House of Commons - Transport

Select Committee on Transport First Report

1 Introduction

1. Galileo is a Global Navigation Satellite System (GNSS) initiated by the European Commission in 1999 as an alternative to the American GPS and the Russian GLONASS systems.[1] Whereas GPS and GLONASS were both designed primarily as military systems Galileo will be funded and controlled by the civilian authorities of the European Union and the European Space Agency (ESA) alone, though this does not preclude the possibility that it might be used by the military. Although it is designed specifically for civilian applications, it is possible that the free applications of the system could be used for military purposes.

2. Galileo is based on a constellation of 30 satellites as well as ground stations. It has potential uses across many sectors, though transport applications such as road and rail traffic monitoring, road pricing systems, and air traffic control have been considered key areas of benefit.[2] Other applications include, for example search and rescue systems or navigation systems for leisure pursuits at sea or on land.

3. This is the Transport Committee's second report on Galileo. We first looked at this project in the autumn of 2004, when we recognised its potential benefits to the United Kingdom and Europe.[3] We noted however, that at that stage, the costs and benefits of the project had not been properly assessed, and we urged the Government to ensure that further independent and comprehensive cost benefit analyses were carried out before the project was given the final go-ahead. We counselled against making an "irrevocable commitment" to Galileo until a final offer from the selected Public Private Partnership operator had been made. Following a crucial meeting of the Transport Council in December 2004, the Government reiterated its commitment to Galileo, and told us that, although the Council remained strongly in favour of the project, no irrevocable commitment had as yet been made to it. Indeed, if a PPP contract could not be successfully completed or if the negotiations over the Community budget were to conclude that future costs of Galileo could not be sustained, "member states have to undertake a complete reappraisal."[4] This situation has now effectively arisen as the PPP negotiations have collapsed, and the Commission is requesting a further €2.4 billion to continue the project as a public procurement.

The story in brief

4. In March 1998, the Council of Transport Ministers asked the European Commission to make recommendations about the future European approach to global satellite navigation. The European Parliament subsequently called upon the Commission "to present as soon as possible a coherent strategy for the development of a Trans-European positioning and navigation network."[5] In February 1999, the Commission set out the rationale for a European Global Satellite Navigation System, as well as more substantial proposals for its development and operation. The Commission maintained that the benefits to Europe from having its own, civilian GNSS programme would be vast, and that they would be felt across many policy areas. The Commission argued that not developing such a system would

"[leave] Europe without adequate assurance that its political, strategic, economic, employment, industrial, security, space and, of course, transport and other interests [were] preserved."[6]

5. The European Council of Heads of State and Government meeting in Nice in December 2000 paved the way for a formal Council resolution in April 2001 to launch the Galileo programme. It falls into four distinct phases from definition to commercial operations:[7]

i. The definition phase (completed): the design of the system and service architecture. This phase was completed in 2001 at a cost of €133 million, shared equally between the EU budget and the European Space Agency (ESA).

ii. The development phase (commenced, but not yet completed): originally meant to run from 2002 to 2005. Two experimental satellites were to be launched in this phase, followed in 2007 by the launch of a "mini-constellation" of four fully-fledged Galileo satellites, allowing in-orbit testing of the system. However, so far, only one of the two experimental satellites has been launched.[8] The second is currently undergoing testing and its launch is expected to take place by the end of 2007.[9]

iii. The deployment phase (not commenced): the building and launch of the remaining 26 satellites and the construction of ground-based units. This phase was originally intended to be completed by 2008, at a total estimated cost of €2.1 billion. It was the intention that a Public Private Partnership (PPP) would take forward the deployment and commercial operations phases, with the private sector contributing €1.4 billion against €700 million from the Community budget during the deployment phase. The collapse of the PPP negotiations earlier this year means that this model is no longer an option.

iv. The commercial operations phase (not commenced): this phase was meant to have commenced in 2008, with the PPP operator (known as the concessionaire) running the Galileo system, and bearing a significant proportion of the financial risks involved in the project. This phase is not now expected to start until 2013 or 2014.

6. Until Galileo becomes operational, Europe is largely reliant on the American GPS and the Russian GLONASS systems. A second strand of the EU GNSS strategy, EGNOS (the European Geostationary Navigation Overlay Service) is effectively a precursor to Galileo.[10] EGNOS consists of three geostationary satellites and a network of ground stations which augment GPS and GLONASS signals. The augmentation of the signals from these two systems makes them suitable for safety-critical applications such as navigating in the air or in hazardous waterways. EGNOS will improve the accuracy of GPS and GLONASS signals to a two-metre radius, compared to the current accuracy of 20 metres.[11] EGNOS is now in its pre-operational phase, but it is expected that it will become fully operational, and certified for use in safety of life operations during 2008.

7. In June 2004, the EU and the United States signed an agreement to ensure compatibility between their respective satellite positioning systems. The deal determines how Galileo's frequencies should be structured, and will allow signals to be jammed in war zones if necessary. The agreement is intended to create a single international standard for satellite positioning signals, which means that users will be able to obtain information from both systems.

THE PUBLIC PRIVATE PARTNERSHIP

8. At the Nice European Council of Heads of State and Government in December 2000, it was agreed that the development phase of Galileo, by far the most expensive phase of the programme, should be carried out as a Public Private Partnership (PPP). The process to select a PPP concessionaire culminated in the merger of the final two bidders into the, Eurely/iNavSat consortium. This consortium was subsequently selected as the concessionaire in June 2005, but negotiations collapsed in the spring of 2007.

