Select Committee on Transport First Report


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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