Troubled MDA Deal Remains on Hold in Ukraine

Lybid satellite during testing. credit: ISS Reshetnev.

Amid a fragile economic situation, the government of Ukraine has asked Canadian giant MDA to complete a satellite project on hold for four years.

MDA previously agreed to build Ukraine’s first telecommunications satellite, called Lybid. But the contract was held up by Russian military activities in Ukraine in 2014, including the annexation of Crimea.

This month, an Interfax report out of Ukraine suggested that the country is ready to move forward with Lybid – but Ukraine lacks the necessary payments from MDA to launch the satellite. MDA declined comment on the report, while a spokesperson for funding agency Export Development Canada said the agency does not comment on individual transactions it funds.

While Ukraine’s economy grew modestly by 2.5 percent in 2017, the financial situation remains delicate; investor confidence will only continue after reform in Ukraine’s banking system, improved anticorruption measures and similar activities, according to the World Bank. Meanwhile, the manifest for Ukraine’s space launches is sparse. As of 2018, Lybid is the only launch pending for Ukraine, according to Virginia-based aerospace consulting firm Bryce Space and Technology.

“MDA is a well-known brand and they have an excellent reputation, so that’s why it’s newsworthy,” said Phil Smith, a senior space analyst at Bryce. While Smith said he only knows of the MDA situation from news reports, he added that “it’s fairly clear it’s a bit of a mix of geopolitical issues and budget.”

Bryce’s records show no impending launches for Ukraine’s Zenit or Dnepr rockets, which Russia tends to use every year or two years. There are also no pending Ukrainian launches for small satellite constellations. This is interesting as developing countries often pursue this type of space activity due to the lower costs associated with CubeSats, Smith said.

MDA and Ukraine expected a long-term partnership

MDA prime contractor - Lybid satellite
Lybid satellite. credit: ISS Reshetnev.

The MDA deal dates to 2009, when the Canadian company was looking to expand its business overseas during the economic recession in the United States and Canada. MDA and Ukraine expected to launch Ukraine’s first telecommunications satellite, called Lybid. The project received $254 million in financing from Export Development Canada, an export credit agency that provides funding to companies looking to expand their international business.

“EDC’s support is not only important to MDA, but also creates new supply opportunities for other leading-edge Canadian companies as they move into key emerging markets,” said Stephen Poloz, EDC’s senior vice-president of financing at the time, in a December 2009 statement. Poloz is now the Governor of the Bank of Canada.

It wasn’t the first contract MDA signed in that area of the world. The Ukraine deal followed on from a November 2009 announcement that MDA would provide electronics payloads for two Russian telecommunications satellites. That Russian contract was valued at more than $200 million.

In 2009, according to SpaceNews, MDA was trying to move from supplying equipment to system prime contracts. It was then targeting the former Soviet Union, today known as the Commonwealth of Independent States (CIS) for opportunities, including Ukraine. MDA announced the Ukraine deal just weeks after its Russian telecommunications contract was made public. The Ukraine withdrew from the CIS earlier this year.

“This opportunity is particularly exciting as it has brought together best-in-class Canadian information solutions with financing from EDC to meet the needs of the Ukraine National Space Agency,” Don Osborne, the MDA vice-president responsible for the Ukraine deal, stated in December 2009.

Officials in Ukraine then said that MDA’s work was expected to be the first step in a longer relationship. “We are very excited for this contract award, which is the first major step in a long-term strategic partnership between NSAU and MDA in the fields of satellite communications and Earth observation,” stated Oleksandr Zinchenko, who was then president of NSAU.

Effects of Russian military activities

But in 2014, amid the Russian military intervention in Ukraine, MDA declared “force majeure” – a common contract clause that removes liability for both parties in the case of an unforeseen disaster or war affecting the deal. “The company has declared force majeure with respect to the ground segment of its communication satellite program in the Ukraine, and this position has been accepted by the customer,” MDA said in an April 2014 statement.

“MDA and its Ukrainian customer are evaluating several go-forward scenarios with the goal to minimize the impact,” the company continued. “The results of this evaluation will show the impact on the cost and the schedule of the program. However, according to the preliminary estimate, the project is expected to be delayed approximately four to six months, resulting in a shift in revenue and contribution out of this fiscal year to the next year.”

MDA prime contractor - Lybid Satellite
Lybid satellite. Credit: ISS Reshetnev.

