Select Committee on Transport First Special Report


Appendix


INTRODUCTION

The Government welcomes the Committee's helpful report on the Galileo programme. The Committee's analysis of the issues has helped inform our negotiations with the Commission and other Member States in the ongoing discussions on the programme.

We welcome the Committee's support of the Government's view that Galileo, being interoperable with GPS, has the potential to become a significant global utility, capable of providing a platform for significant growth in the market for satellite navigation products and services. As such it would benefit industry in the UK and Europe more generally.

The Government believes the political agreements reached at the ECOFIN Budget and Transport Councils in November 2007, which we secured after considerable negotiations, met the agreed UK objectives which have been endorsed by Parliament. The aim was to provide the basis for the sound project and financial disciplines the programme needed, by ensuring a clear and effective governance structure, in which member states have transparent access to information and influence and by providing for an open and competitive procurement strategy in which parallel procurement will be pursued: all with the aim of helping to keep costs down and provide the best opportunity for Galileo to succeed.

As discussion proceeds on the programme with our European partners - specifically on legislation to implement the political decisions - the Government will continue to emphasise the need for sound financial and project management. We will also seek to ensure the Commission and our European partners remain focussed on the principles agreed in the November Councils, including the commitment to robust and fair competition in the programme to help ensure cost control, mitigation of risks and value for money. And we will remain vigilant in our pursuit of these objectives in the future.

In the following paragraphs we set out the Committee's recommendations and the Government's response to them.

RESPONSE TO THE RECOMMENDATIONS

COSTS, FUNDING AND VALUE FOR MONEY

COSTS

1. The estimated and outturn costs of the Galileo programme have increased at every stage of its history. We have no reason to believe that even the very substantial costs now estimated for the total programme bear any significant relationship to the likely outturn. The Government has pinpointed specific areas of concern in the current cost estimates, and it is essential that any under-estimates are rectified before a decision is taken on the future of Galileo. Otherwise, it will be impossible to carry out a proper cost-benefit analysis, and it is in turn impossible to reach any kind of rational and informed decision. It is therefore imperative that the Commission carry out further work to verify the cost-estimates for the remaining phases of the Galileo programme, as requested by the UK Government and others. (Paragraph 22)

2. Comprehensive, rigorous and realistic information is in short supply across many crucial aspects of the Galileo programme, leaving no sound basis on which to make very important and extremely costly decisions. As we go through the different dimensions of the programme in this report, the lack of information and analyses is something to which we will return repeatedly. It is a point which the UK Government has made to European partners on many occasions, and one which we raised ourselves three years ago. It would appear that it has fallen on deaf ears in Brussels. (Paragraph 23)

The Government shares the Committee's concerns over the risk of cost escalation in the remaining stages of the Galileo programme. If Galileo is to offer value for money for the Community it is essential that costs are kept under control and a full operational capability is delivered within the budget that has been agreed by the Council of Ministers and endorsed by Heads of State and Governments at the December European Council.

The Commission's estimate of 3.4bn (£2.37bn) over the period to 2013 for the deployment and initial operation of Galileo, through public procurement, has been subject to independent review by PriceWaterhouseCoopers and Satel Conseil International and includes €428m (£298m)[1] for contingencies. The Government nevertheless continues to have concerns, in particular about the adequacy of the allowance for project risks. The Government has worked with the Commission and other Member States to ensure that the estimate of €3.4bn (£2.4bn) forms a ceiling on expenditure within the financial perspective 2007-2013, and that the implementation of the programme should be reviewed by an expert independent project management team on a regular basis.

As the Government made clear in the minutes statement it tabled with Sweden at the Transport, Telecommunications and Energy Council on 29/30 November 2007, we expect that independent reviews will be carried out at key points in the programme, including when quotes have been received from industry. In this way the Community will have the opportunity to consider the affordability of the project in the light of the quoted prices rather than provisional estimates and, where appropriate, look at the scope for adjustments to the programme to ensure it remains within the agreed budget.

Overall value for money will also depend upon minimising the downstream costs of operating and replenishing the system, including maximising the degree to which such costs are offset by potential revenue streams from the commercial services to be offered by Galileo. In its minutes statement, the Government therefore also called upon the Commission regularly to review costs, risks and likely revenues from the services offered by Galileo, including in the light of technological and market developments as the project progresses. The Government will continue to argue for the early involvement of commercial expertise in the planning for the operation of the system and for the potential injection of private sector funding through a Public Private Partnership (PPP) arrangement for operation and refurbishment.

