Thursday, February 28, 2008

Black is white

Black is White: Government Deception and the Galileo Project
By Gawain Towler

The Author

Gawain Towler is currently the Press Officer for the UK Independence Party MEPs in the European Parliament. He is a former freelance journalist and was the founder and co-editor of the Brussels based investigative/satirical magazine "The Sprout". He is the author of numerous articles on European policy in Britain and abroad and was the author of the Bruges Group papers "Another Slice of the Salami: How the European Criminal Code is being introduced by stealth", "The Convention on the European Constitution: Where we are now" and "The Dashwood text on the Constitution of Europe". He was also lead-author of the Centre for Policy Studies paper "Bloc Tory: A new Party for Europe", with Dr Lee Rotherham and Emmanuel Bordez .
He blogs at

He stood for the Conservative Party in Glasgow in the 2001 General election and the 2003 Scottish election. He was recently selected as the UKIP PPC for North Dorset.




Government Evasion


In writing this short paper I have made a number of assumptions. First and foremost of these is that the readership is aware of the long and convoluted history of the European Galileo project. Other writers have explained it better than I ever could and I would point you to Richard North's admirable paper 'Galileo: The Military and Political Dimensions[1]'. This paper concentrates on the most recent developments and the obvious disinformation being provided by the Government to Parliamentary Questions that illustrate the essential dishonesty and near panic within government at the state of the whole Galileo project

Galileo is designed as a rival to the American GPS system as was made explicit by the 2002 EU paper "The European Dependence on US-GPS and the Galileo Initiative".[2]

Though the paper explicitly states that "Galileo should be implemented as a civilian system independent from GPS" it also points out the military and security importance for Europe to be independent of the US system.

The next problem faced by EU policy makers having decided that Galileo should be launched is how to pay for it. At first all were assured that the lion's share of the finance should come from the private sector. However over the past couple of years those plans have come to naught as industry has realised quite what a white elephant Galileo had become. Though the focus on the non-military side had been repeated ad nauseum over the years[3], it was swiftly becoming apparent that for simple economic reasons that the whole project was unsustainable without significant taxpayer input.

How best to persuade the taxpayer? Tell them it is for their security. So Jacques Barrot, the EU Transport Commissioner and convicted felon stated on 12 October 2006,

“Galileo was supposed to be a civilian system only, but I wonder whether we shouldn’t question that.
“Using it for military purposes, for defence purposes…. would be very interesting in terms of paying for the infrastructure and investment.”
Interestingly he went on to say “some EU states opposed using the system for military means because of potential US opposition, but he said he did not think Washington would object to such a move”[4].

This was just restating official French policy on the Galileo project that was first publicised by the then French Defence Minister Michèle Alliot-Marie in December 2004 when she said that Galileo "will be available to the armed forces[5]." This was in direct contravention to Brussels' agreed public line, but had been as has been seen part of the project from the start.