9. According to the European Commission, the PPP negotiations collapsed because the private sector consortium was unwilling to accept the transfer of risk at a cost which was, in turn, acceptable to the Commission.[12] When giving oral evidence to the Committee, the Minister of State for Transport, Rt Hon Rosie Winterton MP, supported this view, and revealed that risk transfer in the development and deployment of satellite navigation programmes was the exception rather than the norm:

"The industry was obviously concerned about risk. I think it is also worth remembering that in the US, in China, in Russia, these projects will all be initially funded by government, and in a sense we know that the private sector would never be able by itself to manage a huge great system when we are talking about up to 30 satellites."[13]

10. But the Minister also hinted that the reasons for the collapse of the negotiations may have been somewhat more complex than simply the price attached to risk. The lack of competition after the only two remaining bidders had been allowed to merge was one additional factor, internal disagreements and the prolonged absence of a chief executive at the bidding consortium was another.[14]

11. The June 2007 Transport Council confirmed that the PPP model had failed, but renewed its commitment to the Galileo programme itself. It was agreed that the Commission should put forward alternative options for delivering the programme with a view to the Council of Ministers and the European Parliament reaching a decision before the end of 2007. The UK and the Netherlands, with support from Slovakia and Cyprus, entered a "Minute Statement" into the conclusions of the meeting, setting out their particular concerns and views with regard to Galileo.[15] The Minute Statement:

i. stressed the Government's commitment to the PPP principle for major infrastructure projects, its concerns about the potential increased costs of public procurement, the need for a reassessment of the business case for Galileo, competitive procurement, better governance and sound risk management; and

ii. required that any additional funding be found within the limits of the relevant ceiling of the Community's Financial Perspective; and

iii. called for the cost-benefit analysis to be produced by the Commission to include a thorough comparison of different options, including a PPP option and the option of having an operating concession.[16]

12. The House of Commons European Scrutiny Committee subsequently expressed considerable concern about developments, arguing that no decision on the future of Galileo should be taken until a comprehensive and thorough business case and funding solution had been presented and explained by the Commission.[17] The Committee subsequently secured a debate on the floor of the House in early July 2007, and published a further consideration of European Commission documents on Galileo on 24 October. The Committee did not clear the documents.[18]

13. The UK Government now acknowledges that, although it favours the PPP arrangement, this option is no longer on the table for the deployment and operational phases in their entirety. However, Ministers continue to push for other types of private sector involvement including other, smaller, PPP schemes. This policy is motivated by the belief that the private sector has a better record in financial discipline, on-time delivery and risk management.[19]

TRANSPORT AND ECOFIN COUNCILS IN OCTOBER 2007

14. Transport Ministers discussed the future of Galileo once again at the Transport, Telecommunications and Energy Council on 1-2 October 2007. Documents published by the European Commission on 19 September, as requested at the June Council, were discussed, but any real decisions were postponed to the Council meeting scheduled for the end of November. The Council did, however, reiterate its commitment to the continuation of the Galileo project and confirm the intention to take "an integrated decision on the European GNSS" before the end of 2007.[20]

15. The Economic and Financial Affairs Council (EcoFin) met on 9 October, and there was "an exchange of views on proposals from the Commission for the additional public financing of Galileo." EcoFin also reaffirmed the importance of the Galileo programme, but noted several countries' opposition to Commission proposals that the Financial Perspective be re-opened in order to re-allocate funds from other headings to the Galileo programme. It was agreed that funding arrangements would be discussed at a future meeting (on an, as yet unspecified date).[21]

16. We are most grateful to our colleagues on the House of Commons European Scrutiny Committee and the House of Lords Select Committee on the European Union for their continuous and diligent scrutiny of the Galileo project at key points of its history.[22] Thanks to the commendable efforts of the European Scrutiny Committee, for example, Galileo has been debated on the floor of the House of Commons and in European Standing Committees on a number of occasions. We hope both Scrutiny Committees will continue to take a close interest in this important subject, as will we.

1 European Commission: Galileo: Involving Europe in a New Generation of Satellite Navigation Services, COM(1999) 54 Final, 10 February 1999, p 2 Back

2 The European Commission recently estimated that 30% of the exploitation revenue from Galileo and EGNOS would come from road transport, with 5% from aviation. Back

3 Transport Committee, Eighteenth Report of Session 2003-04, Galileo, HC 1210 Back

4 Transport Committee, Second Special Report of Session 2004-045 Government Response to the Eighteenth Report of the Committee: Galileo, HC 410 Back

5 European Commission: Galileo: Involving Europe in a New Generation of Satellite Navigation Services, COM(1999) 54 Final, 10 February 1999, p 1 Back

6 Ibid, p 8 Back

7 Sometimes referred to as three phases, with the definition and development phases taken as one phase. Back

8 The first (and so far, only) satellite was launched in December 2005. Back

9 European Space Agency: Error! Bookmark not defined. Back

10 EGNOS is a joint project of the European Space Agency (ESA), the European Commission (EC) and Eurocontrol, the European Organisation for the Safety of Air Navigation. Back

11 European Space Agency: Error! Bookmark not defined. Back

12 European Commission: Galileo at a cross-roads: the implementation of the European GNSS programmes, COM(2007)261 final and SEC(2007)624 final, 16 May 2007 Back