BENEFITS

3. We have no reason to doubt that the Galileo project, if completed, could produce a wide array of benefits, both direct and indirect. We also acknowledge the difficulty associated with estimating such benefits ten or twenty years into the future. This is all the more reason to exercise caution. In our view, the benefit projections put forward by the European Commission throughout the life-time of the Galileo project appear fanciful. These figures have generally been put forward explicitly to assist decision making in the Council and European Parliament, and yet the supporting evidence has rarely amounted to more than the most basic collation of data. We urge the Government to continue to stand its ground in insisting that up-to-date evaluations of benefits must be produced. (Paragraph 30)

The Government is pleased that the Committee agrees that Galileo could produce a wide array of both direct and indirect benefits. The Government believes that in the light of the benefits of Galileo to the UK space industry, to UK jobs and ultimately to the wider economy that the United Kingdom should continue to support the Galileo project while maintaining vigilance on ensuring that the project provides value for money, is well managed and that risks are kept under control.

The latest available estimate - the results of a first exploratory evaluation by the Galileo Supervisory Authority (GSA) - of the benefits of Galileo for the EU over a 20 year period to 2027 were published by the Commission in September 2007.[2] This showed substantial additional value for the EU of €50-60bn (£35-£42bn), over this period, over and above the benefits of the market created by GPS, and additionally the macro-economic and broader economic benefits to the EU. In our statement at the November 2007 Transport Council the Government called for regular review of revenues in the light of developments.

4. We are deeply concerned that the consequences of the five-year delay to the Galileo programme have not been taken into consideration in the Commission's calculations of revenues. Even if there are no further delays, and Galileo becomes operational by the end of 2013, the market context is likely to be very different and much more competitive than the one on which current revenue projections seem to be based. It would therefore appear likely that there are very significant risks associated with the data which is being used to underpin the decision to proceed with the Galileo programme. (Paragraph 37)

The Commission's latest estimates of potential revenues and its most recent benefits assessment[3] are both based on Galileo achieving full operating capability in 2013. The estimate of revenues also recognises that, while Galileo should offer competitive services of a kind for which users are already paying in order to supplement GPS signals, with the real prospect of a revenue stream, the scale of potential revenues is uncertain.

The Commission estimate these revenues being in the range of €4.6bn-€11.7bn (£3.2bn- £8.1bn) over the period to 2030. It is the Government's view that any estimates of potential revenues at this stage can only be speculative. However, while revenues will reduce the costs to the public sector of operating the system, the Commission argues that they will form only a small proportion of the total potential benefits from the deployment of Galileo. These also include significant opportunities for the European and UK space industry together with new jobs and added economic value from the downstream Global Navigation Satellite System applications that are expected to be developed with the greater signal availability offered by Galileo operating alongside GPS.

COST-BENEFIT ANALYSIS AND VALUE FOR MONEY

5. The Galileo project is at a crossroads. The option of reducing its scope or dropping the project altogether cannot and should not be ruled out unless a balanced and comprehensive cost-benefit analysis, which includes an assessment of the marginal benefit of Galileo over GPS III, is on the table. (Paragraph 40)

The integrated decisions taken at the 23 November 2007 meeting of the Economic and Financial Affairs (ECOFIN) Budget Council and at the 29/30 November 2007 meeting of the Transport Council, which agreed the budget and the principles for a public procurement of a full operating capability for Galileo, will allow the project to proceed. This does not, however, alter the need for the Community to consider further the way forward for Galileo at key points in the project, including when bids have been received from industry - when final decisions can be taken on affordability and the scope of the project - and at the conclusion of the In-Orbit Validation phase, when judgments can be made on the remaining technical risks. These decisions should be informed by the work of the independent expert project management team that will review the implementation. The Government also expects, in line with its minutes statement at the November Transport Council, that the Commission will ensure regular reviews of the costs, risks and likely revenues from the Galileo services.

