House of Commons - European Scrutiny

Select Committee on European Scrutiny Thirty-Eighth Report

1 Global navigation satellite system: European Institute of Technology

(a)
(28940)
13112/07
+ ADD1
COM(07) 534

(b)
(28941)
13113/07
COM(07) 535

(c)
(28942)
13237/1/07
COM(07) 549

Commission Communication: Progressing Galileo: re-profiling the European GNSS Programmes

Amended draft Regulation on the further implementation of the European satellite radionavigation programmes (EGNOS and Galileo)

Commission Communication concerning the revision of the multi-annual financial framework (2007-2013)

Draft Decision amending the Inter-Institutional Agreement of 17 May 2006 on budgetary discipline and sound financial management as regards the multi-annual financial framework

Legal base (a) —
(b) Articles 155(1) and 156 EC; co-decision; QMV
(c) —; co-decision; QMV

Documents originated (a) and (b) 19 September 2007
(c) 4 October 2007

Deposited in Parliament (a) and (b) 28 September 2007
(c) 9 October 2007

Department (a) and (b) Transport
(c) HM Treasury

Basis of consideration (a) and (b) EMs of 17 October 2007
(c) EM of 15 October 2007

Previous Committee Report None

To be discussed in Council (a) and (b) Transport Council November 2007
(c) ECOFIN Council November 2007

Committee's assessment Politically important

Committee's decision Not cleared. Further information requested

Background

GLOBAL NAVIGATION SATELLITE SYSTEM

1.1 The Community has a two-phase policy for developing a global navigation satellite system (GNSS). The first phase, GNSS 1, is the European Geostationary Navigation Overlay System (EGNOS) programme. The second phase, GNSS 2, is the programme, named Galileo, to establish a new satellite navigation constellation with appropriate ground infrastructure. Galileo is based on the presumption that Europe ought not to rely indefinitely on the GPS (the US Global Positioning System) and GLONASS (the Russian Global Navigation Satellite System) systems, augmented by EGNOS. Galileo is being carried out in conjunction with the European Space Agency (ESA). There are a number of agreements in place or being negotiated with third countries about cooperation in the Galileo project.

1.2 It is intended that Galileo will allow provision of five services. These are known as the:

Open Service (OS), free of charge at the point of use;
Commercial Service (CS), offering added value for more demanding uses;
Safety of Life Service (SoL), for safety-critical applications that require high integrity;
Search and Rescue Service (SAR), to complement the current COSPAS-SARSAT system (International Satellite Search and Rescue System founded by Canada, France, the former USSR and the USA in 1988 and with 33 countries now participating); and
Public Regulated Service (PRS), a high-performance, encrypted service for authorised civil government applications.

1.3 The Galileo programme has three phases:

the development and validation phase — development of the satellites and the system's ground components, as well as validation in orbit (IOV). This phase was due to run from 2003 to 2005, but will now continue until 2009. The project is currently in the validation part of this phase;
the deployment phase — building and launching 30 satellites and establishing the entire ground-based component. This phase was due for 2006 and 2007; and
the commercial operating phase — commencement of the full commercial operation of the system. This phase was due to begin in 2008.

1.4 It had been intended that a public private partnership (PPP) be established for the deployment and operational phases of the Galileo programme, with the public sector financial contribution being limited to one-third of the costs. The Galileo Joint Undertaking (GJU), which was wound up with effect from 31 December 2006, was responsible for managing the programme's development phase for the Community and the ESA, including the procedure to select the future private-sector concessionaire to run the PPP. In 2004 a GNSS Supervisory Authority (GSA) was established to manage the public interests relating to European satellite radio-navigation programmes — currently EGNOS and Galileo. It was intended to be the formal owner of these two systems and to act as the regulatory authority for the concessionaire during deployment and operation. The GSA has taken over the functions of the GJU, including responsibility for negotiations with the consortium[1] which was bidding to be the concessionaire — in the course of 2006 it became apparent that those negotiations were making little or no progress.