The financing problems have yet to go away. On March 20th 2007 a peculiar document appeared in the Commission press room. Unsigned and unheralded it was titled in that marvellous technocratic style so loved by those who wish things not to be read, "Didactic synthesis on the Galileo concession contract" This document has no web existence at all, but was very revealing as to the then state of play.
The most important section of the paper talks about “current difficulties”. Some of these were aired in the Financial Times, in which Gerard Batten MEP described the Galileo satellite system as beginning to resemble “Airbus in Space”. Indeed Paul Verhoef, Galileo programme manager at the EU commission appeared to think likewise. "Galileo is now being compared with the Airbus situation," he says. "Unfortunately that analysis is correct[6]."
The suspicion has to be that the shadowy "Didactic sythesis" document was either written by, or with the knowledge of Mr Verhoef.
The key problem identified within it seems to be this,“International competition does not await Europe. The United States are currently working to improvement (sic) the GPS which should become operational around 2013-2014. Russia is working on their GLONASS constellation. The Chinese have just launched a new navigation satellite, the Japanese are working at a regional improvement system of the GPS, etc. The window of opportunity for Galileo is not extensible ad infinitum”.And it is this competition that was beginning to scare Brussels.
The current difficulties lie in the internal problems within the candidate consortium regarding the reparation of tasks: some have a different interpretation of the content of the agreement reached on 5 December 2005 under Mr Van Miert’s[7] mediation. Moreover, the consortium is reticent to commit itself on a firm and fixed costs before the conclusion of several important stages of the programme (certainty that needs are well met before deployment phase). Finally, the lack of certainty on the amount of the expected revenues does not incite the concessionaire to accelerate the process.a)IndustryFirstly internal disagreements within the eight companies of the candidate consortium (“Merged Consortium”) made it impossible for them to set up an adequate common legal entity necessary for the negotiations of the concession contract. This means first, al decisions need to be unanimously taken by all 8 companies and on the other hand, the CEO of the entity has still not been nominated. The solidity of the issues already agreed upon is therefore is weaken.The situation, originating from the grouping of large European industries, seems inescapable since the problems encountered earlier with Galileo Industries are happening now with the candidate consortium. However the lack of agreement is becoming, at this stage, very alarming indeed.b) Conception risks (“design risks”)Secondly, the private sector still expresses some doubts regarding the technical design of certain elements. Let’s recall that satellite navigation represents a challenge for Europe.c)Confirmation of the costsThe private sector will only be ready to definitively confirm the overall costs once it has received proposals from its calls for tenders for all the systems and subsystems and when industrial offers will have been negotiated and lead to the conclusion of the contracts. However, this procedure takes time and will not be able, in any case, to be finalised in 2007. It is today highly possible for the signature of the concession contract, with a firm and final commitment to costs, only to occur around mid-2009.d) Responsibilities to third partiesDiscussions are still on-going regarding the treatment of the risks vis-à-vis third parties. It is difficult to evaluate the damages potentially created to users in case Galileo cannot provide its services. In this event, the damages claims from users could reach amounts which would be very difficult to insure. Consequently, the intervention of the public sector might be necessary.
Rarely has there been a more pessimistic forecast produced by the European Commission.

With the wheels coming off the project, and with such huge sums of capital, both economic and political invested, there is no way that the project is going to be allowed to wither on the vine, as it certainly would if private financing was required. No company could or can justify to its shareholders the massive expense at the risk of such little return, or indeed at the risk of such additional, un-programmed costs.

The only answer that remains is to charge the tax payer. But how? Given the state of the EU's finances as a whole and the great debate over national contributions to the EU budget, there is precious little chance of extra monies being handed over from National exchequers to be spent on something that has so many fundamental flaws. It would be an impossible sell to the National electorates.

Indeed at the Transport Council of 6/8th June 2007 EU Transport Ministers put out this statement in which they,
2. CONCLUDES that the current concession negotiations have failed and should be ended;
4. REAFFIRMS the value of Galileo as a key project of the European Union;

Thus they have to find the money for the project from pre agreed cash. (We are talking 2.6 billion Euros here - or thereabouts, not the sort of stuff you can find down the back of the sofa). The target is the Framework Program Budget. Which is big enough, but here be dragons. Most of this money has already been allocated to projects. Nobody is willing to see their pet project, from tidal power to the European Institute for Technology being mugged.

In order to square this circle the Commission is having to look within for funding and it has alighted upon the Agricultural Budget[8]. Which is nothing if not contentious.

Government Evasion

In the light of all this and the report by the Commons Transport Committee which in the words of Gwyneth Dunwoody its redoubtable Chairman described Galileo thus,
"This is not one pig flying in orbit, this is a herd of pigs with gold trotters, platinum tails and diamond eyes and we ought to be asking ourselves, where is our common sense. Are we really saying that we are so frightened of the Americans that we must fling gold bars at something that we don't even know is going to work?[9]"

The report itself was equally damning if not quite so lurid,
Phase 3 of the project, the deployment phase, has yet to begin. This is by far the most costly pre-operational phase, and yet projected costs have already risen significantly. When we produced our last report on Galileo in 2004, the total cost of Phase 3 was estimated to be €2.1 billion, of which the PPP concessionaire was supposed to pay €1.4 billion and the European Union would have paid €700m. The current cost estimate for phase 3 is €3.4 billion – an increase of some 60 percent in three years.Apart from the increase in overall costs, the collapse of the PPP means that European tax payers are likely to end up financing the project in its entirety, facing an effective cost increase of 385 percent to the taxpayer. This means an increased commitment from the public purse of at least €2.4 billion from now on, just to get the system into orbit. To this should be added an estimated £5.5 billion over 20 years to operate the Galileo system – an estimated £275 million per year[10].