6. It would be entirely unacceptable to proceed with the Galileo project at this stage without fresh, independent and rigorous evaluations of the balance between costs and benefits. We simply cannot expect Ministers to commit the sums required to the Galileo project and the re-opening of the financial perspective 2007-13 without proper cost benefit analysis. We support the Government wholeheartedly in its calls for the Commission to produce this analysis. (Paragraph 42)

There are inevitably many uncertainties in trying to estimate the potential benefits from Galileo in advance of the services being available, as shown by the GSA's exploratory evaluation. The Government will continue to press the Commission to update and develop this benefits assessment, as well as regularly reviewing the programme to inform decision making as the project progresses.

The Government nevertheless believes that, despite uncertainties about the overall level of benefits that Galileo might deliver, it would be wrong to ignore the real direct benefits that can be expected to accrue to industry from UK involvement in the Galileo programme, and the potential for downstream jobs and added value for the UK from the likely growth in satellite navigation applications that will result from the deployment of Galileo alongside GPS.

UK industry has worked hard to position itself in the Galileo Programme, and has already benefited from contracts for the construction of the test satellites and other developmental work. The first test satellite - GIOVE A - was built on time and to budget by Surrey Satellite Technology Limited (SSTL). The second test satellite - GIOVE B - is due for launch later this year with a payload developed by EADS Astrium UK. UKspace - the UK industry association for space - currently assesses that about 400 direct highly skilled engineers and technicians are working directly on Galileo and as many as 1600 posts are dependent on Galileo in the wider supply chain and employment.

Developing the downstream products and applications is where it is expected that the major part of the predicted benefits will occur, and where most jobs are expected to be generated. The Government is encouraging innovation in GNSS and related areas through the Location and Timing Knowledge Transfer Network (KTN). This is managed by the National Physical Laboratory and has more than 450 organisations and 800 members. Its role is to research, develop, operate and apply location and timing technologies. These increasingly use satellite systems and will be looking to exploit Galileo. The management team works with industry and researchers to exploit knowledge and connect companies to emerging technologies and the best international research and practice. As an open forum it acts as an authoritative voice on the impact of location and timing technologies. The KTN is part of the wider UK effort on knowledge transfer. The areas of application that are expected to grow enormously in the future are personal navigation / positioning (primarily by integration into a mobile phone handset) and in-vehicle navigation.

It is foreseen that most people will be using satellite navigation in their every day lives in ten years' time. This takes Galileo, used in conjunction with GPS into the mass market. The final results of a study, jointly commissioned by DfT and BNSC and conducted by ESYS Consulting,[4] have been published on the BNSC and DfT websites. The study concludes that under the most likely scenario, the UK gross value added from downstream applications, using all available global navigation satellite systems (both GPS and Galileo), will be approximately £1.3bn a year by 2025. Total cumulative benefits from 2013, when Galileo is expected to be in service, to 2025 are estimated to be £14.2bn (£6.1bn using a 6% discount rate).

7. The possibility that the project no longer offers value for money cannot be excluded on the basis of the figures currently available. If, as a result of the delay along with the cost-overrun and the collapse of the PPP, the benefits no longer outweigh the costs, the project must be dropped. The new cost-benefit analysis should include a comparative evaluation of the "zero-option" of scrapping the project altogether. It is imperative that the Government have the political courage to bring reason and cold economic prudence to the table in Brussels—even if that means advocating that a flagship programme such as Galileo be scrapped. To do otherwise risks throwing very significant amounts of good money after bad. (Paragraph 43)

The Government believes that delivering value for money for the Community over the lifetime of Galileo will require tight control of costs, effective management of risks and regular review of likely revenues. At the Transport, Telecommunications and Energy Council, the Government successfully ensured that a ceiling was imposed on expenditure on the deployment of Galileo in this financial perspective to 2013, and that there will be regular independent reviews of costs, risks and likely revenues from the services to be offered by Galileo.

