16 Global navigation satellite system
| (a) (30745) 11614/09 COM(09) 302
(b) (30786) 11860/09 —
| Commission Report on the implementation of the GNSS programmes and on future challenges pursuant to Article 22 of Regulation (EC) No 683/2008
European Court of Auditors Special report No. 7/2009 concerning the management of the Galileo programme's development and validation phase together with the Commission's replies
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| Legal base | — |
| Documents originated | (a) 26 June 2009
(b) —
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| Deposited in Parliament | (a) 3 July 2009
(b) 14 July 2009
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| Department | Transport |
| Basis of consideration | (a) EM of 20 July 2009
(b) EM of 2 September 2009
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| Previous Committee Report | None
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| Discussion in Council | None planned
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
16.1 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[54]
and there are a number of agreements in place or being negotiated
with third countries about cooperation in the project. From early
in 1999 we and previous Committees have reported to the House
on many aspects of the Galileo project, most recently in June
2009.[55] The matter
has been debated four times in European Standing Committee, most
recently on 26 November 2007,[56]
and once on the Floor of the House.[57]
16.2 In September 2003 the Galileo Joint Undertaking
was set up to take forward the development and validation phase
of the Galileo programme. It remained in place until the end of
2006 when its responsibilities were handed over to the European
GNSS Supervisory Authority (GSA), established in 2005, by Council
Regulation (EC) No. 1321/2004, as an arms-length body to own Galileo
on behalf of the Community and to regulate and oversee it as a
public private partnership.
16.3 Following collapse of public private partnership
negotiations the Transport Council agreed in November 2007 a revised
timetable for Galileo, to be completed by 2013, and for the funding
to come wholly from the Community budget. The Council agreed a
€3.40 billion (3.29 billion) cap on costs in the Financial
Framework to 2013 and confirmed general principles for public
sector governance and the procurement strategy for the programme.
The subsequent Council Regulation (EC) No. 683/2008, in addition
to confirming the new funding arrangements, addressed issues of
programme governance (with the Commission identified as programme
manager) and the procurement strategy and, with the Commission
being placed in overall control of the programme, confirmed the
GSA as a body to provide support to the Commission. The Regulation
also requires the Commission to prepare an annual report to the
Council and the European Parliament on the progress of the Galileo
and EGNOS programmes.
The documents
16.4 Document (a) is the first of the reports from
the Commission required by Council Regulation (EC) No. 683/2008.
It sets out the activities undertaken by the Commission since
the adoption of the Regulation and the work it has taken forward
with the European Space Agency and the GSA.
16.5 On EGNOS the report shows that:
- on 1st April 2009 the Commission
took on ownership of EGNOS from the European Space Agency;
- it has ensured continuation of operations by
agreeing a temporary six month contract (April to October 2009)
with a service provider to operate EGNOS;
- the operator is a private company, ESSP (EGNOS
Satellite Services Provider), created specifically for this role,
which has been formed by a conglomerate of European air traffic
service providers (including NATS from the UK);
- negotiations are underway to agree a more detailed
long term contract with ESSP — to operate the system for
a period of five years, to 2013;
- on 31 March 2009 the Commission also signed a
Delegation Agreement with the European Space Agency, under which
the latter will act as the Commission's agent for the design and
procurement of EGNOS equipment and software renewals;
- the Commission has concluded a contract for the
replacement of the EGNOS satellite navigation transponders, which
are nearing the end of their operational life; and
- the Commission is embarking on further activities
to ensure the full certification of EGNOS for aviation use, to
extend EGNOS coverage in Europe and further afield, notably to
Africa, and to pursue activities to develop the market for EGNOS
beyond those of aviation.
16.6 On Galileo the report first shows that the Commission
has set up a new and clear governance structure for the delivery
of the Galileo programme as required by Council Regulation (EC)
No. 683/2008. This has involved:
- setting up a European GNSS
Programme Committee, a management committee with Member State
participation, which assists the Commission in the management
of the Galileo programme;
- establishing a Galileo Inter-institutional Panel,
comprising representatives of the Council, the European Parliament
and the Commission, as a forum for sharing information —
a first meeting took place in February 2009;
- creating a new security board through which Member
States' security experts can assist in the security activities
on the programme — it replaces the security board previously
set up in relation to the Galileo Joint Undertaking;
- signing a delegation agreement with the European
Space Agency, in December 2008, for the latter to act as the procurement
agent for the six work packages that will deliver the Galileo
infrastructure;
- preparing a draft legislative instrument to bring
the duties of the GSA, in Council Regulation (EC) No. 1321/2004,
into line with those of Council Regulation (EC) No. 683/2008;[58]
and
- appointing an independent project management
team to provide external advice on the Commission's project management
of the Galileo programme.
