Thank you for your letter of 30 October 2007[39] responding to my Explanatory Memorandum covering the Communication from the Commission to the European Parliament and the Council on Progressing Galileo, and the Amending Proposal for a Regulation of the European Parliament and of the Council on the further implementation of the European Satellite radio navigation programmes.

  In your letter, you asked for some reassurance as to the likelihood of success, the robustness of costs estimates, and a strategy for achieving the Government's objectives. Since I submitted my Explanatory Memorandum, the Government has been working with the Commission and other Member States to pursue the objectives set out in my Memorandum and I am now in a position to update you on these points in advance of the Transport Council on 29-30 November.

  In continuing discussions around the cost estimates, the Commission has pointed to evaluations of the figures by independent consultants PriceWaterhouseCoopers and Sateil Conseil International. These estimates have therefore been accepted by the majority of Member States. The Government nevertheless continues to believe that there is a range of uncertainties around these figures, particularly over the potential for optimum bias and the allowance for project risks.

  In these circumstances, and given the uncertainties inherent in any estimation process, the Government believes that the key issue is to ensure that the budget for the deployment of Galileo is effectively capped, enforcing effective management, and where necessary trade-offs between costs and requirements, without recourse to further funding requests. In seeking to cap the budget in this way, the Government believes it has the support of the Commission and a majority of Member States and it will therefore continue to push to ensure that this is reflected in the conclusions of the next Transport Council and subsequent work to agree the necessary regulations on Galileo.

  The Government has also continued to work with the Commission and our European partners on the development of the overall management structure and on the procurement strategy. In these discussions, there has been widespread support for the principles of ensuring transparency for Member States, clear lines of governance, effective arrangements to avoid conflict between ESA's dual roles as design authority and procurement agent, and the importance of effective competition to deliver value for money for the Community. We expect therefore to have made progress on all these points by the Transport Council.

  You also asked about how a meaningful cost comparison might be made between a public procurement and a PPP when there is no prospect of such a partnership. As you will be aware, the negotiations on a PPP failed for a variety of reasons including continuous unresolved disputes over the share of industrial work and an insufficiently strong and clear public governance. The UK continues to believe that had this aspects been dealt with at an early stage, it should have been possible to resolve the other issues over the technical complexity of the programme and the transfer of design and market risks and that it could therefore be possible to assess the possible costs of a PPP as a benchmark against which to compare other alternatives.

  As you know, Galileo is being discussed in ECOFIN as well as in the transport formation of the Council and may also be discussed at the European Council on 13-14 December. And as you may also know, following the recent recommendations from the House of Commons Transport Committee and its European Scrutiny Committee I have arranged for a European Standing Committee debate to be taken on Monday 26 November 2007 at 16.30 to inform the Government's position before Transport Council.

  I will, of course, write to your Committee again following the Council meetings, to keep you informed of the outcome.

23 November 2007

  Sub-Committee B considered this matter again at its meeting on 3 December 2007, following the evidence given by officials from the Department for Transport, and has decided to clear it from scrutiny.

4 December 2007

  As you will know from my letter of 23 November on the Galileo programme I attended Transport Council on 29-30 November. I am aware that my officials attended a meeting of Sub-Committee B and gave a short synopsis of the outcomes of Council, but I thought you would also find it helpful if I set out the decisions taken at the Council for you in writing. I will also take the opportunity to give you an indication of the next steps in the programme.

  Following the decision taken at the June Council that the Public Private Partnership process had failed and that the negotiations with the prospective concessionaire should be ended, EU Ministers agreed at the October Transport Council that an integrated decision on the Commission's proposals for the deployment of Galileo through public procurement should be taken by the end of the year, with decisions being taken in the appropriate Council formation.

  Subsequently at the Economic and Financial Affairs Council (ECOFIN) on 23 November political agreement was reached on the financing of Galileo. Funding for the programme is to come from a combination of the revision of the multi-annual Financial Perspective (with funds from the unspent margins for agriculture (Heading 2) and administration (Heading 5)) and a re-allocation of the funds from existing programmes within Heading IA (Competitiveness for growth and employment), which includes Galileo.

  At this Council the UK, working in close partnership with like-minded Member States, secured a one-third reduction in the proposed size of the multi-annual financial framework revision; and a doubling of the amount re-allocated from existing programmes within Heading 1A. A declaration of the European Parliament, the Council and the Commission made a commitment that the 2007-13 multi-annual framework would not be revised subsequently to finance Galileo; recognised that the revision was exceptional and did not set a precedent for future years; and confirmed that procurement of the Galileo work-streams should be open and competitive, thereby encouraging cost discipline while being fair to all commercial interests, including the UK's.

