Reform Package To Give ESA More Budget Flexibility

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  Space News Business

Reform Package To Give ESA More Budget Flexibility

By PETER B. de SELDING
Space News Staff Writer
posted: 21 January 2008
09:40 am ET





PARIS





European Space Agency (ESA) governments are expected to give final endorsement in March to a financial-reform package that will give the




agency new leeway in managing its budget.

The goal is to reduce red tape and put most of the agency’s budget practices in tune with the multi




year nature of space programs.

“The good thing about our budget process is that our member states commit to a program to its end,” ESA Director-General Jean-Jacques Dordain said during a Jan. 14 press briefing. “I am protected against the possibility of not having money to complete a program, and the member states are protected against budget overruns. But one consequence is that I have 57 budgets at ESA – a budget for each program. And each is watertight – I cannot transfer money from one to another. There is a total lack of flexibility.”

ESA governments agreed in principle in December 2005 to implement the reforms. A final decision is expected in March at a meeting of the agency’s ruling council.

Putting the package into place is the job of Ludwig Kronthaler, ESA’s director of resource management, who arrived at the agency in December 2006.



In a Jan. 16 briefing, Kronthaler said permitting ESA management to move money from budget to budget will help put an end to the occasional cash shortfalls the agency has witnessed in certain large programs over the years.

These shortfalls have occurred even as other ESA programs have had temporary cash surpluses. Sometimes, for example, shortfalls occur because contracts have not been signed and the money has not yet been released to industry.

Whatever the reason, ESA’s rules have prevented it from taking cash from a program in surplus to tide over another program. On several occasions, the agency has had to take out bank loans to cover a




cash shortfall.

Kronthaler
said some costs will be incurred as the agency must keep close watch on how much money is taken from a program. ESA’s geographic-return policy, which guarantees that each government gets most of its investment back in the form of contracts to its domestic industry, requires that each program maintain its own budget.

But overall, Kronthaler said, the financial reform package will result in cost savings to ESA.



Beyond improving ESA’s internal cash-flow management, the financial reform




also is intended to make it easier for the agency to be a contractor to outside customers. The biggest example of this is the Galileo satellite-navigation project, in which ESA’s customer and paymaster is the executive commission of the 27-nation European Union.



Kronthaler said ESA and the commission are negotiating how to reflect certain ESA overhead charges in the Galileo budget. This has been a subject of debate in the past. On




one occasion, ESA’s science program said its share of the budget to finance certain ESA facilities was too high given its use of those facilities.

Kronthaler
said ESA and the commission will agree on what he called a “cost causation” principle, where charges incurred directly or indirectly by Galileo will be billed to the commission.

But there are some charges that all ESA program budgets must support even if the spending has no direct cause-and-




effect relationship within




a given program. “That would be the case for my salary, for example, or for the director-general’s office,” Kronthaler said.

In these cases, he said, the agency’s finance officers apply “the principle of solidarity” to affix charges.




Under the priniciple of solidarity, a program such as Galileo is obliged to pay some portion of ESA’s overhead charges even when those charges are unrelated to the program. He said ESA




still is negotiating with the commission exactly how to implement this for Galileo.