Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions -  GALILEO at a cross-road: the implementation of the European GNSS programmes {SEC(2007) 624}
Date: 2007-05-16
Institutions: European Commission
Subjects: EU programme, research programme, satellite navigation

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 16.5.2007 
COM(2007) 261 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

GALILEO AT A CROSS-ROAD: 
THE IMPLEMENTATION OF THE EUROPEAN GNSS PROGRAMMES  

{SEC(2007) 624} 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

GALILEO AT A CROSS-ROAD: 
THE IMPLEMENTATION OF THE EUROPEAN GNSS PROGRAMMES  

1. 

INTRODUCTION 

The  European  satellite  navigation  programmes  Galileo  and  EGNOS  have  come  to  a  cross-
road.  A  political  choice  is  required  on  how  to  proceed.  The  concession  negotiation  which 
should  have  led  to  the  deployment  and  exploitation  of  Galileo  has  stalled.  The  delays 
accumulated so far and the absence of any sign of progress on the concession negotiation is a 
risk for the delivery of the project within the timeline and foreseen budget. 

In  view  of  the  situation,  and  following  the  letter  of  Vice  President  Barrot  to  the  Council 
Presidency of 14 March 2007, the Council of Transport Ministers of 22 March 2007 requested 
the Commission to: 

•  assess and report by the June Council on overall progress of the Galileo project, including 
the outstanding issues listed by the bidding consortium as summarised in the Presidency's 
report  and  including  the  project  cost  and  financing  thereof,  with  a  view  to  the  swift 
progress of the project; 

•  submit  as  soon  as  possible  for  discussion  possible  solutions  for  securing  the  long-term 
public  financial  obligations,  as  requested  in  the  Council  conclusions  of  October  2006, 
including  a  scenario  for  the  earliest  possible  provision  of  EGNOS  satellite  navigation 
services as precursor to Galileo, and to report to the June Council; 

•  assess,  assisted  by  GSA  and  ESA,  the  progress  in  the  concession  negotiations  and  to 
submit  alternative  scenarios,  also  assessed  for  costs,  risk  and  affordability,  for  the 
forthcoming June Council meeting. 

The  European  Parliament,  in  its  Resolution  of  24  April  20071,  reiterated  its  support  for  the 
Galileo programme, expressed its concerns about the progress, and called on the Commission 
to come forward with appropriate proposals, based in part on the same points as mentioned by 
the Council and, in particular, for a strengthening of public governance by ensuring political 
responsibility and leadership of the Commission. 

This Communication responds to the requests of the Council and the European Parliament and 
is complemented by a Commission staff working document SEC(2007) 624 of 16 May 2007. 

1 

European Parliament Resolution of 26 April 2007 on the Galileo concession contract negotiations. 

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2. 

EGNOS AND GALILEO: THE EUROPEAN GNSS PROGRAMMES 

Satellite navigation is a technology allowing users worldwide to pinpoint their location at any 
time.  The  range  of  applications  which  are  made  possible  is  wide  and  spans  a  large  set  of 
domains,  from  traditional  transport  to  communication,  land  survey,  agriculture,  fisheries, 
environment  protection,  scientific  research,  tourism  and  others.  Satellite  navigation  can 
improve  vehicle  navigation  and  relieve  traffic  conditions,  guide  people  with  disabilities  or 
localise goods, animals and containers. Furthermore, it can ease civil protection operations in 
harsh environment, speed up rescue operations for people in distress at sea, and provide tools 
for coastguards and border controls. It is also a formidable asset for time stamping of financial 
transactions,  scientific  research  in  meteorology,  geodesy,  earth  movement  monitoring  and 
others. 

Considerable achievements have already been accomplished over the last ten years, based on 
the hard work of the public institutions, the European research establishments, and European 
industry. The public sector budgets totalled over 2.5 B€. 

Europe developed EGNOS which is based on GPS signals and provides augmentation signals, 
re-transmitted  by  three  geostationary  satellites.  EGNOS  makes  it  possible  to  move  the 
accuracy  of  GPS  positioning  below  5  meters.  Moreover,  it  sends  an  integrity  message 
informing  users  in  the  event  of  problems  on  GPS  satellites.  EGNOS  should  become 
operational  in  2008  and  provide  early  access  over  Europe  to  3  of  the  5  global  services  of 
Galileo.  EGNOS  has  been  essential  in  the  promotion  of  European  research,  knowledge  and 
know-how in this state-of-the-art technology. 

Galileo  is  based  on  a  constellation  of  30  satellites  placed  in  a  medium  earth  orbit  (at  an 
altitude  of  approximately  24 000  km)  continuously  covering  the  entire  surface  of  the  earth. 
The  selected  configuration  is  optimal,  as  it  ensures  the  presence  of  a  minimum  of  four 
satellites  above  any  point  of  the  earth  at  any  moment.  Indeed,  navigation  receivers  can 
calculate their position only if they receive simultaneously the signals of a minimum of four 
satellites. 

The first Galileo experimental satellite was launched in December 2005. 

In parallel, close and fruitful cooperation has been put in place with the US. This has led to an 
EU-US  Agreement2  on  the  full  interoperability  of  the  GPS  and  Galileo  open  signals  and  a 
recent  joint  decision  to  improve  the  characteristics  of  these  signals,  effectively  establishing 
the global standard for satellite navigation. This is expected to lead to the wide-spread use of 
combined GPS/Galileo receivers in mass-market applications. 