1.5 In March 2007 the Transport Council set a deadline of 10 May 2007 for the bidding consortium to put itself in a position to resume meaningful negotiations and asked the Commission to report back for the Council's 7-8 June 2007 meeting on how matters stood on the whole Galileo project and on alternative scenarios for carrying the project forward. In the light of the Commission's response in June 2007 the Transport Council adopted a Resolution which:

concluded that the current concession negotiations have failed and should be ended;
asked the Commission to prepare detailed alternative proposals for taking the project forward, to be put to the October 2007 Transport Council;
underlined that these should be based on an additional thorough assessment of costs, risks, revenues and timetable; and
asked the Commission to submit financing options, a procurement strategy, concepts for the subsequent operation and exploitation phase, and proposals for a sound public sector governance structure.

1.6 The Presidency made clear the possibility that, if suitable answers were not found, the project would be ended and that the Council should not rule out the involvement of private finance. In the Council debate the Government:

accepted that Galileo had the potential to be a key project, as it is described in the Resolution, but that it should not be proceeded with unless the costs were justifiable;
stressed that, while the Government accepted that the current PPP negotiations had failed, it was committed to a PPP model;
argued that a PPP was the best way to ensure risk and cost are effectively managed, that the risks in terms of costs and timetable would not be reduced, and might be increased, by moving to a public procurement, and that open tendering and competitive procurement was essential;
said the Council had to ensure that it learned from the problems there have been, and improved governance and risk management;
said it was important that funding for Galileo had to be found within the limits of the current budget allocations, without reopening the current Community Financial Perspective; and
welcomed the Presidency's recognition that the project could be ended if acceptable solutions were not found, and that the involvement of private finance was not ruled out.

1.7 From early in 1999 we and previous Committees have reported to the House on many aspects of the Galileo project, most recently in June 2007.[2] The matter has also been debated three times in European Standing Committee A and, most recently, once on the Floor of the House.[3]

EUROPEAN INSTITUTE OF TECHNOLOGY

1.8 In February 2005, the Commission published its proposals for the re-launch of the Lisbon Strategy (Working together for growth and jobs). It included a proposal for the creation of a European Institute of Technology (EIT). Its purpose would be to improve EU competitiveness by bringing together the best people from universities, companies and research bodies to provide world-class research, innovation and post-graduate teaching.

1.9 In October 2006 the Commission published a draft Regulation to establish the EIT. The draft Regulation provided that the tasks of the EIT would include:

identifying matters of potential major economic and social interest for Europe which are likely to generate the best added value from innovation;
deciding in which of those matters to invest resources;
selecting about six Knowledge and Innovation Communities (KIC), defining their rights and obligations in agreements, applying quality controls to them, periodically evaluating their activities, and ensuring appropriate coordination between them;
raising the EIT's income; and
promoting the recognition of EIT degrees and diplomas.

The draft Regulation defined a KIC as "a joint-venture of partner organisations, whatever its precise legal form, selected and designated by the EIT to carry out at the highest level integrated innovation, research and education activities in a specific field". Businesses, research bodies and universities would form themselves into partnerships which would compete for designation by the EIT as KICs. Each KIC would last seven to 15 years and would raise its funds from public and private sources.

1.10 The draft Regulation also provided that:

post-graduate degrees and diplomas awarded through KICs would be "EIT degrees and diplomas";
the EIT would have legal personality;
the Protocol to the EC Treaty on the Privileges and Immunities of the European Communities should apply to the EIT;
the EIT would have a Governing Board, an Executive Committee, a Director and an Audit Committee; and
the Governing Board would have a total of 19 members. The Commission would appoint 15 of them for a non-renewable term of six years. The remaining four members would be elected by the staff and students of the EIT and KICs.

1.11 Finally, the draft Regulation provided that the EIT would be financed through:

contributions from the Community budget;
payments from Community programmes;
contributions from Member States and public authorities;
contributions from business and private organisations (such as companies, banks and venture capitalists);
bequests and donations from individuals, charities and others; and
revenue generated from the EIT's activities and other sources, such as intellectual property.

