Confirmation that governments are squandering money on ill-advised programs fueled by the easy-money policies of central banks worldwide became all-too-evident earlier this week when a European business leader responded to a question I posed at a press briefing here in Washington, D.C.
Amid reports featured in Eagle Daily Investor that governments globally have taken on more than $100 trillion in new debt since the first signs of a financial crisis in mid-2007, I asked the head of Paris-based satellite operator Eutelsat Communications (NYSE Euronext Paris: ETL) how artificially low interest rates are affecting his business. Michel de Rosen, chairman and CEO of Eutelsat, offered a cautionary tale of fiscal free-spending. He cited the case of a small Asian country arranging to acquire a satellite from a manufacturer based in a large Asian nation, without knowing how to operate the spacecraft, lease its capacity to others or conduct other fundamental functions.
The CEO told me that he and his colleagues were contacted by representatives of the Asian country acquiring the spacecraft to assist in handling virtually every aspect of what a commercial satellite operator would do. The country essentially put itself in the satellite business without much of a clue about what that decision entailed.
The lure of low-interest-rate financing -- likely also subsidized by the Chinese government -- apparently proved irresistible. Rather than use the small nation’s financial resources wisely, the program will result in a boondoggle. The cost easily will top $200 million and could run well above that level.
Here is a breakdown of costs typically incurred to buy a satellite, launch it into orbit, obtain insurance and cover other operational expenses. A standard, 24-transponder spacecraft, built to be placed in geosynchronous orbit (GEO) about 22,223 miles (36,000 kilometers) above the Earth, likely would be priced between $125-$175 million dollars. The cost of a launch to put the spacecraft in orbit would run $65-100 million from an established Western provider with at least a decent track record of success.
Private-sector insurance for the launch and the satellite would approach 8-10 percent of the combined cost of fixed satellite services (FSS) spacecraft and the launch. If the country does not pay insurance, it essentially insures itself against the risk of loss and would absorb the ensure replacement cost.