Some extremely interesting Parliamentary Questions have been asked by John Hayes, the Conservative MP and Lord Pearson the UK Independence Party peer. The answers are in themselves revealing.

First off the blocks on February 5th 2008 came Lord Pearson when he asked
"Further to the debate on 17 January what were the circumstances in which the commercial backers for the European Union's Galileo project declined to proceed?"

The debate had skirted over the question of funding, with the Government claiming that "The total estimated costs to 2030 are estimated to be something like £7.8 billion." This despite warning from Mrs Dunwoody's Committee in November that the total cost would be in the order of £20 billion. The reasons for the mess were not even touched upon.

In response to the question Lord Mallloch-Brown answered for the Government that,
"The European Commission's working document of May 2007 accompanying the Commission Communication 'Galileo at a crossroad: The implementation of the European GNSS Programmes'[11], suggested that reasons for the failure included continuous unresolved disputes over the share of industrial work, unresolved negotiations on the transfer of design risk, the technical complexity of the programme, and insufficiently strong and clear public governance. Ministers at the Transport, Telecommunications and Energy Council in June endorsed the Commission's analysis, and concluded that the deployment phase of the programme would best be carried out with an alternative procurement model".

This answer sets the scene and merely confirms what we have known for a while. The next day’s question then tried to find justification for a rather wild claim by the Government, in the person of Lord Bassam last month in debate where this exchange took place,

Pearson had asked a direct question about where the funds were coming from
"Can he give the amount that has been raided from the agricultural budget to meet the cost of this project, against the Government's wishes?

At this point the minister made the £7.8 billion costs claim and followed it up with a statement denying the involvement of the EU's Agricultural budget,
"I cannot agree with the noble Lord when he asserts that there has been a raid on the agricultural budget to pay for it" and then made a claim about the project economic benefits, "It is estimated that there will be benefits to UK business of something like £14 billion by 2025".

In a shift of the Governments flint opposition to the use of Galileo as a military project he also conceded,
"The project is designed primarily as a civil system; it is part of our partnership with our European neighbours. There obviously are concerns about its military use, but it has been defined and agreed as a civil system since its inception".

There of course being a world of difference between a definition and a reality. The reality remember having been flagged up by the French nearly four years earlier.

However back to Pearson. He followed these questions on the 6th of February by questioning the economic claims
"Further to the remarks by Lord Bassam of Brighton on 17 January (Official Report, cols. 1416—9), how the estimate of the Galileo project's contribution to the United Kingdom economy of £14 billion by 2025 was made?"

Lord Malloch-Brown responded, subtly, but crucially undermining the earlier claims about the positive impact of the Galileo project on the UK economy.
"The figures were calculated by ESYS Consulting Ltd[12] in an independent study for the Department for Transport and the British National Space Centre, assessing the likely benefits for UK industry from having access to both Galileo and the Global Positioning System. The study concluded that under the most likely scenario, the total cumulative UK Global Navigation Satellite System(GNSS) benefits from 2013 to 2025 was likely to be £14.2 billion".

What is interesting is the change in the Government position over the month. Whereas Lord Bassam claimed that £14 billion over the period due to Galileo, Malloch-Brown has now changed this to include both Galileo and the free to use American GPS system. So what we have here is a claim that over a period of 13 years the two satellite systems combined will raise the sums. Looking at the report itself, the £14 billion figure is not the most likely option, but instead the most optimistic forecast.

Cumulative total GNSS downstream benefits £B from 2006 to 2025
No discount
6% Discount
8% Discount
Most Likely
Source: UK GNS Downstream Benefits Assessment: ESYS 20/12/2007

At no point in the study are the exclusive benefits to be accrued from Galileo itself itemised. In fact the report goes to some lengths to point this out. Given that the market for GNSS products is already maturing and that currently the American GPS system current holding a monopoly position in that market it is fair to assume that even in the event of Galileo being a technical success market inertia will favour GPS. Then factor in the issue of GPS development and it becomes highly unlikely that Galileo will have much market share outside European Governmental contracts. The private sector will go with what they know to work and what is free to use. Thus the benefits to the economy waved at the House of Lords are dicey at best and dishonest at worst.