A financial statement attached to the draft Regulation forecast that between 2008 and 2013 the total combined costs of the EIT and KICs would be €2.367 billion (£1.5954 billion). The total income of the EIT and KICs would also be €2.367 billion, with €1.531 billion (£1.0753 billion) coming from the Community's Research and Development Programme, the Structural Funds and other Community programmes, €526.9 million (£355.13 million) from Member States, public authorities and private bodies, and €308.7 million (£208.1 million) from the Community budget.[4]

1.12 The draft Regulation is still under consideration and during Council negotiations the proposal has been revised substantially. The EIT itself would have a less prominent role and the number of KICs would be reduced from six to two or three. However, the Community budget contribution remains at €308.7 million, a number about which the Government remains unhappy, although otherwise broadly content with the revised proposal.

The documents

GLOBAL NAVIGATION SATELLITE SYSTEM

1.13 The Commission Communication, document (a), is the response to the Transport Council's request of June 2007 and is supplemented by a staff working document. The first, introductory, section of the Communication summarises the actions taken by the Community since the problems in the concession negotiations became apparent, refers to the request for further advice by the Transport Council and recalls the support expressed for the Galileo programme by the European Council in June 2007. The Commission says it expects a decision to be taken on how to progress the programme by the end of 2007.

1.14 The Communication's second section discusses system infrastructure costs. The Commission estimates that the cost of delivering full operational capability (FOC) for Galileo, which it expects to be achieved in 2013, will be €3.4 billion (£2.369 billion). This covers the cost of 26 satellites and launches, two spare ground based satellites, the remaining ground infrastructure and a contingency reserve of 14% (amounting to €428 million (£279 million)). The other four satellites in the planned 30 satellite constellation (three are spare) are being launched as part of the development phase of Galileo, starting on current plans in 2009. The costs are broken down as follows in the Communication:

Item Estimated costs in millions of Euros (sterling equivalent)

Galileo FOC (Full Operational Capability)

  Satellites + launchers 1,600 (1,115)

  Ground control infrastructure 400 (279)

  Operations (for 4 years) 275 (192)

  Systems Engineering 150 (105)

  Procurement Agent management costs 195 (136)

EGNOS

  Exploitation and operations (2008-2013) 330 (230)

Support to the Commission

  Project management support and advisory Services 27 (19)

Contingencies[5] 428 (298)

Total 3,405 (2,373)

The Commission says that:

these figures represent a best estimate of the expected procurement costs;
are contingent on a political decision being taken by the end of 2007; and
the total costs to the Community will only become fully apparent during the course of contract negotiations.

It asserts that it is important to place the Community in a good negotiating position, in order to obtain the best value for money, by means of a competitive bidding procedure based on principles to be agreed in the procurement strategy.

1.15 The third section of the Communication sets out the Commission's views of the risks in the programme, covering in particular design and procurement risks — information on risks in the operations and exploitation phase are provided in the annex to the Communication. The Commission suggests that the identified risks are commensurate with the ambitions and scope of the programme and that, over and above the contingency proposed, there is no need for specific budgetary provision at this stage.

1.16 The next section of the Communication considers the economic benefits and potential exploitation revenues from the Galileo system. In discussing the downstream market it highlights estimates of the potential growth of the GNSS market and the added value that Galileo can bring, particularly through the increased availability of GNSS signals. On direct exploitation revenues the Commission notes that these represent a tiny portion of the overall return, but that they are nevertheless expected to be large — between €4.6 billion (£3.21 billion) and €11.7 billion (£8.15 billion) over 20 years. Over half of this is expected to be generated by "special use" of the OS — that is provision of an authentication signal to prevent an illegal signal transmitter imitating the Galileo signal. Although the OS is free, the authentication element — which the Commission envisages would be used for regulated applications, such as road tolling — would incur a charge.[6] Almost 30% of the revenues is expected to be derived from the fully encrypted PRS for government use.

1.17 The Commission proposes that in reaching decisions on the way forward the Council should take note of the macro-economic benefits of the programme, the direct benefits in terms of new services and markets and the expected exploitation revenues.