16.7 Secondly on Galileo, the report shows that:
- the Commission and the European
Space Agency have taken forward procurement of the full 30 satellite
constellation of Galileo and the accompanying ground segment;
- they have commenced negotiations with interested
bidders for the six work packages set out in the Council Regulation
(EC) No. 683/2008 (system support, ground mission systems, ground
control systems, satellites, launchers and operations), which
will deliver Full Operational Capability (launch of satellites
and completion of all infrastructure by 2013); and
- the Commission and the European Space Agency
will evaluate the candidates for the tenders and hope to have
the majority of the contracts concluded by the end of 2009 with
any remaining ones being completed early in 2010.
16.8 On Galileo the report discusses, thirdly, the
continuation of the development and validation phase of the project,
showing that:
- the two experimental satellites
are currently operating effectively;
- the subsequent launch of the four In Orbit Validation
(IOV) satellites, to allow comprehensive testing of fully operational
Galileo satellites in a space environment, is still planned to
begin in 2010;
- in 2008 the European Space Agency identified
the need for additional funding to meet an expected shortfall
in funding for the IOV phase;
- reasons for the shortfall include increase in
industrial costs, increase of launch costs and increases in the
European Space Agency's own administrative costs because of the
delay;
- the net shortfall amounted to €376 million
(£320.39 million), which the European Space Agency was unable
to find a way of meeting these additional costs and the Commission
therefore agreed to fund the shortfall from its budget for Galileo;
and
- the Commission will continue to monitor the situation,
because in funding the shortfall, it has used the entire contingency
fund set aside for Galileo to 2013 and there is now little margin
left in the current Financial Framework.
16.9 The Commission also uses the report to highlight
a number of issues and activities on which it is currently engaged
and which it expects to bring before Member States for consideration
by the end of the year. These include:
- a Communication and action
plan on Galileo applications;
- the Commission's international activities such
as those aimed at addressing compatibility and interoperability
issues with other GNSS providers (the USA, Russia, China), those
aimed at ensuring cooperation with third countries on satellite
navigation and those to address global standards and the control
of the trade in sensitive GNSS technologies; and
- preparing a report setting out the Commission's
budgetary and governance proposals for the operational and exploitation
phase of Galileo from 2014 onwards, in the next Financial Framework
and beyond.
16.10 Document (b) is a special audit report from
the European Court of Auditors. It concerns the Community's involvement
in satellite navigation, that is EGNOS and Galileo (referred to
collectively as Galileo), in the period 2003-2006. The report
includes a response from the Commission to the Court's recommendations.
16.11 The Court recognises that:
- Galileo was the first of its
kind in many areas for the Commission;
- it was the first time that the Community and
the European Space Agency had collaborated on a space programme
of this magnitude; and
- it was the first industrial programme to be managed
at Community level and it would have been the first public private
partnership for the Community.
16.12 Collapse of the public private partnership
negotiations in early 2007 led the Court to examine the events
leading up to it, principally;
- what factors accounted for
the failure of the concession process;
- what factors accounted for the reported delays
and cost overruns;
- how much has Galileo benefited from spending
on research and development;
- how well did the Galileo Joint Undertaking integrate
EGNOS and Galileo; and
- whether the governance of Galileo was adequate.
16.13 The Court, noting that by the autumn of 2007,
when the Council and the European Parliament decided to redirect
Galileo, the development of the programme had been set back five
years to 2013, is critical of the handling of Galileo by the Galileo
Joint Undertaking in a number of key areas. It recalls that:
- the original timetable had
envisaged that the deployment phase, that is the launch of the
full satellite constellation and the building of the ground infrastructure,
would be completed by the end of 2007; and
- as it was, by 2008, no operational satellites
had been launched (although two test satellites had) and the original
cost estimates for the preceding development and validation phase
of the programme had doubled to €2.10 billion (£1.79
billion).