The  Commission  invites  the  Council  and  the  European  Parliament  to  recognise  the 
investments and achievements in the European GNSS programmes. 

3. 

THE PATH FOLLOWED 

Following  the  European  Council  of  Nice  in  December  2000,  the  Council  Resolution  of  5 
April 2001 approved the launch of the European satellite navigation programme Galileo. 

2 

EU-US Agreement on the promotion, provision and use of Galileo and GPS satellite based navigation 
systems and related applications, June 2004. 

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The  Council  had  foreseen  the  development  of the  programme  in  three  phases  (development 
and  in-orbit  validation  phase,  deployment  phase  and  operational  phase).  Regarding  the 
financing of these phases, the Council decided that the development phase should be financed 
entirely  by  the  public  sector  and,  as  far  as  the  other  phases  are  concerned,  they  should  be 
financed  by  both  the  public  and  the  private  sectors  in  the  framework  of  a  public-private-
partnership  on  the  basis  of  a  maximum  of  one-third  of  the  cost  of  the  deployment  for  the 
public sector. The start of the operational phase was foreseen in early 2008.  

On  17  October  2003,  in  accordance  with  its  mandate  laid  out  in  Regulation  (EC)  No 
876/2002,  the  Galileo  Joint  Undertaking  launched  a  concession  call  for the  deployment  and 
operational phase of Galileo. On 4 July 2005, the GJU agreed on the basis of certain specific 
conditions, to the creation of a Merged Consortium, recently named "Euro-GNSS", located in 
Toulouse  and  composed  of  8  partners  (AENA,  Alcatel,  EADS,  Finmeccanica,  Hispasat, 
Inmarsat, Thales and TeleOp) as the single negotiating partner for the Galileo concession. 

industrial 
The  negotiations  effectively  started 
disagreements and a mediation3 with regard to the division of role and responsibilities as well 
as locations of major ground installations of the system. 

in  January  2006,  following 

internal 

Negotiations focused on the Heads of Terms, i.e. the core elements of the concession contract. 
A  first  version  was  initialled  on  20  November  2006.  Since  the  beginning  of  2007  the 
negotiations came to a stop. 

4. 

ASSESSMENT OF THE OVERALL PROGRESS AND CHANCES OF IMPLEMENTATION 

The European GNSS programmes Galileo and EGNOS have accumulated a delay of 5 years 
with  regard  to  the  initial  calendar  and  are  currently  facing  a  number  of  difficulties,  in 
particular due to industrial governance and the difficulties to transfer risk to the private sector 
at reasonable conditions. However there are also issues linked to the public governance. 

EGNOS 
implementation and availability is now urgent. 

is  nearing  operational  readiness  and  has  provided  proof-of-concept.  Its 

The  progress  of  the  development  phase  of  Galileo  however  has  accumulated  substantial 
delays and cost overruns. 

Although  the  downstream  market  for  global  satellite  navigation  services  is  very  promising 
indeed (predicted to be around 450 B€ annually4 as from 2025, worldwide), the market for the 
concession holder, which provides the signals-in-space, appears uncertain. Among the reasons 
are the uncertainties of the commercial use of Galileo, with the fact that the GPS civil signal 
is  free  of  charge,  and  that  there  is  still  considerable  uncertainty  to  what  extent  the  public 
authorities will use the Public Regulated Service (PRS) of Galileo. 

As  a  result,  the  Merged  Consortium  expects  the  EU  to  underpin  the  associated  risk.  This 
element was clearly underestimated in the original plans for Galileo as there was always the 
assumption that the private sector would assume the market risk. 

3 

4 

The mediation of ex-Commissioner Karel van Miert resulted in an agreement among the 8 members of 
the Merged Consortium on 5 December 2005.  
ProDDAGE market analysis report, ESYS Consulting, 2006. 

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Unless the EU reacts quickly and decisively, the current delays may have a domino effect in 
terms of the investments in the downstream applications and services markets which rely on 
the certainty of the time schedule by which the Galileo and EGNOS infrastructures will be put 
in place. 

The technological complexity of EGNOS and Galileo is considerable and has probably been 
underestimated.  The  design  is  currently  in  the  hands  of  the  public  sector,  namely  the 
European  Space  Agency.  The  transfer  of  the  design  risk,  and  the  closely  associated 
completion  risk,  cost  overrun  risk  and  performance  risk  to  the  Merged  Consortium  has  not 
proven  to  be  possible  at  reasonable  conditions.  Moreover,  the  EU  has  taken  an  assumption 
that Galileo could be developed and deployed in a much shorter time and with considerably 
less  public  financing  than  it  took  the  US  for  GPS.  Although  admittedly  GPS  has  particular 
requirements, the EU assumption may have been optimistic. 

Both  the  industrial  and  public  governance  have  proven  to  be  a  major  factor.  The  current 
industrial organisations are neither efficient nor capable of reaching decisions, largely due to 
disputes on roles, responsibilities and programme work share. In addition, for the purposes of 
the PPP, i.e. ultimately the provision of services, the Merged Consortium has a composition 
with different focus, namely mostly the construction of the constellation whilst a PPP would 
ideally  require  a  consortium  led  by  service  providers.  Moreover,  the  lack  of  clarity  of  the 
respective roles and responsibilities on the public side has not made the situation any easier. 