1.18 The Communication's fifth section addresses financing of EGNOS and Galileo. The Commission's proposals are discussed more fully in documents (b) and (c). The Commission:

envisages a further €2.4 billion (£1.66 billion) is required for Galileo, making a total of €3.405 billion (£2.3695 billion), for the period 2007-2013;
notes two main options available to the Community — Community funding and inter-governmental funding (either through the ESA or directly from Member States);
rejects inter-governmental funding, which is being used for the current development/IOV phase, because not all Member States are members of the ESA and because of the governance problems that would arise from part ESA financing;
instead favours a revision of the multi-annual financial framework for 2007-2013 (the Financial Perspective);
refers to other options, available in the Inter-Institutional Agreement on budgetary matters, that it rejected — use of the margins, use of the Flexibility Instrument or, notably, use of the ability to vary by up to 5% amounts provided in multi-annual programmes. In the latter connection the Commission acknowledges that a considerable amount could, in principle, be transferred to the Galileo programme by re-deploying existing resources within Heading 1a (Competitiveness for growth and employment), but argues that such a re-deployment at the beginning of the programming period would not be appropriate; and
proposes that current financial arrangements for EGNOS should continue until March 2009, when the pre-qualification phase is due to be completed. After this the Commission proposes that EGNOS operations be covered by the GNSS budget. The Commission estimated cost for this — six years of operations and exploitation — is €330 million (£230 million).

1.19 The sixth section of the Communication deals with user needs and preparation of markets. The Commission, in the staff working document, argues that the responses to its Green Paper on satellite navigation applications[7] indicated that the market is not sufficiently aware, mature or developed and highlights the problems caused by the uncertainty around the timetable for Galileo and EGNOS. It argues that the public sector should do more to prepare the GNSS market. It proposes an action plan, based on responses to the Green Paper, to be published by the end of the year and which would be carried forward by the GSA. The main objective of this plan is to establish a framework that allows the development of applications based on both EGNOS and Galileo by means of targeted action. Activity would include:

assistance to public and private sector players in all economic sectors;
raising awareness and provision of technical information;
standardisation, certification and consolidating market requirements; and
removing barriers to Community policies which could profit from interoperable satellite navigation services.

1.20 The Communication's seventh section reviews public sector governance. The Commission is looking to establish itself as the overall public sector programme manager, overseeing the development, procurement, operations, and exploitation contracts related to system infrastructure. It says political oversight should remain with the Council and the European Parliament. It advocates the creation of a comitology committee,[8] to be called the Committee on European GNSS Programmes. This would take all decisions on the related budget line as well as technical, programmatic, schedule and financial decisions related to Galileo and EGNOS, but the Transport Council would continue to exercise political oversight.

1.21 As for the GSA, in addition to its role in market development, the Commission sees the authority acting as an accreditation body for organising certification of the programme. It would also advise and assist the Commission as appropriate. The Commission foresees the ESA acting as the procurement agent and design authority, acting on the basis of a detailed agreement with the Community. Procurement would take place on the basis of six principles:

application of Community public procurement rules;
implementation of open and competitive procurement;
taking account of existing achievements and investments;
parallel, double-sourced procurement in a number of key areas;
incremental implementation of the system infrastructure and validation of the services, in order to control risks; and
taking due account of the strategic nature of the programmes and the security and export control requirements.

1.22 The penultimate section of the Communication relates to the concepts for the operations and exploitation phases. The Commission says that it remains committed to the early involvement of the private sector in these phases, including the possibility of a PPP. But it argues that the decision on such involvement should be taken at an appropriate time — once there is greater clarity on the risks, in particular market risks — and the staff working document suggests this decision is unlikely to be taken before 2013.

1.23 The Communication's final section sets out the anticipated timetable for the programmes. This is dependent on a political decision having been taken by the end of 2007. It foresees Galileo FOC in mid-2013, with notable earlier events including Galileo FOC procurement contracts commencing in autumn 2008 and the launch of the first IOV satellites a year later.

1.24 The amended draft Regulation, document (b), complements the Commission proposals in its Communication, document (a). In July 2004 the Commission proposed a draft Regulation to establish a public sector contribution to the deployment and operational phases of the Galileo programme. This was one of the documents debated in European Standing Committee A in December 2004.[9] Although some progress was made in negotiating this proposal it has been overtaken by the failure of the negotiations with the consortium and subsequent developments.

