Conclusions and 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)
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)
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)
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)
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)
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)
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 re-introduce 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)
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)
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 over-runs. 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)
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)
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)
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)
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)
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)
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)
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