Continuing  with  the  current  negotiations  would  imply  that  the  implementation  of  Galileo 
would  proceed  on  the  basis  of  the  publicly  procured  first  four  satellites  and  related  ground 
infrastructure  of  the  development  phase  and  that  the  remainder  of  the  system  would  be 
procured,  deployed  and  exploited  by  the  Merged  Consortium.  However,  as  a  result  of  the 
accumulated  delays,  the  start  of  the  PPP  would  not  commence  before  mid  2009  and  full 
deployment would be delayed until 2014 or later. 

Furthermore,  additional  considerable  risk  mitigation  actions  are  required  to  cover  the  gap 
between the development and the deployment phases, particularly through the procurement of 
an  additional  4  satellites  and  related  infrastructure,  in  order  to  avoid  that  industries  teams 
dissolve. In addition, significant revenue losses can be expected resulting from a late arrival 
on the market in the face of the emerging global competition such as GPS-III. 

In this respect, the points raised by a letter of the Merged Consortium to the EU Presidency5 
cover  a  large  number  of  points  which  can  only  be  resolved  either  in  negotiations  (technical 
baseline,  IOV  and  EGNOS  handover  conditions,  risk  transfer  and  mitigation,  a  joint 
GSA/Merged  Consortium  business  development  roadmap,  update  the  programme  and 
negotiating  roadmap),  or  by  the  Merged  Consortium  itself  (update  the  cost  model,  private 
funding commitments, proper governance, resolve outstanding arguments on work shares), or 
indeed  by  the  EU  (strengthen  public  governance,  ensure  longer-term  financial  certainty  of 
public funding arrangements, resolve the EGNOS institutional issues). These latter matters are 
addressed  in  this  Communication  and  in  the  Document  of  the  Services.  The  Commission 
considers  that  the  points  raised  are  of  value  in  the  evaluation  of  the  programme  as  a  total. 
However,  the  material  reason  for  this  negotiation  not  progressing  is  primarily  related  to  the 
inability  of  the  Merged  Consortium  to  effectively  manage  the  process,  agree  on  a  common 
position, and engage in the negotiation as a consequence of the underestimated complexity of 

5 

Letter of the Merged Consortium to Minister Tiefensee and Vice President Barrot, 9 March 2007. 

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the programme, the unclear parameters for revenues and the heterogeneous composition of the 
consortium. 

The latest letter of the Merged Consortium, setting out its position on the situation in response 
to  the  imposition  of  the  pre-conditions  formulated  by  Council6,  neither  provides  any 
significant new elements nor any credible evidence on a commitment to proceed. Therefore, 
and  despite  the  partial  fulfilment  by  the  Merged  Consortium  of  these  pre-conditions,  the 
Commission  believes  that  the  negotiation  has  failed  to  achieve  reasonable  results  and  has 
come to the conclusion that the current concession negotiation stands therefore little chance to 
be concluded satisfactorily, with a balanced sharing  of risks, at  best  value  for  money  to  the 
EU, in good time, and with sufficient assurances for efficient private sector governance. 

In summary, the Commission considers that the current situation is a result of the combined 
effects of continuous, unresolved disputes over share of industrial work, a misjudgement that 
market risk could be transferred to the private sector, an unresolved negotiation with respect 
to the transfer of design risk, the technical complexity of the  programme, and insufficiently 
strong and clear public governance. 

The Commission invites the Council and the European Parliament to take note of the failure 
of  the  current  concession  negotiation  and  to  conclude  that,  on  this  basis,  the  current  PPP 
negotiations should be ended. 

5. 

DOES EUROPE NEED A SATELLITE NAVIGATION SYSTEM? 

In view of these difficulties, the question is whether to stop the programme or to pursue in a 
renewed context. 

Galileo  has  become  a  flagship  project  for  both  its  strategic  value  and  its  important 
contribution to the Lisbon strategy, and incarnating the political, economic, and technological 
dimensions  of  the  European  Union.  This  has  been  emphasised  on  several  occasions  by  the 
European Council at their Summits in Cologne, Feira, Nice, Stockholm, Laeken, Barcelona, 
and Brussels. 

into  critical 
Global  Satellite  Navigation  Systems  (GNSS)  are  rapidly  developing 
infrastructures  for  modern  society,  which  will  rely  on  it  for  vital  functions  such  as  border 
controls, 
logistics,  financial  operations,  and  surveillance  of  energy  and 
transport 
communications infrastructures.  

Hence, Galileo provides important contributions to Community policies in areas, as varied as 
transport  management,  transport  of  dangerous  goods,  emergency  services  (eCall),  mobile 
telephony,  financial  services,  energy,  navigation  in  seas  and  waterways,  air  transport,  civil 
protection  and  humanitarian  missions,  agriculture,  fisheries,  and  surveying.  A  major  and 
increasing part of our economic activity is based on position and timing information.  

Abandoning Galileo would recreate and significantly increase the dependency on GPS (US)7 
and  potentially  Glonass  (Russia)  and  Compass/Beidou  (China).  All  these  systems  are  of  a 

6 

7 

Letter of the Merged Consortium to the GSA, 24 April 2007. 
EGNOS  augments,  and  is  based  on,  GPS  signals  by  means  of  a,  currently  only  regional,  European 
ground infrastructure. 

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governmental,  dual  use  or  military  nature,  constructed  and  operated  entirely  on  the  basis  of 
public funding. Europe would be the only major economy without such a strategic asset. This 
will have further important political impacts for the European Union as our co-operation with 
third countries will lack an important asset. This would mean that the European Union would 
be dependent on military/dual use foreign systems and technologies for applications vital to 
the running of the society tomorrow.  

