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. Last Updated: 07/27/2016

French Firm Leading in Satellite Bid

French manufacturer Aerospatiale is poised to win the major share of a Russian government tender to help build a new generation of communications spacecraft following the last-minute collapse of negotiations involving the U.S. firm Hughes Electronics, the world's largest builder of satellites.

The construction of an initial three satellites would be worth about $360 million.

Michael Topalov, managing director of Inspace Corp., which is acting as counsel on the tender to the Russian Space Agency, said negotiations with Hughes on terms of cooperation with the Russian manufacturer NPO-PM broke down over questions of technology transfer. A Hughes spokesman in California said the firm had still not been officially notified that its bid would not go forward. The deadline for submissions was Dec. 10.

Hughes had been considered the front runner to become the space agency's Western partner in the tender, which may decide the shape of the satellite industry in Russia. Bids had to be submitted by the Russian partner and involve partial manufacture in Russia. NPO-PM, which is the main Russian builder and therefore in the strongest position to win the tender, had been expected to submit separate proposals with both Hughes and Aerospatiale.

In the event, in addition to the single NPO-PM bid with Aerospatiale, there is just one other contender, Energiya, a major force in the Russian space industry but a newcomer to commercial satellites. Energiya declined to discuss the contents of its bid, but an industry source said it was much less reliant on foreign technology. As a first stab at satellite construction, Energiya is building a series of satellites called Yamal, which include major components from the U.S. firm Loral and are being completely financed by a communications subsidiary of Gazprom called Gazkom. Energiya's newness to the business and the lack of major foreign participation place it as the outsider in the tender, though it could still get part of the pie.

A government commission comprising representatives of the State Committee on Communications and Informatization, formerly the Telecommunications Ministry, the space agency and the state-owned satellite services company Kosmicheskaya Svyaz is due to announce its decision by the end of January or early February.

Topalov of Inspace said the initial deal is likely to be for three satellites. The basis of the business arrangement, he said, is that the foreign partner will arrange financing, while the Russian Space Agency will provide a free launch. Satellites of the type under consideration cost in the region of $120 million each, and a launch about $80 million. Operating revenues would be split.

From a manufacturing point of view, the Aerospatiale bid was already strong as a second French firm involved in its proposal, Alcatel, is already building a satellite with NPO-PM at its Krasnoyarsk plant. However, an Aerospatiale representative in France, who asked not to be identified, said the new proposal was for a much more powerful spacecraft.

A second Russian tender for satellites is due to be held in the first half of next year. Altogether, as many as 10 orbital slots may eventually be involved, said Boris Chirkov, deputy director of Kosmicheskaya Svyaz. The spokesman for Hughes said that the firm was still very interested in the tender process.

The tenders may mark the end of independence for the Russian satellite industry, which is saddled with obsolete technology and rising costs. In June the MOST Group was authorized by Prime Minister Viktor Chernomyrdin to purchase a Hughes spacecraft to ensure transmissions of MOST's NTV Plus satellite television venture. The Hughes satellite is to be launched on a U.S. rocket. MOST Group has also taken channels on a French-built satellite operated by the European consortium Eutelsat. The moves will sharply reduce the satellite television provider's current reliance on Russian spacecraft.

At the same time the Moscow-based satellite organization Intersputnik, a Cold War relic set up to provide phone links between the countries of the Soviet bloc, formed a joint venture with the defense giant Lockheed Martin to operate satellites built by the U.S. firm rather than lease channels on Russian craft.

The first of the venture's satellites is due to be launched before the end of 1988 into an orbital slot over Siberia.

The same slot is claimed by Energiya for one of its Yamal craft, which Energiya intends to operate separately from the tender. The dispute is an illustration of how competition is beginning to develop within the Russian satellite services market.