  I am pleased to report that the decisions taken on the Galileo satellite navigation programme at ECOFIN were followed by the agreement of Council Conclusions at Transport Council. The Conclusions define the general principles covering governance and public sector procurement for the programme. Along with identifying the European Commission as the overall programme manager—to be advised by Member States, the Conclusions ensure:

— a ceiling on expenditure within this Financial Perspective of the Commission's estimate of €3.4 billion;

— a strong role for Member States in overseeing the programme with full access to information on progress on the project;

— robust and fair competition in the programme with multiple simultaneous procurement strands where possible (including satellites) to deliver value for money;

— independent review of progress by project experts.

  The roles of the GNSS Supervisory Authority (GSA) and the European Space Agency (ESA) were also identified, along with the arrangements for oversight of the security of the system.

  In addition I tabled a minutes statement which stressed the need for:

— review by independent experts at key decision points including when finalising the contract between the Commission and the European Space Agency for the procurement of the system, at the end of the current In Orbit Validation Phase (in 2010) and once quotes have been received from industry for the deployment phase;

— regular review of costs, risks and likely revenues from the services to be offered by Galileo.

  As you will know, our concern, with the support of Parliament, has always been to ensure that the project delivers value for money for the Community by controlling costs and risk and pursuing sound project and financial disciplines. I believe that the outcomes of both Councils are in line with these objectives and meet the commitments we have given to Parliament.

  It is expected that the decisions taken at ECOFIN and at Transport Council will be endorsed at the forthcoming European Council on 13-14 December. Further disucssion at official level on the draft regulations to implement the Transport Council decisions will then take place before the regulations are brought forward for adoption next year.

10 December 2007

  Thank you for your letter dated 10 December updating the Committee on the Transport Council conclusions concerning the Galileo project.

  Although Sub-Committee B has cleared the relevant documents from scrutiny, members would appreciate confirmation of what sum has been allocated, within the total budget for the project, to account for write-off of any existing or unsuccessful systems that may be replaced. Officials from your department have confirmed that the €3.4 billion budget for the deployment phase does not include such costs. The Committee would be interested, however, to learn if consideration has been given to this issue, and if so what estimates have been made.

11 December 2007

  I am writing to update you on progress on concluding the regulation on the implementation of the European satellite radio navigation programmes in the light of the decisions taken at last November's Transport Council and to inform you of the outstanding areas of debate on which I may have to take decisions at the forthcoming Transport Council on 7 April. The draft regulation itself was the subject of EM 13113/07, which cleared scrutiny in your Committee following evidence given by my officials to Sub-Committee B on 3 December 2007.

  As l reported to the House on 6 December 2007 and set out in my letter to you of 10 December, last November's Transport Council secured a comprehensive agreement (including funding) on how to take the Galileo programme forward in the period covered by the current financial perspective to 2013. The terms of the agreement were set out in the November Transport Council Conclusions and were endorsed by the European Council on 13-14 December. Since then the UK has been working with the Presidency, the Commission and other Member States to develop the draft regulation, previously submitted to scrutiny, to ensure that it fully implements the detail of the agreement reached in November.

  The Commission is keen to ensure the swift implementation of the regulation because of the consequences for costs and revenues of further delay to the programmes. As the regulation is subject to co-decision, the process to adopt it incorporates a fast-track procedure by which discussions between Member States and the Commission have been taken forward simultaneously with those between the Presidency, the Commission, and the European Parliament. We have been working intensively to ensure that the agreement reached at the last Transport Council—with which the UK was satisfied—is implemented in full in the regulation. In particular, in line with my commitments to Parliament, we have been pushing to ensure robust measures for the control of costs, the implementation of sound project management principles, a fair and competitive playing field for suppliers, and recognition of the system's civilian status. I am happy to be able to report to your Committee that I believe the current text of the regulation meets the UK objectives in all of these areas.

  A number of issues remain, however, under negotiation, as set out below, and it is possible that some of these will have to be resolved in discussions at the Council itself.

INVOLVEMENT OF THE EUROPEAN PARLIAMENT

  The draft regulation provides for the creation of a comitology committee (`GNSS Programmes Committee') to assist and oversee the Commission's actions in key areas. The comitology committee will operate mainly by the `management' procedure, but by the `regulatory' procedure for the definition of security requirements.