Moreover, Galileo is a pillar of the emerging European Space Policy and signifies Europe's 
ambitions  in  space,  technology,  and  innovation.  Not  implementing  Galileo,  but  only 
proceeding  with  the  implementation  of  EGNOS,  would  not  only  be  a  major  technological 
drawback  for  Europe  but  would  cause  a  major  loss  of  macro-economic  opportunities  for 
European  manufacturing  and  services  industries.  In  the  absence  of  resident  technical 
expertise, the European private sector would be in a bad position to reap the benefits of the 
world-wide  market  of  satellite  navigation  services  and  applications  of  450  B€  annually  by 
2025. The European private sector has indicated that it counts on achieving a one-third market 
share  thereof,  equivalent  to  150B€  annually.  Market  studies  for  satellite  navigation  show 
rapid growth especially in the downstream markets for road applications and locations based 
services and equipment Developing and maintaining technical resident European expertise in 
the  upstream  market  (the  development,  deployment,  and  operations  of  the  system)  is  a  pre-
requisite  for  allowing  the  European  downstream  market  to  deploy  its  full  potential  in 
innovation of applications and services throughout the economy. 

Last  but  not  least,  Europe  has  already  engaged  2.5  B€  in  the  development  of  the  European 
GNSS programmes8 to date.  

The Commission invites the Council and the European Parliament to reaffirm the necessity to 
put  in  place  an  autonomous  satellite  navigation  system,  to  endorse  the  continuation  of  the 
Galileo programme as a strategic asset for the European Union, and to recognise its economic 
value. 

6. 

WHICH GALILEO? 

The  assessment  of  potential  major  modifications  to  the  requirements,  re/de-scoping  of  the 
services, constellation design and in coverage, low-cost infrastructures and alike have shown 
that  the  system  characteristics,  as  they  have  been  agreed  by  the  Council,  are  still  fully 
appropriate.  The  main  focus  should  be  on  maintaining  the  tight  schedule  of  program 
development and deployment. 

The system characteristics adopted for Galileo are the result of around ten years of design and 
technical qualification. Many possible configurations were assessed in an open process which 
allowed experts and  potential  users of navigation systems to express their views in order to 
ultimately  determine  and  agree  on  the  Galileo  mission  requirements.  Design  teams,  both  in 
ESA and in industry, defined the system in an interactive process and tailored the programme 
in  line  with  these  mission  and  performance  requirements.  Since  then,  neither  the  basic 
configuration of the system (satellite constellation, ground segment) nor the definition of the 

8 

The EU and ESA budgets combined include the IOV contract (1.5 B€), the EGNOS costs (0.7 B€) and 
ESA and EU research over the years. 

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services  has  been  challenged  by  any  stakeholder.  This  demonstrates  the  validity  and  the 
robustness of the concept developed. 

Any radical change in design would lead to the cancellation of the actual industrial contracts 
in the development phase and therefore to a full re-bidding for the entire programme, with the 
associated delays this would involve. Such a scenario incites a combined effect of a loss of the 
investment  made  so  far  in  the  project  and  a  very  late  entry-to-market  of  a  system  with 
degraded  performances  and  an  undoubtedly  low  resistance  in  competition  against  new 
systems like GPS-III. The forecast economic profitability of such a scenario is very low. 

The potential cost savings from a reduced system therefore induce the reverse effect of their 
initial  objective  and  are  a  much  less  important  factor  than  the  respect  of  the  time  schedule 
associated with a system maintaining its initial technical definition. 

The  Commission  invites  the  Council  and  the  European  Parliament  to  recognise  that  the 
Galileo  system  characteristics  remain  fully  compatible  with  the  ambitions  of  the  European 
Union  for  this  strategic  asset,  namely  a  30  satellites  constellation  offering  five  different 
services with an excellent quality of the signal in space. 

7. 

ALTERNATIVE SCENARIOS  

The  Commission  concurs  with  the  view  that  a  PPP  provides  the  best  conditions  to  control 
costs, manage completion and technical risks, and optimise market exploitation. However, if 
negotiations for the transfer of relevant market, cost control, completion, and technology risks 
to the private  sector can not succeed due to  a high price  and  unfavourable  terms  for such a 
transfer, then the basic requirements for a PPP are not met. The necessary actions need to be 
undertaken  to  create  the  appropriate  environment  which  would  offer  a  good  chance  of 
transferring the risks to the private sector at reasonable conditions. 

Therefore, the Commission has pursued the PPP approach for the implementation of Galileo 
but  has  re-profiled  it  through  scenarios  with  a  more  appropriate  moment  at  which  a  private 
partner assumes programme responsibility. 

All of the retained scenarios start with a public procurement of a certain number of satellites 
and  the  associated  ground  segment,  followed  by  a  PPP  undertaking  the  procurement  of  the 
remaining  satellites,  if  any,  as  well  as  the  exploitation,  operations  and  maintenance  of  the 
infrastructure. 

For comparison purposes only, a scenario is maintained whereby the current negotiations with 
the  Merged  Consortium  would  be  continued.  In  this  hypothetical  case,  continuing  the 
negotiations would mean that the implementation of Galileo proceeds on the current basis of 
the first four publicly procured satellites while the remainder of the system would be deployed 
and  exploited  through  the  foreseen  PPP  contract  with  "Euro-GNSS",  i.e.  the  Merged 
Consortium9. However, risk mitigation actions are required, as set out later. 