1.25 This revised version of the draft Regulation sets out the Commission's proposals for having the Galileo programme adequately financed as a wholly publicly funded procurement project. It now also incorporates financing from April 2009 for the EGNOS programme, in accordance with the wishes first expressed by the June 2003 Transport Council and as mentioned in document (a).[10] In putting forward a revised proposal for financing EGNOS and completion of the deployment phase of the Galileo programme under public procurement the Commission estimates the extra funding required at €2.4 billion (£1.6723 billion) in addition to the €1.005 billion (£0.7002m) already programmed in the Financial Perspective: thus amounting to €3.405 billion (£2.376 billion) in total. The Commission proposes that the funds should come from a reallocation from the margin of Headings 2 (Preservation and Management of Natural Resources) and 5 (Administration), where it believes the necessary funds are available in 2007-2008, to that of Heading 1A (Competitiveness for growth and employment) which includes Galileo, with an additional reallocation of €300 million (£209.04 million) from the 7th Research and Development Framework programme.

1.26 The Commission proposes a public sector management structure, under which it would take over the responsibility for project managing the Galileo programme, with the ESA acting in the role of procurement and design authority. The Commission proposes the comitology committee, the Committee on European GNSS Programmes, mentioned in document (a), be set by the draft Regulation, to operate under its chairmanship and on which Member States would be represented. The Committee would take all decisions on the related budget line as well as related technical, programmatic, schedule and financial decisions related to Galileo and EGNOS. It would bring in advisors and external expertise as required.

1.27 The Commission sees the GSA having the responsibility for market development and as an accreditation authority for organising the certification of the programme. It would also advise and assist the Commission as appropriate. The Commission proposes an increase of the size of its own Galileo unit from 14 to 35 staff to reflect its greater leadership role.

1.28 The ESA role in the Galileo and EGNOS programmes will be on the basis of a multi-annual agreement to be reached with the Community. The Commission envisage this agreement including general conditions for Community funds managed by the ESA. The agreement would make clear that contracts concluded under the agreement would have to follow Community rules on public contracts. In addition, due account should also be taken of progress thus far and already agreed investments. Agreements in force should also be taken into account, where appropriate.

1.29 The amended draft Regulation foresees the development and validation phase of Galileo ending in 2010. Deployment will take place from 2008 to 2013 with the commercial operating phase beginning at the end of this period. It is proposed that EGNOS be financed by the public sector. Its operation would be the subject of a public service contract with the private sector. It would then become part of the commercial operating phases of Galileo in due course.

GLOBAL NAVIGATION SATELLITE SYSTEM AND THE EUROPEAN INSTITUTE OF TECHNOLOGY

1.30 In its Communication, document (c), the Commission proposes a draft Decision to revise the multi-annual financial framework, the Financial Perspective, in accordance with the relevant provisions of the Inter-Institutional Agreement (IIA) on budgetary matters for the period 2007-2013.[11] The Commission proposes this revision to finance the Galileo programme and the EIT. The Commission estimates the extra funding required for these programmes at €2.4 billion (£1.6723 billion) and €309 million (£215.3112 million) respectively.

1.31 The Commission recapitulates developments on GNSS and the case it makes in support of full public sector financing of the EGNOS and Galileo programmes and the need for additional funding. Its profile for additional commitments is:

Commitment Appropriations 2007 2008 2009 2010 2011 2012 2013 2007-2013

Currently programmed commitments 100 151 201 251 151 151 0 1,005

Additional commitments required 0 +789 +599 +739 +120 +96 +57 +2,400

Total commitments 100 940 800 990 271 247 57 3,405

(€millions at current prices)

1.32 In the Communication the Commission recalls that in presenting its draft Regulation to establish the EIT it proposed a budget allocation of €308.7 million (£215.1 million) for the period 2008-2013 for the EIT under Heading 1a (Competitiveness for growth and employment). This amount was to represent only a percentage of the total EIT budget, as both the EIT and its constituent parts, the KICs, are expected to attract other sources of financing, including from the private sector. No provision had been made for the EIT in the current Financial Perspective and the Commission originally proposed using the margins under Heading 1a to finance the launching of the EIT. However, no agreement was reached on the source of the EIT's funding nor on alternative funding solutions. It is on this basis that the Commission says that it sees no other alternative to proposing to cover the financing needs of the EIT by revising the financial framework. The Commission's profile of the additional commitments required for the EIT is:

Commitment Appropriations 2007 2008 2009 2010 2011 2012 2013 2007-2013

Additional commitments required 0 +3 +6 +30 +63 +80 +127 +309

(€millions at current prices)