FUNDING

8. We agree entirely with the government that a re-opening of the financial perspective 2007-2013 in order to fund Galileo makes a mockery of the complex process of negotiations and compromises which form the basis for the financial perspective. Budgetary priorities agreed unanimously in the European council should not subsequently be re-visited through a qualified majority. Otherwise, the commission would have no incentive to be realistic, disciplined and prudent in its financial projections and management. Some member states could seek to reintroduce changes which had been rejected under unanimity in the European council. This is a slippery slope that must be avoided at all costs (Paragraph 53)

9. A re-prioritisation of funds within heading 1a of the financial perspective is, of course, not an ideal solution because other measures to strengthen competitiveness, growth and employment would receive fewer funds as a result. But an ideal solution to the fine mess in which the Galileo programme is currently mired does not exist, and it is vital that elementary and important principles of budget discipline are not wantonly abandoned in a scramble to save this one flagship project. (Paragraph 54)

The Government's strong concerns at the proposal to revise the Financial Perspective, and the view that a budget disciplined approach should require reprioritisation of funds from within Heading 1a (Competitiveness for Growth and Employment) of the EC Budget, has been set out consistently, including at the July, October and November ECOFIN Councils. This argument was again made at the November Budget ECOFIN Council.

However, at the November ECOFIN Budget Council, it became clear that no blocking minority against the revision of the Financial Perspective could have been sustained. It was apparent that a number of member states were aligning themselves with a potential-blocking minority only in order to pursue industrial interests that were divergent from those of the UK. For this reason, and in the absence of a sustainable blocking minority capable of preventing the revision of the Financial Perspective, the Government sought instead to minimise the scale of the revision and impose the greatest degree of budget discipline on the Galileo project going forward.

The details of the final outcome of the ECOFIN Budget Council were reported to the House in the European Standing Committee debate on 26 November 2007. The Government believes the agreement reached at the Council was the best possible outcome under the circumstances.

10. Building and running Galileo over 25 years is estimated to cost almost £10 billion. To put it into perspective, that is almost two-thirds of the cost of the entire Crossrail project. British tax-payers could end up paying 17% of these costs, and we believe they are entitled to demand that such expenditure is not incurred without a clear demonstration of how they will benefit from it. We recommend that the Government produce a rigorous cost-benefit analysis, demonstrating how UK taxpayers will benefit from the substantial sum of money they are contributing to the Galileo programme. (Paragraph 56)

The latest estimates from the Commission, in their Communications of May and September 2007,[5] show costs for the design and development of the system of €1.6bn (£1.1bn) (although final costs for the In Orbit Validation Phase have yet to be confirmed) and estimated costs for deployment and initial operation of the system of €3.4bn (£2.36bn) over the period to 2013. These figures have increased from earlier estimates in part because of the inclusion of further test satellites and security features and also because the deployment estimates now include the initial operating costs for the system until full operational capability has been achieved in 2013. They also include a contingency amount for the costs of design risks that would have been transferred to the private sector under a PPP arrangement and recovered in the operating charges to be paid by the Community in subsequent years.

It is difficult to provide estimates for the long term costs of the system in advance of decisions about how it will be operated. The Commission estimated in 2006 that the gross financial exposure to the public sector over the planned 20 year PPP concession (from 2010 to 2030) for both deployment and operation, including the costs of risks transferred and the recovery of the contractor's capital borrowing costs might be in the order of €8bn (£5.57bn). The Commission's Communication of May 2007 provides a number of estimates for operating costs under the different options then considered. This suggested that on the assumption of a PPP arrangement for operation and replenishment following a public procurement, costs might be of the order of €6bn (£4.18bn) over the period from 2013 to 2030. This would give a total cost of Galileo (not including other satellite programmes such as the EGNOS programme to supplement the existing GPS signal or satellite research) of €11bn (£7.66bn). Of this €1.6bn (£1.1bn) has already been spent or committed for the development phase, with a further forecast expenditure of €9.4bn (£6.55bn) to 2030.

The final results of the ESYS study[6] are that under the most likely scenario, the UK gross value added from downstream applications, using all available global navigation satellite systems (GPS and Galileo), will be approximately £1.3bn a year by 2025. Total cumulative benefits from 2013, when Galileo is expected to be in service, to 2025 are estimated to be £14.2bn (£6.1bn using a 6% discount rate.) The gross value added figures are based on projections of revenues from the sale of equipment and services, taking into account the value of inputs used. The study also looked at the proportion of this gross value added that might be ascribed to Galileo without GPS, but the complementarity of the two systems means that it is very difficult to separate out the benefits. The report however identifies a number of areas where Galileo will offer unique services and features that will deliver incremental value.