9 

See analysis in section 4. 

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The following two scenarios are retained: 

INITIAL OPERATIONAL CAPACITY (IOC) PROCUREMENT, FOLLOWED 

A. 
BY A PPP 

Under  this  scenario,  the  public  sector  finances  and  procures  an  operational  system  with 
limited performances. This core infrastructure is composed of 18 satellites with the associated 
ground segment. The IOC allows provision of early Galileo services for a wide range of users 
and provides confidence on design robustness to the future concessionaire. Both positioning 
accuracy  and  coverage  are  sufficient  to  introduce  services  on  the  market10  but  yet  without 
capitalising  on  Galileo's  technical  value-added.  The  remaining  12  satellites  are  procured  by 
the  private  sector  under  the  PPP  concession  scheme  which  also  contains  the  operations  and 
exploitation activities. The IOC will be ready by end 2011, with users having access only to 
early services at that time. Full deployment and service availability can be achieved by end-
2013,  provided  that  the  PPP  contract  is  signed  in  time.  The  PPP  contract  would  cover  the 
period 2010-2030. 

A total of 18 
satellites under 
public 
procurement 
followed by a 
PPP for 
procurement of 
12 satellites, 
operations, and 
exploitation 

Main 
characteristics 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

2015 

IOV

IOC 

IOC

FOC 

PPP (incl.FOC deployment)

EGNOS 

-  EGNOS operational in early 2008 
-  Complete current development phase (In-Orbit-Validation): 2010 
-  Completion of the deployment of the first constellation: end 2013  
-  PPP  contract  for  completion  of  infrastructure  deployment, 

operations, and exploitation: 2010-2030 

-  Full service provision and performances availability: end 2013 

FULL OPERATIONAL CAPABILITY (FOC) PROCUREMENT, FOLLOWED 

B. 
BY A PPP 

In this scenario the public sector finances and procures the complete operational system with 
full performances. This infrastructure is composed of 30 satellites with the associated ground 
segment. It allows the provision of all Galileo services for all targeted users and provides full 
confidence of design robustness to the future concession holder. The PPP contains operations 
and  exploitation  activities.  The  public  sector  is  gradually  able  to  increase  the  capability  to 
provide  services.  In  an  intermediate  step  the  infrastructure  reaches  a  constellation  of  initial 
operational capability by end-2011 and the full deployment is achieved by the end of 2012. 
The PPP concession contract covers the period 2010-2030. 

10 

4 meters horizontal accuracy for 87% availability or 20 meters accuracy for 98% availability. 

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A total of 30 
satellites under 
public 
procurement 
followed by a 
PPP for 
operations and 
exploitation 

Main 
characteristics 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

2015 

IOV

IOC

FOC

FOC

PPP

EGNOS 

-  EGNOS operational in early 2008 
-  Complete current development phase (In-Orbit-Validation): 2010 
-  Completion of the deployment of the first constellation: end 2012  
-  PPP contract for exploitation: 2010-2030 
-  Full service provision and performances availability: end 2012 

- FOC is earlier than in the previous scenario as there is not need to wait for the PPP to commence and order the last 12 satellites. 
- A technical handover of two years is foreseen between ESA and the Concession Holder before IOC operations commence. 

In light of the evaluation of the various scenarios, the procurement by the public sector of the 
full  constellation  is the most advantageous.  Effectively,  as  the  trend shows (see  the table in 
Annex), the more the private sector is requested to provide financing for the infrastructure, the 
higher the part of the availability payment, to be paid by the public sector, which underpins 
debt, debt interest and the return on equity. 

This  needs  to  be  off-set  against  the  risks  that  are  retained  under  the  various  scenarios. 
Normally, the higher levels of underpinning of the public sector are compensated by a transfer 
of risk to the private sector. However, as the current concession negotiations have shown, this 
risk transfer is currently not negotiable at reasonable conditions for the public sector and, in 
effect, in all scenarios the public sector retains most of these risks. As a result, the effect of 
underpinning  of  debt,  debt  interest,  and  return  on  equity  plays  a  major  role  in  the  overall 
value-for-money assessment. 

The assumption has been of a baseline revenue return over the period 2007-2030 of a total of 
around  10  B€.  However,  most  of  this  will  be  available  towards  the  end  of  the  period. 
Therefore the total costs for the public sector are not a simple subtraction of revenues from 
the  total  nominal  costs  but  it  is  necessary  to  calculate  a  so-called  Net  Present  Value  (at  a 
discount rate of 6%) of the total public sector costs. It is the standard method for the financial 
appraisal of long-term projects. In addition, the part of the total revenue that the public sector 
will be able to retain depends on the scenario and is linked to remuneration of the concession 
holder. The result of the estimations is presented in the table below. 

Scenario 

Total Public Sector Costs 
NPV (in B€) 2007-2030 

Continue present scheme, and add 
mitigation actions 

Build an initial operational capability 
(IOC) followed by a PPP 

Build the full, first constellation 
(FOC) 
followed by a PPP 

~ 1.8 

~ 2.2 

~ 1.0 

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The  public  sector  contribution  expressed  in  Net  Present  Value,  which  takes  account  of  the 
different  sharing  scenarios  of  revenues  between  the  public  and  the  private  sectors,  is  most 
advantageous in the FOC scenario with a value of around 1.0 B€. In return however, a larger 
investment is necessary in the Financial Framework 2007-2013. 

