Orbital ore processing is such an odd concept in a lot of ways. While not clearly stated, it is implied that the uridium ore that Terok Nor (later known as Deep Space Nine) processed came up from Bajor's notorious mines. But, even if antigravs are amazingly cost-effective, why ship bulk ore to the tune of several kilotons per day up to orbit?
Seriously, stop and imagine having humanity's primary oil refinery in orbit, today. All those oil tankers criss-crossing the planet would instead need to be launched to orbit, with the products dropped (gently!) back down for use. You think you pay a lot for gasoline now?
Of course, those oil tankers all over the oceans are often carrying crude oil, not refined fuels, which is basically the same thing as shipping ore around anyway. However, we ship crude oil all over the place because we use almost every bit of it in various ways and for a variety of reasons, but the input at the station was ore mixed with other undesired rock, with no suggested use for the waste rock . . . we don't even know what they did with that.
And, of course, refined fuel is rather more volatile than crude oil. I'd be fine boarding an ocean-going oil tanker, but a jet fuel tanker would give me pause. Similarly, uridium was unstable after processing, less so beforehand . . . it could potentially reacted violently to electric charges, but with more effort involved.
One could say they wanted to do it all in orbit anyway to avoid processing it on the surface where lightning and such could occur, but that doesn't make a whole lot of sense. For one, we're pretty good at lightning protection even now, and I can pretty much guarantee that a suitable, even shielded structure could be built on the surface with far less trouble than a space station. Second, they had to have so many Bajorans on the station anyway that they really didn't gain a great deal in security.
The best option I can think of is that perhaps the uridium was from asteroids elsewhere in the system and the mines of Bajor were for stripping everything else. We're told so little about uridium . . . it's only significant appearance is from "Civil Defense"(DSN3) . . . that this could easily be true. Then Terok Nor as a concept works somewhat better, and in that way having the station in orbit of Bajor would make it a central distribution point for both uridium and other substances from the planet.
However, we're still basically talking about having the administrative center of your planetary Occupation and your strip-mining operation sitting in the middle of a large, potentially explosive refinery. This seems kinda nuts even if . . . perhaps especially if . . . your options are limited due to security concerns related to the Occupation. The only idea I can really come up with is that the station wasn't originally the administrative center of the Occupation but, as security on the surface rapidly deteriorated, the situation was such that the giant moat that low orbit represents, even at a potentially explosive location, seemed preferable to the surface.
The reason a separate administrative station couldn't be built or was considered inappropriate somehow is not clear. My best guess would be something philosophically akin to the "Cardassian architecture" of the raised commander's office Sisko noted in the pilot. Cardassia's primary goal was resources, with the Occupation only a means to that end. The leader of the Occupation's primary job was probably viewed as keeping the uridium and other material flowing, so whether he or she lived on the surface or on the station was inconsequential . . . but having a separate 'sky castle' altogether might've been viewed rather harshly by superiors, those under the leader's command, or both.
Had there been a separate 'sky castle' administration station, it would've been as much a target as Terok Nor, and would've needed similar defenses . . . no mere orbital office a la ST:TMP would've worked. Such a small and individually-undefended station only functions because of Federation control of Earth orbit, which was less of a given at Bajor. Moreover, the Cardassians living on the surface of Bajor, subject to everything from cold weather to resistance attack, would've potentially viewed it as an ivory tower, a subject of envy or ridicule, compared to the leader living on a working station.
That all said, the Cardassian Occupation had many other aspects of note that relate to this. For instance, we're never given any sense of anything besides Terok Nor and forces on Bajor in place in the system, despite its proximity to Federation space. We can easily dismiss the idea of them building shipyards there, but why not a larger strategic presence? There's no sense of Bajoran space or orbit having been secured by anything besides the stray vessel or the station itself, be it orbital platforms or a larger, more tactically-minded outpost. Presumably, this suggests either that they always viewed the Occupation as temporary (perhaps always intending to dump the humanitarian problem onto the Federation later), or that they did have more of a presence in the system and it was slowly wound down over time as the mines 'dried up'. The notion of an outpost in orbit . . . which could serve as a separate sky castle . . . seems not to be the case, however.
Alternately, and perhaps more hopefully, the Cardassians had to fight so hard to keep just the mines going and the workers locally fed that deeper integration of Bajor into the Cardassian economy . . . the placement of industry, capital investments, placement of long-term defensive positions, and so much more . . . became something that didn't look promising from a relatively early period in the Occupation.
Though it took generations to finally expel the Cardassians, that's probably when the Resistance truly won the day.
Of course an orbital oil refinery doesn't make a lot of sense if the fuel is used exclusively on the same planet where the oil is from. But we can surmise that the Cardassians wanted to ship the uridium elsewhere, for example to industrial facilities in more secure systems or for trading. So, if the uridium was always meant to go off planet you can just as well process it in space. Even more so if it is both valuable and volatile. A refinery would be a place where a lot of this stuff is concentrated in a small area making it a prime target for Bajoran terrorists. Being in orbit means that anyone who wants to get there needs at least a space ship, while on Bajor you could just walk to it.
I always assumed that it was for security concerns. Also, shouldn't transporters/teleporters make shipping stuff to orbit much quicker and cheaper? They are space magic anyway.
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