RISK MANAGEMENT - GOVERNANCE AND PROCUREMENT STRATEGY

11. We support the UK Government in pushing hard for sound governance structures and procurement strategies on the Galileo programme. Flawed governance or procurement strategies could be a source of further, disastrous delays and cost overruns. We recommend that the Government stick to its position that if the European Space Agency (ESA) is to manage procurement, a strong contractual relationship between ESA and the Commission needs to be established right from the beginning. We also recommend that the Government ensures that there is no retreat from the position that competition is vital in the procurement process at all contract levels. (Paragraph 62)

We welcome the Committee's support for the Government's position and will continue to press for these outcomes, including in discussions on the contract between ESA and the Commission for the procurement of a full operational capability for Galileo.

The ECOFIN Budget Council on 23 November 2007 agreed on the principle of robust and fair competition in the programme to help ensure cost control, mitigation of risk from single supply, value for money and improved efficiency. There was also an agreement on a Declaration which recognised that all work packages for Galileo should be open to maximum possible competition, in line with EU procurement principles, and to ensure procurement in space programmes was more widely open to new entrants and Small and Medium Enterprises (SMEs).

At the Transport, Telecommunications and Energy Council on 29/30 November Ministers agreed the general principles covering governance and public sector procurement for the programme. The Commission is identified as the overall programme manager, with member states having full access to information. There was also clear support for the principle of competition in the supply chain, including multiple simultaneous procurement streams to deliver value for money.

ALL OR NOTHING?

12. There is an alarming absence of rigorous and unprejudiced appraisal of the costs and benefits of different options for Galileo. Cost-benefit analyses undertaken years ago, based on assumptions which no longer hold true, cannot be relied upon to justify or rule out any particular course of action in 2007 or 2008. It is entirely conceivable that the best cost-benefit solution at this stage might be to scrap the programme entirely, and the Government should not resile from that conclusion, if it is where the evidence leads. It might be, however, that a smaller-scale project of some kind, such as one with fewer satellites, offers the best way forward. We recommend that the UK Government press for the necessary work to provide the information needed to make sound judgements now to be undertaken urgently. In any case, neither the project as originally conceived, nor any smaller-scale variants should be proceeded with in the absence of a compelling cost-benefit case. (Paragraph 68)

13. We fear that Galileo's status as a flagship grand projet is clouding the judgement of some in relation to its true, realistic and proven merits. An atmosphere that does not allow the continued rationale for the full Galileo programme to be questioned appears to have enveloped Brussels. But no amount of perceived prestige and status derived from competing in a civilian space race and no amount of vague but euphoric anticipation of enormous economic and employment benefits can make up for rigorous and balanced analysis of costs and benefit. None of the three key EU institutions has seen fit to cool the overheated atmosphere by ensuring that proper comprehensive analyses and cost-benefit evaluations are undertaken before any further decisions are made. We recommend that the UK Government do all it can to ensure that the decision is approached in a dispassionate and unprejudiced way. (Paragraph 69)

The Government believes that the Community should continue to review the plans and scope for Galileo as the project proceeds. The minutes statement tabled by the UK and Sweden at the Transport, Telecommunications and Energy Council on 29/30 November called upon the Commission to regularly review the costs, risks and likely revenues from the services to be offered by Galileo, including in the light of technological and market developments as the project progresses. It also called for review of the project by independent experts on a regular basis (as proposed by the Commission) and at key decision points including once quotes have been received from industry. The Government does not rule out the need to further consider the scope of the project in the light of those quotes.

EU DECISION-MAKING PROCESSES - EFFECTS ON THE GALILEO OUTCOME

THE PRESSURE ON COUNCIL FOR FAST DECISIONS

14. The chances of Galileo successfully achieving the sorts of benefits that the European Commission expects continue to decline with every passing month. However, the Commission has failed to match its own language of urgency with urgent action. The failure to produce a solid analysis, including a robust and independent cost-benefit analysis in time for Ministers to make well-founded decisions within the deadlines set by the Commission itself is frankly negligent. (Paragraph 72)

15. The Government must work hard to ensure that no decision on the future of the Galileo programme or on its funding is made before all the options have been properly appraised. The United Kingdom, and the European Union, would be better served by delaying the decision on the future of Galileo until such a time as the Commission is able to put rigorous and comprehensive evidence and analyses on cost and benefits before Council and the Parliament. A further delay would clearly be preferable to a hasty decision based on unfounded speculation and wishful thinking. (Paragraph 73)

The Government believes that despite the uncertainties about the overall level of benefits that Galileo might deliver it would be entirely wrong to ignore the real direct benefits that can be expected to accrue to industry from UK involvement in the Galileo programme, and the potential for downstream jobs and added value for the UK from the likely growth in satellite navigation applications that will result from the deployment of Galileo operating alongside GPS. The Government has therefore supported work to take forward the project, while ensuring that the mechanisms are in place to maintain budgetary control and to allow for informed decisions and key points, including through independent review by project experts.