Finally, it should be highlighted that the most important element which could not be modelled 
is  the  deployment  of  GPS-III  from  2013  until  2018  that  introduces  a  number  of  equivalent 
services free-of-charge. In view of this, the later the delivery of the full Galileo constellation, 
the more negative the impact will be on the concession revenues. 

The Commission invites the Council and the European Parliament to: 

•  confirm  that  it  is  necessary,  appropriate,  and  in  the  interest  of  the  European  GNSS 

programmes to proceed with their implementation through an alternative scenario; 

•  take  note  of  the  relevant  advantages  and  financial  implications  of  the  available,  realistic 

scenarios; 

•  take  note  in  particular  of  the  importance  of  an  early  completion  of  the  full  constellation, 

and the cost implied by delays in political decisions. 

8. 

A STRATEGIC ASSESSMENT 

On the basis of its assessment, the Commission invites Council and European Parliament to 
conclude  that  the  preferred  option  and  only  scenario  providing  a  satisfactory  way 
forward is a re-profiled, two-step PPP approach: 

(1) 

Step  1:  start  with  the  immediate  implementation  of  EGNOS,  through  a  specific 
concession,  as  a  precursor  to  Galileo  with  initial  service  availability  by  early  2008, 
and  complement  the  current  public  procurement  of  the  initial  satellites  and 
infrastructure  by  deploying  the  first  full  Galileo  constellation  under  a  public 
procurement with a target of Full Operational Capability by end 2012. 

(2) 

Step 2: In parallel, negotiate and put in place a PPP for the subsequent EGNOS and 
Galileo exploitation phase from 2010-2030. 

The choice for this scenario is based, in particular, on the high programmatic certainty (only 
scenario where the completion of the deployment phase does not depend on the success of a 
parallel  concession  process),  the  fully  fledged  program  logic  (essential  for  a  smooth  hand-
over  to  a  concession  holder),  the  best  re-use  of  investments  of  the  development  phase 
(restoring confidence and motivating the industrial teams), the fastest time-to-market (offering 
the  best  chance  of  a  significant  Galileo  market  share),  and  last  but  not  least  best  value-for-
money. 

However, a number of critical programme issues need to be addressed. 

The  current  industrial  organisation  is  neither  efficient  nor  capable  of  reaching  decisions, 
largely due to the fact that the private sector acts on the basis of unclear roles, responsibilities, 
and  programme  work  share.  It  is  therefore  essential  that  interferences  in  the  industrial 

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organisation  is  minimised  in  order  to  let  normal  business  practices  come  to  the  fore,  while 
respecting the strategic nature of the Galileo programme and the critical role of broad-based, 
European  industrial  supply  and  private  sector  participation  therein.  Tight  management  is 
required to ensure the time schedule of the programme both as regards cost control and time-
to-market. Five years have been lost already compared to original schedules and at significant 
costs. 

As  the  owner  of  the  system,  the  EU  has  the  responsibility,  in  particular,  to:  ensure  that  its 
political  commitments  and  vision  are  implemented,  determine  and  agree  on  the  overall 
specifications  and  requirements  for  the  system;  to  be  able  to  monitor  and  control  the  strict 
adherence  to  such  requirements  throughout  the  construction,  deployment,  and  exploitation 
phases; to oversee the different phases of the programme in order to avoid further delays and 
cost  overruns;  and  providing  the  conditions  for  coherent,  efficient,  and  harmonious  private 
sector governance wherever relevant.  

With  regard  to  the  need  for  an  efficient  and  sound  programme  management,  the  European 
Commission needs to be able to run the programme with adequate programme management 
controls and tools, fully respecting the political vision and conditions of the European Union 
as a whole. The Commission commits to regular and detailed reporting to the Council and the 
European Parliament on all aspects of the programme implementation.  

The  Commission  recommends  retaining  the  European  Space  Agency  (ESA)  as  the 
procurement agent and designing authority on behalf of the European Union. This means that 
ESA  will  have  to  exercise  its  technical  expertise  under  EU  rules  and  subject  to  overall  EU 
management  of  the  programme.  Also  in  view  of  the  approach  taken,  a  clear  procurement 
agreement with ESA is necessary, in particular with regard to the retained level of liability if 
acting as a procurement agent and/or design authority for the EU.  

Such  an  agreement  and  its  associated  financing  rules  should  give  clear  indications  of  the 
procurement process and be based, inter alia, on the following elements: 

•  recognition of the strategic nature of the Galileo programme and the critical role of broad-

based European industrial supply and private sector participation therein; 

•  competitive tendering in contract batches for all space and ground segment elements; 

•  dual-sourcing wherever possible to improve efficiency and decrease dependencies; 

•  due account of existing achievements and investments and of agreements as far as relevant; 

•  firm and fixed price contracts; 

•  regular and detailed reporting requirements; 

•  regular audits of the EU Court of Auditors to ensure that the financial interests of the EU 

and the community character of the programme are respected. 

Moreover,  the  Commission  strongly  believes  that  it  can  not  take  any  effective  political 
responsibility for the programme without substantial evaluation of the structure and role of the 
Galileo Supervisory Authority (GSA), including the legal and practical means through which 

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the  European  Commission  can  exercise 
transparently under accountability to Council and Parliament. 

its  programme  management  responsibility 

In the new situation, the role of the GSA has to be thoroughly reviewed. If the necessity of 
maintaining such a specific EU Agency is confirmed, the GSA may in future have such tasks 
as:  procure  the  new  EGNOS  and  Galileo  concessions,  and  assist  the  Commission  in  the 
development of EGNOS and Galileo applications. In order to assure that the Commission can 
assume its full responsibilities in the development of the programme, it will make proposals to 
align the governance of the GSA to the new situation. 