But the Court also says that, whilst the Galileo
Joint Undertaking did not achieve most of its objectives, the
majority of these were due to factors outside of its control.
The Court's criticisms were that:
- the Commission failed to actively
direct the programme. Although between 1999 and 2004 it had actively
played its role in initiating the programme and getting it started,
when it became apparent during 2005 that there would be delays
and the project would overrun on costs no corrective action was
taken until March 2007;
- the Galileo Joint Undertaking was required to
negotiate a public private partnership that had clearly been inadequately
prepared. Despite there being considerable experience within Member
States on managing and running public private partnerships, the
Commission failed in its preparation to allow sufficient time
and provide sufficient and appropriate management resources;
- the Galileo Joint Undertaking allowed the two
competing consortia to merge into a single consortium and in doing
so lost any competitive element that could have led to cost savings
and greater value for money;
- the Galileo Joint Undertaking's regular reports
identified several risks but it reported the progress in an unduly
positive light. Crucially it never reviewed the feasibility of
the programme or provided strong management but continued to agree
to postponements in its contract discussions with the bidders;
- by continuing to report in such a positive light,
the Galileo Joint Undertaking denied Member States the knowledge
to request corrective action;
- Member States acted in their own national interests
and intervened on behalf of their own national industries regarding
the composition of the consortium that was bidding for the concession
contract as well as the location of the various centres, ground
infrastructure and headquarters needed for the Galileo programme;
- an absence of a comprehensive market development
approach limited the usefulness of the Galileo research programme;
- this was further compounded by a lack of relevant
projects under the Community's Sixth Framework Programme for research
and development and the general delays that Galileo experienced;
- integration of Galileo and EGNOS was only partially
successful due to the Galileo Joint Undertaking's mandate being
unclear;
- this particularly affected the delivery of the
EGNOS programme and the Galileo Joint Undertaking spent little
time in developing the market for EGNOS;
- in relation to governance, the division of the
roles and responsibilities of those involved in the development
and validation phase of the programme, Member States, member countries
of the European Space Agency, the Commission, the Galileo Joint
Undertaking and the European Space Agency, was poorly defined;
and
- the Commission did not providing adequate leadership
in the development and management of Galileo.
16.14 The Court makes five recommendations. These
are that the Commission:
- needs to have more authority
as a programme manager. To do so it should adapt its resources
and its legal and financial instruments to the specifics of the
development and management of the programme, a cooperative framework
between the Community and the European Space Agency should be
created and the Commission should ensure that it has the financial
ability to commit itself to the costs of the infrastructure over
a long timeframe;
- should clarify the political objectives behind
Galileo and translate them into strategic and operational objectives
to provide a robust road map that goes from now to beyond its
full deployment;
- should allow sufficient time to prepare the commercial
operational phase, drawing on best practice guidance from Member
States and taking into account experiences in comparable sectors;
- should address analysis, consolidation and validation
of relevant user requirements, development of enabling actions
(that is a legal and regulatory framework), promotion of EGNOS
as a showcase for Galileo and development of a clear pricing policy
or revenue model for Galileo and EGNOS and of a third party liability
policy; and
- should ensure, for any future joint undertakings
and industrial programmes, that there are clear and compelling
reasons for such action and establish a governance structure that
does not impede proper programme management by the Galileo Joint
Undertaking.
