Canada’s export agency hailed it as a breakthrough for the tech sector: A British Columbia company, with help from a US$254-million federal loan to Kiev, would build a new satellite system for Ukraine, providing the Eastern European country with high-speed internet and blazing a trail for “leading-edge Canadian companies” to expand into emerging markets.
Almost a decade later, the deal has collapsed into recriminations and lawsuits. Russia’s annexation of Crimea led to a force majeure declaration by the B.C.-based manufacturer, and the satellite was never launched; it was placed in the custody of a Russian company, and Ukraine has now gone to an arbitration court to demand a US$227-million repayment from the Canadian supplier.
In the latest development, Ukrainian anti-corruption investigators alleged last week that well-connected Ukrainians stole US$8.2-million from the project and funnelled the money abroad, inflicting further damage on the satellite program.
The ignominious end to the much-vaunted satellite deal is a reminder of the continuing risks of doing business in much of the former Soviet Union, where investments can be sabotaged by corruption and geopolitical volatility. At the time of the deal’s announcement, Ukraine was one of the worst performers on Transparency International’s corruption perceptions index, which measures the perceived risk of bribery; it ranked 146 out of 180 countries, tying it with highly corrupt countries such as Zimbabwe, Sierra Leone and Russia.
Export Development Canada, the federal government’s export bank, announced in 2009 that it would provide US$254-million in financing for the deal. Stephen Poloz, an EDC vice-president at the time and now the Governor of the Bank of Canada, called it an “exciting” breakthrough for Canadian companies.
MacDonald, Dettwiler and Associates Ltd. (MDA), based in Richmond, B.C., was chosen as the prime contractor to build a full-scale satellite system for Ukraine, including a communications satellite – one of the first ever launched by the country – two satellite control centres and associated ground infrastructure. The system would provide high-speed internet and direct broadcast television for the country.
MDA had gained a reputation for its space technology after acquiring the space robotics division of Spar Aerospace Ltd., the company that developed the famed Canadarm for the U.S. Space Shuttle program in the 1980s.
For years, MDA’s space business boomed. But in 2008, when its sales slipped and it tried to sell its space division to a U.S. company for $1.3-billion, the government of prime minister Stephen Harper stepped in and blocked the deal, fearing it would damage Canadian sovereignty by allowing foreign ownership of MDA’s federally subsidized Radarsat-2 surveillance satellite.
In exchange for blocking the deal, Ottawa unofficially promised to pour more money into space projects, and the Ukrainian satellite deal was an example of its generous support. The EDC loan was essential to beat out Thales, a much-larger French rival, The Globe and Mail reported at the time.
After the deal was announced, Ukraine said it planned to put the satellite into orbit by 2011, using a space control centre in Crimea. But the project was repeatedly postponed – and then Russia made the dramatic move of annexing the peninsula in 2014.
Within weeks, MDA declared force majeure, a clause in business contracts allowing work to be stopped without fault under extraordinary circumstances.
The company predicted the project would be delayed by four to six months. But after five years of stagnation, Ukraine says it has spent US$1.5-billion on the satellite program – and still no launch.
MDA said in 2014 that it could lose about $50-million in potential contract value as a result of the stalled project. There has been little progress since then.
“There has been no significant development on the program following the force majeure,” said a report last October by Maxar Technologies Ltd., the new U.S.-based parent of the Canadian company, created by a 2017 merger of MDA and Colorado-based space technology company DigitalGlobe.
The company says it has completed work on the spacecraft. A Russian space technology company, Reshetnev ISS, which had helped develop the satellite, says it is has the satellite in storage for “safekeeping.” And the rest of the project is still in limbo.
“With the force majeure in place and no new funding available at present to address the force majeure impact, any further work on the program is uncertain,” Maxar said in a filing to U.S. regulators in October.
Meanwhile, the Ukrainian state-owned satellite operator Ukrkosmos went to a London-based international arbitration court last July to demand repayment of US$227-million that MDA had received from the national budget, accusing the company of “unilaterally” breaking the satellite contract. It said Ukraine had built a new space control centre to replace the one it lost in Crimea, eliminating any excuses for cancelling the project.
The company responded by saying it will “vigorously defend” itself against the claims.
In the latest twist to the story, Ukrainian anti-corruption investigators alleged last week that three Ukrainians – including the former head of the satellite operator – had embezzled US$8.2-million from the Canadian-financed satellite program and transferred the money to a bank account in Cyprus. The embezzlement had “disrupted” the satellite launch, the anti-corruption bureau said.
The head of Ukraine’s space agency, Pavel Degtyarenko, quoted by Ukrainian media, said he still hopes the satellite can be launched this year “if the Canadian contractor will resume work on the project.” But after about a dozen postponements over the past eight years, satellite industry observers are skeptical.
Turner Brinton, a spokesman for Maxar, said the company terminated its contract with Ukrkosmos in September, 2017.
“MDA tried – over a period of years – to reach agreement with Ukrkosmos on different kinds of workarounds to address the force majeure and other issues, none of which could be made to work by Ukrkosmos,” he said in a statement to The Globe.
“Under the terms of the contract, the satellite is the property of Ukrkosmos,” he said. “Ukrkosmos can decide what to do with the satellite it owns. MDA remains willing to be of assistance if mutually agreeable contract terms can be reached.”
EDC spokeswoman Shelley Maclean said the loan for the satellite program had been “fully guaranteed” by the government of Ukraine. “We have not had any issues with repayment,” she told The Globe in an e-mail.
The legal dispute between Ukraine and Maxar “does not involve EDC but we are following it closely,” she said.