Preparation of markets is necessary through an early implementation of EGNOS and through 
actions in standardisation, certification, and market awareness-raising11. These measures may 
also  reduce  the  risks  of  revenue  short-falls  for  the  concession  holder  at  a  later  stage  and 
therefore  of  costs  to  the  EU.  Whilst  maintaining  the  system  as  a  civil  system  significant 
revenues could also come from military users. There have been considerable discussions on 
the use of the PRS signal over the past years, this need to be continued12. 

The design risk of Galileo is managed by the public sector as a result of the past decision to 
develop the system on the basis of a public procurement by the European Space Agency of 
two  experimental  satellites13  and 
the  first  four  operational  satellites  and  related 
infrastructure14. It is therefore the role of the EU, with the assistance from ESA, to develop a 
strategy whereby the design risk is mitigated before the remaining risk can be transferred. The 
organisational  and  legal  issues  surrounding  the  design  risk  are  essential  aspects  of  the 
programme implementation. 

In terms of time schedule, timely programme implementation and the launching of satellites is 
essential as, inter alia, the EU can not afford to loose it rights to the use of the relevant global 
satellite navigation frequencies. 

The Commission also invites the Council and the European Parliament to proceed on the basis 
of the following principles:  

Recognise  that  EGNOS  will  achieve  operational  capability  by  early  2008  and 

1) 
immediate action is required to implement its services as a pre-cursor to Galileo. 

Recognise  that  the  European  GNSS  programmes  are  defined,  agreed,  managed,  and 

2) 
overseen at the level of the European Union in the interest of all of its Member States. 

Recognise the strategic nature of the Galileo programme and the critical role of broad-

3) 
based European industrial supply and private sector participation therein. 

11 

12 

13 

14 

Green Paper on Satellite Navigation Applications - COM(2006) 769, 12.12.2006 - and foreseen follow-
up actions. 
In  the  context  of  the  recent  proposal  for  a  European  Space  Policy  COM(2007)  212,  the  Commission 
took the view that civilian space programmes, such as Galileo, have a multiple-use capacity and may 
have military users. 
Giove-A satellite launched in December 2005 and Giove-B satellite be readied for launch late 2007 or 
early 2008. 
The In-Orbit-Validation (IOV) or development contract put in place by ESA and financed by ESA and 
the EC. 

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Retain  the  European  Space  Agency  (ESA)  as  the  procurement  agent  and  design 

4) 
authority on behalf of the European Union, and acting under the latter's authority and rules. 

5) 
The  need  to  introduce  robust  and  fair  competition  in  the  programme  on  the  basis  of 
dual-sourcing and regular competitive tendering in all elements of the programme, wherever 
possible, in order to improve efficiency and decrease dependencies. Due account needs to be 
taken of existing achievements and investments, and of agreements as far as relevant. 

Recognise the need for the strengthening and restructuring of the public governance of 
6) 
the European GNSS programmes on the basis of political responsibility and leadership of the 
Commission, on the basis of proposals by the latter. 

Recognise  the  need  to  provide  confidence  to  downstream  investors  in  services  and 
7) 
applications through firm commitments on delivering Galileo on time, based on fair and non-
discriminatory access to its services. 

9. 

FINANCING OF THE RECOMMENDED SCENARIO 

Present costing, on the basis of the current concession negotiations up to the end of 2006, of 
the scenario continuing with the Merged Consortium reveals a need for the European Union 
to purchase additional satellites before the PPP can be put in place, to mobilise some 2.4 B€ 
for  the  financial  period  2007  to  2013,  to  underwrite  market  risks  through  availability 
payments for the period until 2030 of around 10 B€, and to accept further liabilities for design 
and  termination  risks  as  well  as  for  third  party  liability.  Depending  on  the  actual  revenue 
streams,  the  public  sector  would  recuperate  some  8  B€  under  a  baseline  revenue  scenario. 
This puts into question the advantages of an early PPP approach. 

In  order  to  finance  the  recommended  scenario  of  a  public  procurement  of  the  first 
constellation  and  ensuing  PPP,  the  European  Union  and  its  Member  States  would  have  to 
mobilise a total of 3.4 B€ for the period 2007 to 2013, whereas the budget commitment over 
the entire period will reduce to around 9 B€. The advantages of this scenario are that it offers 
the  most  advantageous  time  line,  the  best  value-for-money,  the  conditions  for  a  subsequent 
PPP  phase  will  be  much  more  clearly  developed,  while  the  overall  budget  commitment 
appropriation is substantially reduced. 

Under none of the scenarios are the current provisions of the financial perspectives sufficient. 
Moreover, all scenarios need an EU Programme Regulation going much beyond 2013. 

Clearly, a political decision to re-profile the PPP as suggested would require agreement on the 
financing  scenario  before  deciding  on  implementation.  In  the  next  months,  the  Commission 
will proceed with an analysis of the implementation details related to the preferred scenario 
and  which  will  be  carried  out  in  parallel  to  the  identification  of  the  additional  financing. 
Notwithstanding,  the  Commission  considers  important  to  advance  with  the  adoption  of  the 
currently proposed EU Programme Regulation to be able to continue with the stabilisation of 
the EGNOS programme and to continue, with the assistance from ESA, with the preparations 
of the preferred scenario.. 