16.15 It its responses to the Court's observations
the Commission:
- says that the public private
partnership took account of studies of best practices, but concedes
that these were primarily in established business fields where
risk factors would already be known;
- argues that the nature of Galileo made it very
difficult to apply best practice and that it was impossible to
use a comparator;
- argues that the time pressures meant that in
its view it took the correct path in opting for competitive dialogue
as a procurement model;
- says that there were no knowledge gaps in the
Galileo Joint Undertaking staff and that they were highly experienced
in their relevant fields;
- says that the merger of the two consortia was
not encouraged or supported by the Galileo Joint Undertaking,
but after careful scrutiny it was believed that the single consortium
would offer better value for money;
- makes it clear that Member States were also represented
on the Supervisory Board of the Galileo Joint Undertaking and
therefore did not have to rely only on the Commission for information
on the programme;
- asserts that it fulfilled its political responsibilities
and sought agreement between Member States by asking former Commissioner
Karel van Miert to mediate and says that in doing so it managed
to progress the negotiations on the concession contract;
- says that, with further support from the European
Investment Bank, the differences were narrowed down to a few substantial
issues that subsequently were to prove intractable — these
related primarily to a continuous and unresolved dispute over
the share of industrial work and the private sector's liability
for design and market risks, that is potential revenues, because
of the technical complexity of the programme;
- points out that EGNOS was an European Space Agency
programme and its development had been funded primarily by European
Space Agency member countries and industry — it had suffered
from delays due to technological issues and difficulties in the
relationship between the industrial parties;
- says that it believes that the roles of each
party involved in the governance of Galileo were clearly defined
and that, in its opinion, the European Space Agency was clearly
accountable for technological development, and the Commission
was responsible for all political responsibilities.
16.16 In response to the Court's recommendations
the Commission says that:
- it has already taken steps
to adapt its resources and its legal and financial instruments
to allow it to act as a programme manager — in addition
to internal recruitments, it has arranged for the transfer of
30 experienced staff from the European Space Agency to provide
a dedicated Galileo team and it is already planning for adequate
budgetary cover in the next Financial Framework;
- the Communication on the future of Galileo beyond
the deployment phase, which Council Regulation (EC) No. 683/2008
requires of the Commission in 2010 and on which it has already
started work, will also cover the strategic and operational objectives
of Galileo, integration of EGNOS into Galileo, the actions necessary
to encourage the use of GNSS technology and a proposal for an
appropriate regulatory framework; and
- it has set up and may set up other joint undertakings
— each of these has and will continue to be planned and
assessed against criteria relevant to the activity on a case by
case basis.
The Government's view
16.17 On the Commission's report, document (a), the
Parliamentary Under-Secretary of State, Department for Transport
(Paul Clarke) says that it contains no new policy implications
for the Government, but goes on to comment that:
- in the discussions that led
to the adoption of Council Regulation (EC) No. 683/2008 the Government
had pushed for such reports and it therefore welcomes the document;
- the Government remains fully engaged in the GNSS
programme through various Community fora and as a member of the
European Space Agency;
- its focus on Galileo remains to ensure the delivery
of a system to time and within the budget of €3.4 billion
(£3.29 billion) agreed by the Council and the European Parliament;
- it remains committed to the delivery of an economically
useful and commercially viable system as the best means of delivering
benefits for Community economies;
- in doing this the Government's focus remains
on cost control, mitigation of risks and value for money, through
effective programme management with clear lines of responsibility,
open procurement and regular reviews of likely revenues;
- it therefore fully endorses the Commission activities
in setting out a clearer and more transparent governance structure
for taking the programme forward; and
- it agrees with the Commission that there are
significant challenges ahead for the programme and therefore supports
the its intention to bring forward a review of the programme in
2010 and to set out proposals for the operational and exploitation
phase of Galileo after 2014.
16.18 The Minister then discusses in more detail
some of the issues arising from the document. First, on EGNOS
he says that:
- the Government understanding
is that all the relevant parties involved in the negotiations
to agree a contract for a permanent service provider to operate
EGNOS are optimistic that an agreement will be reached over the
summer of 2009;
- the certification process to ensure that EGNOS
can be certified for aviation use is already underway and it is
currently expected that it will be achieved in the first half
of 2010;
- NATS is involved in all these negotiations; and
- the Government supports the process as it agrees
that EGNOS can offer users enhanced accuracy that will make it
suitable for safety critical users, in particular the aviation
community.
