Controversial Space Asset Financing Protocol Will Proceed Despite Strong Industry Opposition

A protocol for standardizing rules for security interests in space assets such as satellites will go ahead despite industry concerns, International Institute for the Unification of Private Law (Unidroit) Deputy Secretary-General Martin Stanford told us Wednesday. Satellite operators, spacecraft manufacturers, launch service providers, insurance and financial companies and satellite and space-related associations said in a Dec. 9 letter to Stanford that the instrument is being foisted on them despite strong opposition. The current draft will introduce new and unneeded regulations for satellite financing and is inconsistent with market practices, more than 90 companies and trade groups said. Moreover, they said, it will deter potential investors and boost insurance premiums and transactional costs. But Unidroit intends to proceed because the protocol will benefit developing and emerging economies, Stanford told us.

The draft space assets protocol was created to encourage and aid space financing, the industry letter said. But few satellite operators or financiers have pushed for a new legal instrument or endorsed it, it said. Rather, a “substantial part of the global satellite sector has directly opposed the initiative, as evidenced by this letter,” it said. The agreement will impose unnecessary and costly bureaucratic burdens on the sector, and it doesn’t respond to any identifiable problem in the existing funding environment, it said.

The current process works well for established and new players, and no satellite financings have failed or been unduly expensive due to impediments related to granting and perfecting security interests, the letter said. “UNIDROIT has not addressed these concerns” in the document and “has consistently disregarded the views of the satellite manufacturing, operator and financing communities,” it said.

Under the protocol, space objects must be identified on an international registry in order to create and protect an international interest in them, the letter said. This amounts to a “new supra-national layer of regulation” on top of existing national rules, resulting in duplicative filings requirements, it said. Financiers will likely find the system “unnecessary, confusing and cumbersome,” effectively impeding the financing of satellite systems the protocol is meant to encourage, it said. Signers urged Unidroit to “halt your plans."

Among those signing the letter were the European Satellite Operators Association, U.S. Space Industry Association and Cable & Satellite Broadcasting Association of Asia; satellite operators from around the world; insurers and underwriters; and financial institutions such as Bank of America Merrill Lynch, Goldman Sachs, Barclays Capital and Morgan Stanley.

The draft protocol is the third in a series of protocols to the convention on international interests in mobile equipment that opened for signature in Cape Town, South Africa, in November 2001, Stanford said. The Cape Town convention and its first protocol have been enormously successful, he said.

The latest protocol is based on a preliminary draft prepared by an industry group, on which representatives of all sectors of the commercial space communities served, Stanford said. Fifty-seven countries have taken part in the work, which has also benefited from input from technical industry advisers representing a cross-section of the commercial space sector, he said.

The Unidroit committee of governmental experts preparing the protocol has “exhaustively considered” all the points raised by the commercial space communities and, notwithstanding the claim by certain members of those sectors that “there’s nothing wrong with the current system,” has decided that the draft constitutes, “on balance, a useful tool for stakeholders, in particular those in developing and emerging economies,” Stanford said. The governments concerned have also concluded that the benefits are likely to increase in the future through technological advances, the opening up of new markets and new players, he said. That’s why the committee of experts and Unidroit member governments decided the protocol should go to diplomatic conference, he said. The conference is scheduled for Feb. 27-March 9 in Berlin, Unidroit said.

Unidroit launched its work on a space assets protocol more than a decade ago, Hogan Lovells (Brussels) communications and satellite regulation attorney Gerald Oberst said in a Dec. 1 posting on Satellite Today. The International Institute of Space Commerce (IISC) looked at the situation in 2009 and “came up with some harsh conclusions,” he said. The only apparent support for the protocol at that time came from academia, he said.

The IISC concluded that “’the benefits of the proposed new regime seem slight,'” Oberst wrote. That was almost two years ago and matters haven’t improved, he said. Despite major opposition, Unidroit is “forging ahead,” he said. “This effort took on a life of its own,” he told us.