1.33 As part of its analysis the Commission says that it has looked at the possibilities for mobilising the additional financing needs of Galileo and the EIT under the current ceiling of Heading 1a. It believes that there is no possibility of redeploying or re-profiling significantly existing envelopes within the annual ceilings. It proposes that €300 million (£209 million) should be made available within transport related activities financed under the 7th Research and Development Framework programme. But it comments that the IIA requires sufficient margins be left available beneath the ceilings. On this basis the Commission asserts that the margins of Heading 1a cannot be used to cover the additional financing needs of the Galileo programme and the EIT.

1.34 The Commission also discusses the scope for offsetting the raising of one ceiling by lowering another. Allowing for the deduction of €300 million from the 7th Research and Development Framework programme the financing gap to be filled is €2.409 billion (£1.6785 billion). The Commission proposes to use the margins of Heading 2 (Preservation and Management of Natural Resources) and Heading 5 (Administration) where it believes the necessary funds are available in 2007-2008. The Commission:

says the 2007 Budget and the Preliminary Draft Budget for 2008 will result in substantial margins being available under Heading 2 — €2.1 billion (£1.4362 billion) in 2007 and €2.5 billion (£1.742 billion) in 2008;
proposes to lower the ceiling of Heading 2 by €1.689 billion (£1.768 billion) in 2007 and by €500 million (£348.4 million) in 2008; and
proposes to decrease the ceiling of Heading 5 by €120 million (£83.616 million) in 2007 and €100 million (£69.68 million) in 2008 leaving a margin of €16 million (£11.1488 million) in 2007 and €70 million (£48.776 million) in 2008.

1.35 The Commission notes that the IIA requires that any revision of the Financial Perspective must maintain an appropriate relationship between commitments and payments. It proposes to offset the increase in payment appropriations required for financing of both Galileo and the EIT by a decrease of payment appropriations in 2007 and 2008. This approach would result in the following modification of the annual ceilings for payment appropriations:

Total Payment Appropriations 2007 2008 2009 2010 2011 2012 2013 2007-2013

Current IIA ceiling 123,790 129,481 123,646 133,202 133,087 139,908 142,180 925,294

Required modification - 1,809 - 391 + 329 + 471 + 568 + 454 + 354 - 24

(€millions at current prices)

The Government's view

GLOBAL NAVIGATION SATELLITE SYSTEM

1.36 On the Commission's Communication about carrying Galileo forward, document (a), the Minister of State, Department for Transport (Ms Rosie Winterton) reminds us the Government's priority objectives for the Galileo programme have been to:

achieve a robust and viable PPP for deployment, operation and replenishment of the system;
influence development and financial control of the project to ensure a transparent process, which would deliver a value for money deal for the Community;
maintain Galileo as a civil programme under civilian control; and
secure maximum benefit for the UK and Community from Galileo, including promoting the UK bid for Cardiff to host the GSA.

1.37 The Minister then highlights that the Commission's proposals for public procurement of a full operating capability, rather than a PPP covering both deployment and operation, affect these objectives by:

increasing the up-front public funding from the Community budget that would be needed for the system, potentially reducing the value for money for the Community offered by the project; and
reducing the financial and project management disciplines, including effective governance and commercial focus, that the Government had expected to be provided through the PPP governance arrangement, with a corresponding increase in the risks.

The Minister adds that the Government is very concerned at the Commission's proposal to revise the Financial Perspective for the period 2007-13 in its first year. She continues that the Government remains committed to the principles of budget discipline and sound financial management and will seek further justification as to why the extra up-front funding for Galileo cannot be meet by the reprioritisation of allocated expenditure under Heading 1a of the Financial Perspective. The Minister comments also that the proposals do not affect the Government's objectives of maintaining Galileo as a civil programme under civilian control and securing the maximum benefit for the UK and Community from Galileo.