16.19 On Galileo, more generally, the Minister tells
us that:
- discussions have started and
are continuing in Working Groups on the draft legislation to bring
Council Regulation (EC) No. 1321/2004 into line with Council Regulation
(EC) No. 683/2008;[59]
- the Government's fully accepts and supports the
Commission's aim of addressing the legal inconsistencies between
the two Regulations and agrees that it has to be done as soon
as possible;
- a first reading deal with the European Parliament
would help in avoiding costly delays — however it is essential
that the Regulation is fit for purpose and discussions are ongoing
with a view to ensuring its provisions, particularly those relating
to security (and on how the Commission proposes to oversee security
accreditation) are appropriate;
- the Government shares the Commission's concerns
about the funding the IOV shortfall, particularly about the likely
effect of this on the overall longer term budgetary envelope for
Galileo;
- in line with its priority objectives for Galileo,
the Government will remain vigilant in its aim to ensure value
for money through disciplined project management, open procurement
and effective financial management to ensure the project is brought
in within the agreed €3.40 billion ceiling;
- the Government is keen to see competition in
the procurement for the Full Operational Capability phase —
such competition is essential if costs are to be controlled;
- UK industry is already benefiting from contracts
in the current development phase of Galileo and a number are well
placed to gain contracts in the open procurement phase for Full
Operational Capability and thus ensure maximum benefit for the
UK from the programme;
- it is of utmost importance that the procurement
is successfully concluded as soon as possible in 2010 if the challenging
timetable for Galileo is to be met and the Government will continue
pushing for this objective;
- the Government looks forward to the Commission's
paper on GNSS applications and its proposed Action Plan —
a successful Galileo can be expected to further stimulate the
market for satellite navigation applications in a wide range of
economic sectors and the Action Plan will be very important in
launching further discussion on the wider commercial opportunities
for Galileo;
- on the Commission's activities with third countries,
the Government fully supports the need to ensure compatibility
and interoperability with other GNSS and to ensure the non-proliferation
of sensitive technology;
- the Government agrees that there are potential
advantages for the Galileo programme and benefits for Community
industry in extending formal cooperation between the Community
and third countries, to increase the commercial potential and
market development opportunities; and
- the Commission is close to concluding a cooperation
agreement with Norway to cover its involvement in the Galileo
programme and will shortly be seeking a mandate to pursue a similar
agreement with Switzerland, both of which initiatives the Government
supports.
16.20 On the European Court of Auditors' Special
Report, document (b), the Minister says that:
- given that it is a historical
perspective of the Galileo programme during the period 2003-2006,
there are no policy implications for the UK;
- the report is welcomed by the Government for
providing an independent review of Galileo and it should be noted
that several of the issues reported by the Court were in accord
with concerns raised by the Government at the time;
- the Government has always argued within the Galileo
arena for improvements in its governance, advocating the need
for effective political oversight and transparency, with clear
lines of responsibilities for all parties and arguing that in
any public procurement of the system there needs to be more robust
estimate of costs and risks, with better budget discipline, better
cost control and better project and risk management and that all
procurement should be robust, open and fair;
- these concerns have been addressed, for the present,
by the adoption of Council Regulation (EC) 683/2008, which sets
out the strategy for achieving Full Operational Capability, confirms
the new funding arrangements, is addressing the issues regarding
programme governance and has set out a procurement strategy that
is open and transparent and which the Government supports; and
- the Regulation also addresses issues regarding
the role of the GSA that arose following the collapse of the public
private partnership — its role is now one of supporting
the Commission on the Galileo programme, but it has also retained
its specific responsibilities for technical certification, security
accreditation and the development of markets and the commercialisation
of Galileo.
Conclusion
16.21 These documents provide useful information
on the evolution and present situation of the Galileo project.
Although we clear both of them we note that:
- the European Court of Auditors'
special report, document (b), confirms the doubts we and our predecessors
have held about both the conception and management of the Galileo
project; and
- we will continue to take a close interest
in developments, for the immediate future particularly in relation
to the draft Regulation on the GSA, which continues under scrutiny,[60]
but subsequently also on the Commission's proposed Action Plan
and on financial provision and management.
54 See http://www.esa.int/SPECIALS/About_ESA/SEMW16ARR1F_0.html
and http://www.esa.int/esaNA/index.html. Back
55
(30514) 6257/09: see HC 19-xviii (2007-08), chapter 6 (3 June
2009) and chapter xx of this Report. Back
56
See Stg Co Deb, European Standing Committee, cols. 3-40. Back
57
See HC Deb, 2 July 2007, cols. 763-87. Back
58
(30514) 6257/09: see HC 19-xviii (2008-09), chapter 6 (3 June
2009) and chapter 3 of this Report. Back
59
Ibid. Back
60
Ibid. Back
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