Four years later, though, Lybid remains in storage. In early May, Ukraine’s newer space agency president said it is up to MDA to resume the work, according to the report in Interfax. The State Space Agency of Ukraine (as Ukraine’s space agency is now called) had expected the satellite would launch this year.

Interfax said that Ukraine had overcome its portion of the “force majeure”. This included building a new spacecraft control center in 2015, as well as providing an additional $17 million in financing for Lybid in October 2017. Ukraine reportedly readied its Zenit launch vehicle for Lybid that same year, and is waiting on financing from MDA.

“The only hindering factor is the absence of payments to complete the launch vehicle (LV) by Pivdenmash [Dnipro] for the launch. The general contractor of the project – Canada’s MDA – is to solve the task as part of the resumption of works in the project,” agency head Pavlo Degtiarenko told Interfax.

‘Ukraine is wanting to do too much in space’

After reading news reports about MDA, a Russian-based space industry observer said the Ukrainian government should have avoided funding a commercial satellite deal because the spending tends to be ineffective.

“I have no idea what the Ukrainian side considered when it [spoke in news reports] about MDA’s responsibility for the satellite,” added Pavel Luzin, who is a senior lecturer at Perm State University’s faculty of history and political science, in an e-mail to SpaceQ. He said the situation appears complicated.

State Space Agency of Ukraine logo
State Space Agency of Ukraine logo. Credit: SSAU.

“Ukraine contracted the satellite at MDA, MDA contracted the manufacturing of the satellite at Russian company Reshetnev, and it supplied this manufacturing with some essential components. Now this satellite is in storage at Reshetnev company in Russia waiting for launch,” he said.

According to Luzin, Ukraine’s space program started shortly after the breakup of the Soviet Union in 1991. Ukraine’s main purpose then – and now – was to manufacture ballistic missiles and launch vehicles. But the country remains weak in satellite manufacturing, he noted.

“It seems Ukraine is wanting to do too much in space with limited resources,” Luzin said, adding that “Ukraine needs to reconsider its goals and approaches in space.”

In the United States, Ukraine’s Yuzhnoye State Design Office is best known for producing the first stage of Orbital ATK’s Antares launch vehicle, which rockets Cygnus cargo spacecraft to the International Space Station. “This contract is not a part of Ukrainian space program, but it is significant evidence of Ukraine’s priorities in space activity,” Luzin said.

Another prominent Ukrainian program is “Sea Launch”, a multinational consortium that launched several telecommunications satellites after its establishment in 1995. The consortium survived bankruptcy in 2009, but suspended operations in 2014 amid the Russian military activities in Ukraine. Today a Russian private company called S7 Space is trying to restore Sea Launch. The program will only resume if Ukraine produces more Zenit launch vehicles, Luzin added.

“Ukraine also tried to cooperate with Brazil in the 2000s, [to] launch Zenit from Alcantara launch site with technology transfer to Brazil. However, after many years of nothing, the project has been closed,” Luzin said.

But Ukraine also had its share of successful satellite projects. This included Earth observation satellites Sich-1 (1995) and Sich-2 (2011), as well as the PolyITAN-1 CubeSat launched on a Dnepr launch vehicle in 2014. Ukraine announced plans in 2015 to launch six satellites in the next seven years, including Lybid, although those plans appear to be on hold for now.

Bryce’s Anton Dolgopolov said his reading of Russian news reports shows Ukraine’s space slowdown is no surprise. “Since 2014, there has been series of sanctions and embargoes imposed by each side against the other (including those in the space sector) and the cooperation as it had been known was essentially terminated. The successes Ukraine achieved so far on its way to [its] transformation have been its participation in the European Vega launch vehicle project and the Orbital ATK’s Antares launch vehicle project in the United States,” he said in an e-mail.

In its 2011 space policy that establishes priorities to the year 2032, Ukraine acknowledges a gap between its space capacities and its ability to meet “urgent national and social goals”, in part due to “the long-term lack of effective government support.” It outlines several activities to address this problem, with an emphasis on forming space technologies for national security, acquiring new knowledge, improving rocket and component engineering, and commercializing space activities (including Lybid’s data), among other measures.

MDA

About Elizabeth Howell

Elizabeth Howell
Canadian space and science reporter, researcher and consultant. I also am pursuing a Ph.D. at the University of North Dakota.