1.38 The Minister next elaborates on two points of concern. On the question of value for money she recalls the Commission' response of May 2007 to the Transport Council[12] which provided a financial assessment of various options for taking forward the Galileo programme, including full programme re-bidding for a new PPP covering both deployment and operations and a public procurement followed by a PPP. She says:

this assessment was developed under substantial time pressure and the cost and direct revenue estimates that underpinned it were approximate;
it suggested, however, that over the period 2007-2030 a public procurement followed by a PPP for operation and refurbishment would cost less, €1 billion (£0.6968 billion), in net present value terms, than restarting a PPP process for both deployment and operation, €1.8 billion (£1.2542 billion);
the absolute figures are very dependent on estimates of the scale and timing of the revenue assumptions which, although informed by the previous PPP negotiations, are difficult to assess;
they, however, take no account of the wider economic benefits that might be generated by Galileo operating alongside GPS and other GNSS systems; and
the relative value for money assessment of the options is dependent on the estimates of the scale and duration of the up-front costs that would be incurred in a public procurement.

1.39 The Minister continues that:

the current Communication provides more detail on the cost estimates underpinning the previous assessment, which have now been subject to detailed evaluation by independent consultants;
nevertheless, the Government continues to have reservations about some of these estimates, particularly the costs of moving from the development phase to an operational system — experience of EGNOS has shown it is likely to pose a range of challenges, and over whether sufficient allowance has been made for risks;
the Government will continue to discuss these estimates, and the options for ensuring that the project is constrained within whatever budget might finally be agreed for procurement, with the Commission; and
the Government will continue to press for a more comprehensive cost-benefit analysis prior to final decisions on the way forward and for a continuing commitment to pursuing a PPP for the subsequent operation and refurbishment of the system to maximise the value for money offered by the project.

1.40 On the second point, the question of governance and project management, the Minister says that if the Community decides to proceed with a public procurement for deployment the Government believes it will be important to retain as many as possible of the financial and project management benefits that the PPP structure would have offered, such as incentives to reach full service commencement, optimising revenue generation potential and strong project and risk management through effective governance. The Commission's current proposals do not go far enough in ensuring that these benefits are still delivered. In particular, the Government will wish to see effective arrangements to ensure that there is no conflict between ESA's role as design authority and its activities as procurement agent, and that the mechanisms and necessary skills are in place to ensure that it is able to manage effectively the risks in the programme. She says the Government:

wishes to examine closely the arrangements for oversight of the project through the proposed Committee on European GNSS Programmes;
wishes to ensure that it provides adequate transparency and control for Member States;
wishes to ensure that the role of the GSA in advising and assisting the Commission, in addition to its proposed role in market development and as an accreditation authority for organising the certification of the programme, is clear; and
will continue to press to ensure that the Commission's commitment to an open competitive procurement architecture with parallel multi-source procurement is maintained to provide open access and fair competition for the private sector at all levels, including small and medium sized enterprises.

1.41 On the revised draft Regulation, document (b) the Minister notes that its successful negotiation depends on the outcome of the larger issues addressed in the Communication, document (a). She then briefly reiterates the Government concerns about the proposals for the Financial Perspective 2007-2013 and for governance of the Galileo programme.

GLOBAL NAVIGATION SATELLITE SYSTEM AND THE EUROPEAN INSTITUTE OF TECHNOLOGY— FINANCE

1.42 On the Commission proposal in relation to the IIA and the current Financial Perspective, document (c), the Economic Secretary to the Treasury (Kitty Ussher) first emphasises Government concern about the Commission's proposal to revise the 2007-2013 Financial Perspective in the first year of its existence. She says:

the Government will work with like-minded Member States to press the Commission for further justification for this draft Decision;
it remains committed to the principles of budget discipline and sound financial management and will continue to uphold them for all new Community expenditure;
it will seek to ensure that all alternative options to revising the Financial Perspective have been thoroughly explored;
in particular it will ask for further justification as to why the reallocation of expenditure from existing programmes to meet the requirements of the Galileo and EIT projects is not considered a viable option by the Commission;
when new funding needs of this magnitude arise, for new projects that have not been programmed into the Financial Perspective or for projects that have been significantly re-profiled, reprioritisation should as far as possible be sought from allocated expenditure;
margins should ideally be maintained to deal with unforeseen expenditure of existing programmes that may arise during the course of the Financial Perspective;
the Government continues to seek further detail on cost, associated risk and anticipated revenues for both projects;
while the information provided on costs and risks on the Galileo project is more detailed than received from the Commission in the past it is not as extensive as the Government would wish for such a programme;
the Government continues to believe that the direct Community budget contribution for the EIT of €308.7 million (£215.3112 million) has never been properly justified;
it opposed the proposal for the EIT on the basis of budgetary concerns at the June 2007 Competitiveness Council, but regrettably was in a minority of one on this issue; and
it believes it is essential that a proposal of this nature should be discussed thoroughly by the ECOFIN Council and that ideally a decision should be reached by finance ministers on the financing before final decisions are taken on how to proceed with the projects as a whole.