COUNCIL DECISIONS BY QMV

16. Given the uncertainty surrounding the likely final cost of the project, the fact that the budget increase required on this occasion has fallen short of the 0.03% threshold which would trigger the unanimity procedure might be viewed with a degree of scepticism. We recommend that the UK Government strongly resist any attempt to smuggle major budget increases through as a series of incremental changes taken under QMV. (Paragraph 76)

The change that the Commission had proposed to the Financial Perspective - requiring an additional €2.4bn (£1.67bn) - is less than 0.03% of EU GNI (approximately €3.76bn -£2.62bn - in 2008), which means that a decision to allow the change is permitted to be taken by QMV. Under the EU Treaty any proposed changes that exceed that figure would require a decision by unanimity. The amount being requested by the Commission for Galileo represents approximately 0.02% of GNI in 2008.

The Government agrees that attempts at important budget increases through a series of incremental changes taken under QMV should be resisted. This is why the Government insisted that the sum agreed for Galileo in this Financial Perspective should form a budget ceiling for the procurement and initial operation of Galileo. The Government also secured a joint agreement between the European Parliament, the Council and the Commission, affirming that any further call on resources concerning Galileo could only be considered if it were accommodated within the ceilings of the agreed Multiannual Financial Framework and without reverting to the use of a Financial Perspective revision.

17. We recommend that the Government push for any decision on the future of Galileo to be made unanimously by Heads of State and Government at a European Council. It is neither reasonable nor democratic for decisions of such magnitude and cost to be taken by QMV in individual Councils of Ministers. Furthermore, a very important principle is at stake when deciding whether or not to re-open the Financial Perspective. This decision in itself could have very significant consequences for the Community, and therefore merits unanimity. (Paragraph 77)

Galileo is a Community project to be funded from the Community budget, and is therefore covered by normal Community rules. This includes qualified majority voting in the Transport, Telecommunications and Energy Council. The Government supports qualified majority voting; it has allowed us to unlock decision making and promote a number of the UK's priorities, for instance opening up transport markets, liberalising energy and promoting energy security.

An integrated decision on Galileo was reached with decisions being taken in ECOFIN Budget and the Transport Councils as the appropriate Council formations. The European Council confirmed the integrated decision of the Council on the financing, governance, and procurement policy for the European satellite navigation programmes at its meeting in December.

THE ROLE OF THE EUROPEAN PARLIAMENT

18. The process for reaching a decision on the future of Galileo and its funding is impenetrably complex. We fear that this complexity, along with the fact that the Galileo decision is now caught up in the negotiations on the 2008 EU budget, is creating an unstoppable momentum for a very expensive decision that is not supported by any robust evidence. We are deeply concerned that, with no one individual or body taking ultimate responsibility for a decision of this magnitude, a path of least resistance will simply be taken. This path is rapidly becoming a decision to proceed with and fund Galileo in the manner proposed by the European Commission in September. The Galileo train appears to have left the station without a qualified driver or anyone to apply the brakes. It would be a shameful indictment of EU decision-making if our worst fears were vindicated. (Paragraph 82)

The procedure is clear. The European Parliament participates fully in the budgetary process as the other half of the budget authority. Just as the Council has to agree to the funding proposal for Galileo, so will the European Parliament.

The European Parliament had previously adopted a resolution supporting the continuation of the Galileo programme while opposing any solution which would combine the EC budget with intergovernmental additional funding. The European Parliament called for full financing of Galileo under the EC budget - in line with the Commission's proposal.

The financing agreement for Galileo and the European Institute of Technology reached at ECOFIN Budget Council in November 2007 was endorsed by both sides of the Budget Authority. The accompanying declarations were jointly agreed by the Council, the Commission and the European Parliament.

