VZCZCXRO6168
RR RUEHAG RUEHAST RUEHDF RUEHDH RUEHHM RUEHIK RUEHLN RUEHLZ RUEHMA
RUEHPB RUEHPOD RUEHROV RUEHSL RUEHSR RUEHTM RUEHTRO
DE RUEHBS #1153 2311246
ZNR UUUUU ZZH
R 191246Z AUG 09 ZDK
FM USEU BRUSSELS
TO RUEHC/SECSTATE WASHDC
INFO RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING
RUEHMO/AMEMBASSY MOSCOW

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 
.