In order to identify the necessary  additional financial means, the Commission,  at this  stage, 
considers exploring the following options: 

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•  Examination of financing possibilities through a targeted increase of the ceiling of Heading 
1A  of  the  financial  framework  in  compliance  with  the  own  resources  ceiling  and  the 
provisions  set  up  in  the  Inter-institutional  Agreement  of  17  May  2006  between  the 
European Parliament, the Council and the Commission on budgetary discipline and sound 
financial management15. This procedure implies both branches of the budgetary authority. 

•  Mobilisation  of  additional  resources  from  the  Member  States  outside  the  Multi-annual 

Financial Framework. 

The Commission will explore these options or their combination together with the Budgetary 
Authority. 

The Commission invites the Council and the European Parliament to: 

•  secure, as a first step, the progress of the EGNOS and Galileo projects, to advance rapidly 

with the adoption of the currently proposed EU Programme Regulation; 

•  examine the possibilities for additional financing; 

•  discuss  and  agree,  on  the  basis  of  a  proposal  that  the  Commission  will  present  by 
September 2007, the modalities on how to proceed in view of the financing gap, including, 
if necessary, a financing mechanism which will cover the entire period until 2030.  

15

OJ C 139, 14.6.2006. 

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ANNEX: Financial modelling of the scenarios 

In  terms  of  judging  the  financial  implications  of  the  retained  scenarios,  the  financial 
modelling is based on early assumptions and extrapolation of crucial data and the results need 
therefore  to  be  viewed  as  approximate  and  for  comparison  purposes.  The  definitive  results 
will depend on the terms of the respective contracts.  

Start  of  full 
operations7 

Total required 
public sector 
budget 
commitment6 

2007-2030 

Scenario 

Total number 
of satellites 
under public 
procurement 

Public sector support2 

Requested 
public sector 
budget in 
perspectives 
2007-20133 

(for satellites 
and 
infrastructure 
under public 
procurement) 

Availability Payments 
(underpinning by public sector) for 
the PPP 
(until 2030) 

Fixed part4: 

- operating cost
- maintenance 
- replenishment 
 debt interest 

Variable part 
(depending on 
number of 
satellites and 
infrastructure 
procured by 
private sector)5:
- debt principal 
- debt interest 
- return on  
 equity 

Continue present scheme, 
and add mitigation 
actions1 

Build an initial 
operational capability 
(IOC) followed by a PPP 

Build the full, first 
constellation (FOC) 
followed by a PPP 

Nominal 

Nominal 

Nominal 

Nominal 

4+4 

2.4 

5.3 

3 - 4 

11 - 12 

Mid-2014 

18 

30 

3.0 

3.4 

5.3 

2 - 3 

10 - 11 

End-2013 

5.3 

0.5 - 1 

9 - 10 

End-2012 

All figures are indicative and in billions of Euros. Further details can be found in the Commission staff working 
document. 

1 

2 

3 

According  to  the  latest  programmatic  analysis  carried  out  by  the  European  Space  Agency,  the 
accumulated delays imply risk mitigation activities and the construction of four additional satellites to 
ensure  the  continuity  of  the  industrial  production  line  between  the  in  orbit  validation  phase  and  the 
first  activities  of  the  deployment  phase.  Moreover,  it  also  implies  the  need  to  protect  the  in  orbit 
validation phase against potential launch failure. This was initially covered by the first satellites of the 
deployment phase.  

In  the  Galileo  PPP  model,  the  public  sector  contributes  with  grants  for  the  deployment  of  the 
infrastructure and with availability payments to underpin the exploitation of the system. The private 
sector contributes with equity and debt.  

The  figures  include  the  part  of  Galileo  procurement  costs  for  the  public  sector,  the  EGNOS 
exploitation costs, and the IOV cost overruns. Estimates are based on ESA costing data, validated by 
existing contracts and the ESA procurement database, and cross-checked against all the submitted bids 
during the entire concession negotiation phase. The effect of the cost of public financial resources is 
not  modelled  in  the  financial  calculations.  Such  costs  are  in  the  range  of  4%  and  applies  to  all 
scenarios and for comparison purposes only affect the difference between 3.4 B€ and 2.4 B€ (i.e. on 

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4 

5 

6 

7 

1B€). The outcome is marginal and covered within the range of the total public budget commitment 
(see 6). 

The  fixed  part  of  the  availability  payment  covers  operations,  maintenance,  and  interest  of  the 
replenishment debt. This is the same for all scenarios as it concerns the operations and maintenance of 
the entire constellation and its replenishment. Data is based on cost estimates from the technical and 
economical studies carried out during the definition phase by ESA and the Commission (GALA, PwC, 
Comparative  System  Studies)  and  cross-checked  against  all  the  submitted  bids  during  the  entire 
concession negotiation phase. 

The  variable  part  of  the  availability  payment  covers  the  debt  service  (debt  principal,  interests,  fees, 
etc) and return on equity injected. This is dependent on the debt and equity that is linked to the size of 
the procurement that the private sector needs to undertake, and the agreed gearing between equity and 
debt.  

The public sector budget commitment concerns the overall direct costs for the public sector by adding 
procurement costs (see 3) and availability payments (see 4 and 5). This covers market risk.  

Start of full operations is important with regard  to the arrival of competing systems. The earlier the 
starting date of full operations for all services and markets, the higher the market share for Galileo is 
expected to be. 

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