Further discussions at official level between the Commission and member states on the draft regulations to implement the Council decisions will take place before the regulations are brought forward for adoption. The regulation will be subject to co-decision procedure and will also have to be adopted by the European Parliament.

CONCLUSION - THE GOVERNMENT'S OPTIONS

19. The jury is out on the continued rationale for Galileo. There is insufficient reliable and robust information about projected costs, relative to the benefits, for us to be able to judge whether scrapping or proceeding with the programme offers the better value for money for taxpayers. Neither are we able to judge which system configuration, and what level of involvement by the private sector, would provide the best cost-benefit ratio, in the event that we proceed with the programme. More worrying still, neither the European Commission, nor any Member State, is in any better position to make these judgements. The evidence and analysis provided by the Commission is scant, and gives no real thought to crucial risks and alternative options. On this basis, Governments find themselves pressurised to make snap decisions costing billions of pounds of taxpayers' money. The Government must do everything within its power to prevent any decision on Galileo from being made until independent and robust analyses of the costs and benefits of all the options are on the table. (Paragraph 86)

20. We note that the Government on its own does not have the power to stop, or to impose changes on the Galileo project. However, the Government must nonetheless consider seriously what the true price of complacency on Galileo could turn out to be. In the worst case scenario, this matter is serious enough that the UK might have to make progress in negotiations in other EU policy areas contingent on a reasonable and well-informed decision-making process on the Galileo programme. (Paragraph 87)

21. We are not opposed to the Galileo project per se, but we see no choice but to recommend that the British Government seek a debate on the future of Galileo at a European Council of Heads of State and Government. We also recommend that the Prime Minister discuss with other Heads of State and Government how to ensure that decisions of this magnitude will never again be pressed through in the unacceptable manner and on the basis of such poor evidence and analyses as has happened in the case of Galileo. (Paragraph 88)

22. The history of the Galileo programme provides a textbook example of how not to run large-scale infrastructure projects. Many of the problems encountered by the project are not peculiar to the EU and can be observed across a wide range of projects carried out by Member States. However, the processes and institutions of the European Union are in danger of falling into disrepute if Galileo is allowed to continue in its present form. The Government must work to ensure that common sense and good governance are reinstated. The time has come for the Government to initiate a reappraisal of other large EU projects to ensure that the Galileo fiasco is not repeated elsewhere, outside the limelight. (Paragraph 89)

23. We believe it is essential that the UK Parliament is given the opportunity to debate developments in the Galileo programme once again before any decision is made on the project. British tax-payers will be paying around 17% of the cost of Galileo — hundreds of millions of pounds at the very least — and they have a right to expect that this expenditure will be adequately scrutinised by their elected representatives. If no time is found for an urgent debate, we shall seek an Estimates Day Debate at the earliest opportunity. We therefore recommend that the Government schedule a debate on the floor of the House of Commons as soon as possible, and certainly before the next meeting of the Transport Council on 29 November 2007. (Paragraph 90)

The Government notes the Committee's conclusions but we believe - in line with the vote taken after the European Standing Committee debate on 26 November 2007 - that the clear direct benefits to the UK, together with the wider potential benefits to the UK and European economies from the Galileo system operating alongside GPS, justify the United Kingdom's continuing support for the project. This will be subject to ensuring that the project is constrained within the agreed budget for this financial perspective, that the mechanisms and necessary skills are in place to ensure that the risks can be effectively managed, and that there is an open competitive procurement architecture with parallel multi-source procurement to provide open access and fair competition for the private sector at all levels, including SMEs. These points were agreed in the ECOFIN Budget and Transport Council discussions on 23 and 29 November and endorsed in December 2007 by the European Council.


1   Exchange rate 1 Euro = £0.6968 - all figures converted at this sterling rate which applied on 30 September 2007. Back

2   pg 8-9: Commission staff working document (SEC(2007) 1210 which accompanies the Commission's Communication of 26 September 2007 (COM(2007)534). Back

3   As footnote 2 above. Back

4   ESYS Consulting - UK GNSS Downstream Benefits Assessment: 2007 Final Report for BNSC/DFT of 20 December 2007. Back

5   Commission's Communication of 16 May 2007 (COM(2007)261 final) and Commission's Communication of 26 September 2007 (COM(2007)534). Back

6   See footnote 4 Back


 
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