  By contrast, the European Parliament has suggested that the committee should operate by the `regulatory procedure with scrutiny', which would give them a seat on that committee and as a result of the more onerous nature of that procedure, lengthen the process.

  While we agree that the Parliament needs to receive full, accurate and timely information to provide oversight of the programme and fulfil its obligations as an arm of the budgetary authority, we, and all other Member States, do not believe this requires them to have a seat on the GNSS Programmes Committee. It will add institutional imbalance by giving the Parliament powers that the Council does not have. Furthermore, our legal advice is that the circumstances in which Parliament may be represented in comitology proceedings are quite specific, and exclude many of the issues likely to be discussed in this forum.

  The European Parliament has also asked for an Interinstitutional Monitoring Group to monitor the programme and its financing. Discussions have therefore concentrated on the concept of a consultative or information-sharing group consisting of the Commission, the Presidency and Parliament that would meet at regular intervals—a possible compromise for meeting the European Parliament's desire for regular information. While the precise format of this group is not yet clear, the Government is more favourably disposed to the idea of a forum that shares information without disrupting implementation by confusing lines of governance.

THE ROLE OF THE GSA

  The European GNSS Supervisory Authority (GSA) was created as an arms-length body to own Galileo on behalf of the Community and be responsible for regulating and overseeing it. It supplies technical expertise and a source of excellence to support the development and future operation of the system. Member States are represented on an Administrative Board that oversees the Agency's operation.

  The role and scope of the GSA came into question with the collapse of the PPP and subsequent lack of purpose for a regulator. The UK and other Member States have welcomed the way the GSA has maintained a commercial emphasis in the programme, in EGNOS as well as in Galileo, and we fully support a continuation of this approach.

  The organisation has a good track record in improving transparency by producing frank assessments of the programme that aid effective decision making, and it has an understanding of essential governance features such as sound programme management and traceability.

  There are also benefits (including accountability, the maintenance of budgets and targets and a clear delivery responsibility) in having an arm's length agency acting within set boundaries.

  European Parliament's initial view was that the GSA should be abolished, in line with its concerns about Agencies and their value for money in general. This has modified somewhat with acknowledgement that the GSA might have a role to play in technical aspects of security. Member States initial support for maintaining it is wavering in the face of this and the Commission's desire to have a greater control over the GSA. If we are unable to retain the organisation in the face of this opposition then we shall attempt instead to incorporate as many of its advantages as possible into the overall mandate provided to the Commission as programme manager.

PROCUREMENT STRUCTURE: SUB-CONTRACTING

  Questions about the most effective procurement structure formed an important part of Council negotiations, and this remains a matter of concern for many Member States. One area of particular controversy has been the regulation's treatment of subcontracting. Transport Council called for the industrial supply chain of each work package to include 40% of subcontracting by aggregate value. However, the commercial structures of the space sector preclude the achievement of this figure in at least one work package; the regulation therefore describes a route by which the Commission may request from the comitology committee a derogation from the target in an individual area. The expectation is that this will only occur where the Commission is able to demonstrate that the industrial landscape is such that the programme has no other way of proceeding. Most Member States and the Commission are content with the current amendments to the text, but certain Member States want to make the 40% a target only, and to limit the scope of the application of transparent and competitive procurement requirements. We will continue to resist such a change.

NEXT STEPS

  The timetable envisaged for agreeing this regulation assumes that the European Parliament's ITRE committee confirms their final position on 27 March; the Transport Council reaches a general approach on the regulation on 7 April, and the European Parliament agrees to the text during a plenary session in May. This is a challenging timetable and I regret that the continuing negotiations on the final text of the regulation means that I will be unable to give you a report on the outcome in advance of the Transport Council. However, given the success we have already achieved in ensuring the draft regulation reflects UK priorities from the November Transport Council Conclusions, and my expectation of a satisfactory outcome for the UK on the remaining issues, outlined above, I expect to be able to indicate that the UK is in favour of the emerging text at Transport Council. I will, of course, keep you informed of the final outcome of the Council discussions and the European Parliament's consideration at Plenary.

14 March 2008

  Thank you for your letter dated 14 March 2008 updating the Committee on the final negotiations prior to the Transport Council on 7 April. Sub-Committee B has already cleared this item from scrutiny, but members are grateful for your continued updates. We look forward to receiving further information on the outcomes of the Council meeting.

1 April 2008