 30 satellites likely will be delayed by almost a year. The Commission had anticipated finalizing all procurement contracts by July 2009, but the target has moved to the end of 2009, and likely will be extended into 2010. The Commission has already provided additional funds of 376 million euros for the in-orbit validation (IOV) phase, and additional delays in deployment will set the entire program much further behind. END SUMMARY. ¶2. (SBU) In its first annual report to the European Council and Parliament on the implementation of the European satellite navigation programs, Galileo and EGNOS (the EU's regional satellite navigation augmentation system),the Commission explained that it has taken all steps necessary for the full transfer of management of Galileo and EGNOS from the European Space Agency (ESA) to the Commission. The process required the Commission to hand over additional funds, in the amount of 376 million euros, from the full operational capability (FOC) phase management reserve to cover ESA's cost overruns in the IOV phase. This tightened funding constraints on the implementation of the deployment phase, and there is now little margin in the budget. ¶3. (SBU) The procurement for full Galileo deployment was launched in July 2008, with a target completion date of July ¶2009. However, delays in the procurement process have led the Commission to state that the "process of competitive dialogue" will be finished sometime during 2009, with most contracts concluded by the end of the year. Publicly, the Commission claims that this will not delay full deployment of all 30 satellites. However, in a private conversation with a Commission official from the Galileo office, USEU EconOff learned that the procurement process, including finalizing all contracts, is unlikely to be completed before summer ¶2010. This will likely delay full deployment by at least a year, which will inevitably include additional cost overruns. ¶4. (SBU) International activities are prominent in the first Galileo and EGNOS report, with cooperative meetings with the United States, China, and Russia highlighted. The Commission noted the plenary meeting hosted by the Department of State in October 2008, focusing on an agreement to "coordinate EU and U.S. positions towards third systems." There was little progress with Russia except for a new EU-Russia working group on cooperation in search and rescue (SAR) capabilities. Work with China received the most attention, with the Commission calling compatibility and interoperability between Galileo and Compass key. In the report, the Commission argues that cooperation with China will undergo a "major test" in 2009 to assess progress made on Galileo-Compass compatibility. If China does not provide positive reactions to proposals made by European experts (no further information given),and the problem is not solved promptly, the cooperation with China would need a "major reshaping." ¶5. (SBU) COMMENT: Given the history of the Galileo program, it is not surprising that it is experiencing delays and cost overruns. The problem is exacerbated because Galileo is the single largest procurement effort-3.4 billion euros-ever undertaken by the European Commission, and the EU bureaucrats are learning on the fly. In the private conversation with the Commission official, USEU EconOff was told that the Commission had not been surprised by the early delays, but hoped to improve with time. Cost overruns could be a larger problem. It took a substantial effort in 2007 to obtain the 3.4 billion euros in public funds, even bending some of the budget rules to do so, with assurances give to the European Parliament and the Member States that no further funds would be needed for deployment. If likely costs begin to stretch closer to five billion euros or more, as predicted by industry and several independent organizations, there is a real risk that neither the Parliament nor the Council will approve additional funding. This could leave the Commission to work within its existing financial limits, and ultimately, deploy fewer than 30 satellites but still maintain a functional system. END COMMENT. MURRAY .