Then again if we look into the authors of this Report ESYS Consulting Ltd, then we discover that this is hardly some independent body. On its website it states[13],
ESYS supported the Galileo Joint Undertaking (GJU) on ProDDAGE, the Programme for Development and Demonstration of Applications for Galileo and EGNOS. The GJU is responsible for the Development and Validation Phase of Galileo (2002 to 2005), and covers the detailed definition and subsequent manufacture of the various system components: satellites, ground components, user receivers. ProDDAGE consists of a consortium of companies and organisations, led by ESYS, working closely with the GJU to ensure that the Galileo programme achieves sustainability.

Far from being an independent study the Governments evidence comes direct from a company whose entire profitability relies upon the success and continuation of the Galileo project. It is like asking Sam Colt if bullets might be profitable.

The Consortium led by ESYS is also revealing including as it does,
ESYS plc, Helios Technology, ESSP, ECORYS, Nottingham Scientific, ERTICO, Alcatel Space, Bombadier Rail, Thales GeoSolutions

All of whom are in receipt of significant grants or contracts from the EU.

That is in the light of the answer given by Transport Minister Stephen Ladyman to John Hayes on the 20th February.

Hayes had asked,
"Who the EU public private partnership concessionaire is of the Galileo operational phase".
The answer came back,
"It is made up of Aena, Alcatel, EADS, Finmeccanica, Hispasat, Inmarsat, TeleOp and Thales".

Pearson's latest contribution was to point out the discrepancy between the Governments position as to where the funds would be coming from and what the European Commission had been saying,

According to[14] Barrot said,
"The Commission proposes to fully finance the €3.4 billion required to launch Galileo with Community funds. €1 billion is already foreseen for this purpose in the Community financial framework for 2007-2013, whereas it proposes a revision of the multiannual financial framework permitting the use of unused funds and remaining margins for other policies within the EU budget, and thus providing the extra €2.4 billion.
"For 2007, the margin in agriculture is €2 billion and for 2008, €2.5 billion,"

Pearson asked on the 18th February ,
'Further to the Answer by Lord Bassam of Brighton on 17 January (Official Report, col. 1417) which denied that the Galileo project is being funded from the European Union's agricultural budgets, whether that Answer is consistent with the statement of Mr Jacques Barrot, Vice-President of the Commission, on 19 September 2007?

The Government whip Lord Bach in a statement of pure 'black is white' answered,
"Yes. The statements of the noble Lord and Mr Barrot are consistent".

What Bach did not say was that until November of 2007 he was the Chairman of the Board of a firm called SELEX Sensors and Airborne Systems SpA, a wholly owned subsidiary of the above named Finmeccanica. Selex was formerly the British firm BAE Systems Avionics until it was bought out by the Italians and was renamed on January1st SELEX GALILEO.


This is certainly not the end of the story, but it is an update. What we can reveal is that the levels of dishonesty and deception being used by the Government over Galileo seem to have no bounds.

Of course the coda to all of this is that in the end all the financial shenanigans may be irrelevant. The Commission only have to wait a short while for real funding to arrive. It will of course not be coming from the private sector.

In the Treaty of Lisbon which as everybody knows is going through the ratification process is the Article 2C/3 makes it very clear,
"In the areas of research, technological development and space, the Union shall have competence to carry out activities, in particular to define and implement programmes";

This was something that had been removed from the original Constitution during the European Convention but like energy policy has returned in the new Treaty. Its effect will be that the Commission will be able to fund Galileo as it sees fit.

The final words should go to the Transport Select Committee's report,
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.
[4] Financial Times 13/10/2006 call to consider EU's Satellite for Military Use
[5] 30/11/2004 French Military can use Galileo: Defence minister
[6] Financial Times 15/3/200 Profit doubts hit Galileo development
[7] Karel Van Miert, Former Vice President of the Commission was appointed by Jacques Barrot in October 2005 to act as "Mediator for Galileo".


[9] BBC Radio 4 Today program. 12/11/2007