Conclusion

1.43 The Galileo programme continues to cause us concern. There have been a number of points over the last few years when it has seemed appropriate to draw back and ask whether it is worth continuing with the project — and that does not seem to us to have happened. A final decision on the future of Galileo has been, for various, and sometimes understandable, reasons, continually postponed. In June 2007 we agreed with the Government's position that no final decision should be taken until the Commission's ideas on how to carry forward and fund Galileo were fully developed and explained. However, we suggested that there was a prior assertion from the Commission which perhaps also needed to be fully tested — that was the case for continuing the Galileo project at all, rather than writing off the sunk cost and letting Europe's industry continue to exploit the existing and developing opportunities available through GPS uses.[13]

1.44 Although the Minister (Rosie Winterton) addresses the question of value for money in relation to the Commission's proposal for continuing Galileo, she does not address directly the case for continuing the Galileo project at all. Before considering these documents further we should like to hear from the Government on this matter.

1.45 We should also like to hear about another point. We note that the Commission takes a rather sanguine view of the risks in the programme. However it identifies the likelihood of design or deployment risks impacting on expected baseline revenues as probable — we should like the Government's comment on this.

1.46 We note with approval the Government's approach to the funding of the EIT and the suggested consequences for the Financial Perspective. We look forward to hearing also about satisfactory progress on this matter.

1.47 Meanwhile we do not clear the documents.

1.48 Finally, we are pleased to note that the Transport Committee is continuing its interest in the Galileo project and is planning to report its views on the latest developments shortly.

1 The consortium comprised eight companies - Aena, Alcatel, EADS, Finmeccanica, Hispasat, Inmarsat, Thales and TeleOp - from the Member States with major space industries, France, Germany, Italy, Spain and UK. Back

2 (28660) 7828/07 + ADD1: see HC 41-xxvi (2006-07), para 1 (20 June 2007). Back

3 See HC Deb, 2 July 2007, cols 763-787. Back

4 (27994) 14871/06 + ADDS 1-2: see HC 41-ii (2006-07), para 1 (29 November 2006) and Stg Co Debs, European Standing Committee, 30 January 2007, cols. 4-27. Back

5 Possible cost overruns of the development phase, that is the IOV phase, will be covered by the current financial arrangements for IOV and/or the Contingencies Reserve. Back

6 The current Galileo Mission Requirement Document does not include a provision for the authentication function of the Open Service. Back

7 (28154) 16540/1/06: see HC 41-vii (2006-07), para 5 (24 January 2007) and HC 41-xxiii (2006-07), para 2 (6 June 2007). Back

8 Comitology is the system of committees which oversees the exercise by the Commission of legislative powers delegated to it by the Council and the European Parliament. Comitology committees are made up of representatives of the Member States and chaired by the Commission. There are three types of procedure (advisory, management and regulatory), an important difference between which is the degree of involvement and power of Member States' representatives. Regulatory with Scrutiny, introduced in July 2006, gives a scrutiny role to the European Parliament in most applications of comitology. Back

9 (25879) 11834/04: see HC 42-xxxi (2003-04), para 4 (15 September 2004), HC 42-xxxvii (2003-04), para 1 (17 November 2004) and Stg Co Debs, European Standing Committee A, 2 December 2004, cols 3-30. Back

10 The Commission's estimated cost for this is €330m (£230m) comprising 6 years of operations and exploitation of EGNOS. Back

11 OJ No. C 139, 14.6.06, p.1. Back

12 (28660) 7828/07 + ADD1: see HC 41-xxiii (2006-07), para 2 (6 June 2007) and HC 41-xxvi (2006-07), para 1 (20 June 2007). Back