Europe's Sat Nav Albatross: EU Expects Galileo Project Costs to Explode

It was supposed to be a prestige project, something that would allow the European Union to compete with the US on an equal footing. But Europe's Galileo satellite navigation system looks increasingly like becoming a financial albatross around the EU's neck.

According to a report by the German government, which has been seen by the Financial Times Deutschland, Brussels now calculates that the project will face further delays and cost €1.5 billion-€1.7 billion ($2 billion-$2.3 billion) extra. On Thursday, the paper reported that the European Commission also expects the system to make losses in the long term.

The system is to encompass more than 30 satellites and would allow the Europeans to compete with the US's Global Positioning System (GPS), which is under the control of the Pentagon. The Galileo system, once in operation, is expected to deliver highly accurate geographical positioning data. The first two Galileo satellites will start up in the third quarter of 2011, with the project expected to be finally completed in 2017/2018 -- 10 years later than originally planned.

€20 Billion Over 20 Years

The revelations in the FTD are the first indication of the true costs of running the satellite system. "All in all, it is assumed, based on the currently available estimates, that the operating costs will exceed direct revenues, even in the long term," reads the government report, according to the newspaper. Even when the expected annual revenues of €100 million ($139 million) are taken into account, the EU would still need to subsidize the project to the tune of €750 million per year.

The annual operating costs for the system had up to now been assessed at €250 million. Brussels had already calculated that revenues would be lower than originally envisaged. Back in 2007, the EU was forced to step in after a consortium of eight European companies withdrew their investment for fear that the project's costs would spiral out of control. The development, construction and operation of the system is now likely to cost European taxpayers €20 billion over the next 20 years.