22 Jul 20. The FT reported tonight that UK ministers were warned of financial risk to $500m OneWeb deal. Downing Street pushed ahead with an investment in a bankrupt satellite operator as part of its post-Brexit independent space strategy despite a top civil servant warning the “unusual” deal could see taxpayers losing the entire $500m with “no wider benefits accrued”. The UK won the auction for satellite broadband operator OneWeb with a joint $1bn bid with India’s Bharti Enterprises earlier this month. Under the deal the British government will invest $500m for an initial stake of about 45 per cent in the unprofitable company, which is building out a low-earth orbit satellite broadband network.
Ministers pursued the deal despite Sam Beckett, the then acting permanent secretary at the Department for Business, Energy and Industrial Strategy, questioning the wisdom of the move in a letter sent on June 26 and made public on Wednesday. It is rare for mandarins to issue “ministerial directions” of this nature which require ministers to overrule objections from the civil service before proceeding with a spending proposal. Government departments are required to make ministerial directions public.
“I have been informed that even with substantial haircuts to OneWeb’s base case financial projections the investment would have a positive return,” Alok Sharma, business secretary.
Ms Beckett wrote that she understood the enthusiasm of prime minister Boris Johnson for the wider benefits of the scheme, including “long-term geopolitical advantages” and the boost to soft power, alongside the potential to connect millions of people in rural locations without broadband access. But she said there were “stark” risks with the spending given it was a large single investment. “While in one scenario we could get a 20 per cent return, the central case is marginal and there are significant downside risks, including that venture capital investments of this sort can fail, with the consequence that all the value of the equity can be lost.” As such the investment did not meet the value-for-money requirements set out by the government.
The letter reveals that the Treasury did not give the investment its usual “full Green Book-compliant business case” analysis, which would have examined whether other alternative investments might have delivered a better return. Separately the UK Space Agency also carried out a separate independent technical assessment, according to the letter. This highlighted “substantial technical and operational hurdles” that OneWeb would need to overcome in order to become a viable, profitable business. UKSA also warned of the “high likelihood” that taxpayers could need to put more investment into the business in the future. Alok Sharma, business secretary, wrote in a reply that he had taken advice from officials in the Treasury, his own department, the Cabinet Office and UKSA. “I have been informed that even with substantial haircuts to OneWeb’s base case financial projections the investment would have a positive return,” he replied.
Mr Sharma added that the deal had been authorised by Rishi Sunak, the chancellor of the exchequer. “The fact that any investment would also be alongside other private commercial investors as part of a wider consortium, and as you say, one large and trusted investor already on board, indicates a rational commercial case for investing,” he said. Recommended Space industry UK gamble on OneWeb signals more interventionist space policy Under the terms of the deal Bharti Global, a subsidiary of the conglomerate run by billionaire telecoms tycoon Sunil Bharti Mittal, will also hold 45 per cent of OneWeb and the rest will be held by existing creditors, including SoftBank, which has loans outstanding of $913m, according to bankruptcy documents filed in the US.
The investment came as the government backed away from a plan launched two years ago to develop its own sovereign satellite navigation system after being forced out of the European Galileo system, which the UK had helped finance and develop, as a result of the Brexit vote. Costs for that proposal had soared to £5bn, from an initial estimate of £3bn to £4bn. Dominic Cummings, Mr Johnson’s chief adviser, has been instrumental in pushing the case for the UK government to invest in OneWeb in the face of fierce opposition from supporters of the original satellite navigation project.
Darren Jones, chair of the Commons business select committee, questioned the accountability and “lack of transparency” of the investment. He said the committee would hold an inquiry into why the decision was taken. “This near half-a-billion-pound investment using taxpayers’ money seems to have been purely a commercial decision by Downing Street without any assessment of value for taxpayers’ money or agreement from experts about the technical capability that OneWeb offers the UK now that we’ve lost access to European Union satellites.”
BATTLESPACE Comment: What’s £500 million between friends! Beware the dangers of amateur space engineers! As well as civil servants a number of industry experts also expressed their concerns about the OneWeb deal all of which were ignored by Boris Johnson and his team.
When the Dominic Cummings inspired OneWeb deal was touted by the UK Government, the plan envisaged was to use the OneWeb constellation for military and civil usage. This always seemed to be a problem given that the UK was in a minority partnership with other organisations and companies. This week Defense News seemed to suggest that it’s all systems go for OneWeb to form part of the Skynet 6 BVLOS requirement with Airbus in the driving seat. However a PQ we published last week seems to suggest otherwise.
Clearly once again the government message seems once again to have gone awry! Ben Wallace didn’t mention OneWeb in his Air League conference brief last week and the MoD hasn’t made a statement either which suggest that this information is coming straight from Dominic Cummings without MoD verification.
Asked by Lord Tunnicliffe
Asked on: 08 July 2020
Ministry of Defence
To ask Her Majesty’s Government what advice the Ministry of Defence has provided to other Government departments on the military capability of the OneWeb satellite system.
Answered by: Baroness Goldie
Answered on: 14 July 2020
The investment in OneWeb is not a Defence matter. The SKYNET satellite programme will provide for global military communications and no formal assessment has been made of the military use of OneWeb.
Grouped Questions: HL6645
We have to ask what the final cost will be if the Government has to pump more capital into OneWeb and then spend the estimated £6 billion to procure the Galileo replacement. One solution would be to go back to Europe cap in hand and negotiate a way back into Galileo.