EC FUNDING FOR UNRWA AND PALESTINIAN AUTHORITY IN

C O N F I D E N T I A L SECTION 01 OF 03 BRUSSELS 000752

SIPDIS

DEPARTMENT FOR PRM/ANE - RWARD; E - ADERSE; EUR/ERA -
KALLEGRONE; NEA; DEPARTMENT PLEASE PASS USAID - ANE AND DCHA

E.O. 12958: DECL: 02/20/2014
TAGS: KPAL PREF EAID UNRWA EUN USEU BRUSSELS
SUBJECT: EC FUNDING FOR UNRWA AND PALESTINIAN AUTHORITY IN
2004: DEMARCHE RESPONSE

REF: STATE 29074

Classified By: PRMOFF Marc J. Meznar. Reasons 1.4 (b) and (d).


1. (C) Summary. The European Commission (EC),through
funding mechanisms in ECHO, DG RELEX and EuropeAid, will
continue to provide substantial funding for vulnerable
Palestinians, as well as for the Palestinian Authority, in

2004. However, it does not have immediate plans to respond
to UNRWA's emergency appeal. The EC has long advocated that
UNRWA incorporate the repeated "emergency appeals" into its
core budget. End Summary.

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EC Downbeat on UNRWA Emergency Appeal
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2. (C) On 2/18, PRMAsst delivered reftel demarche to Giuseppe
Angelini, ECHO desk officer for UNRWA and Palestinian issues,
and Christian Berger, UNRWA Aid Counselor for DG RELEX.
Though there was agreement that the situation for
Palestinians, specifically those in the occupied territories,
has deteriorated substantially, both Berger and Angelini
expressed reservations when asked to increase funding to
UNRWA's emergency appeal. Angelini chided UNRWA's "emergency
appeal" process and emphasized that the EC does not look upon
the Palestinians as victims of an immediate, short-term
crisis but rather as casualties of a long and protracted
emergency. Berger noted that although ECHO's response to
UNRWA's emergency appeals has declined, total funding for
UNRWA had actually increased. Berger explained that for this
reason the EC has reallocated significant funding for
Palestinians to the MEDA II program, the principle financial
instrument of the EU for the implementation of the
Euro-Mediterranean Partnership, and limits its use of
humanitarian and emergency accounts.


3. (C) According to Berger, a feeling of mistrust between the
EC and UNRWA is growing out of this issue of
non-responsiveness to the emergency appeals. Berger said the
EC has repeatedly urged UNRWA to move away from emergency
appeals and to incorporate these long-standing needs into the
main budget. He opined that UNRWA utilizes the "sexy"
programs as bait for its emergency appeals thereby
undermining legitimate needs assessment by donors. According
to Angelini, these funding strategies have prompted ECHO to
increase funding to NGOs vis a vis funding for UNRWA.

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Support to Vulnerable Palestinians to Continue
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4. (C) Angelini indicated that ECHO plans to provide roughly
35 million euros to assist vulnerable Palestinians in the
Middle East. He added that the amount could increase, as was
the case in 2002 and 2003 "when UNRWA eventually, but not as
a pre-planned choice, received about one third of the euros
38 million that were finally allocated to Palestinians." He
said ECHO will adopt a first funding decision near the end of
April, which he estimated to total around 25 million euros,
with about one third responding directly to the UN's 2004
consolidated appeal (CAP). Angelini said that the largest
portion of these CAP-related funds probably will be allocated
to UNRWA and WFP.


5. (C) Angelini also described ECHO's planned response of
shelter needs. To address the house demolitions in Rafah,
ECHO will probably make one million euros available to UNRWA.
Another euros 4 million has been reserved for shelter needs,
but is pending discussion with UNRWA and the results of the
June Geneva Conference. Angelini emphasized that ECHO does
not make allocations by agency, but instead based upon an
assessment of the operational capacity of its implementing
partners and therefore cannot "plan" exactly how much they
"intend to contribute specifically to UNRWA this year."

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Support to the Palestinian Authority
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6. (C) Based on information obtained during the 2/18 meeting
with Berger and additional information obtained by USAID
Development Counselor on 2/19 from DG RELEX, the EU's
financial support to the Palestinian Authority (PA) is
currently under discussion and should be proposed within the
next week. (Note. The OLAF report on alleged irregularities
on the use of EC funds is due to come out in March. While
the EC does not expect anything dramatic, their ability to
deliver on the 2004 budget is directly related to the OLAF
findings. End Note.) Funding decisions are based on a
four-year cycle, with the 2002-2005 cycle nearing its end.
Though there is a desire to match last year's funding amount
of 80 million euros to the PA, this year's contribution may
be smaller due to overall budget constraints. The EC's
strong preference is to provide support through the World
Bank Trust Fund but will do so only if their contributions
are matched by other donors. They will be actively seeking
support for matching funds from other donors, including EU
Member States, Japan, Norway, Arab League, the U.S., etc.


7. (C) On the issue of disbursements from the 2003 budget
support fund, the first tranche of 40 million euros has been
deposited into a single Treasury account for the PA budget
and is currently pending review. The EC has a certifier and
an Ernst & Young auditing team to review and release payment
based on satisfactory documentation. Of this first tranche,
6 million euros has been released, with the remaining euros
34 million euros under review. Both sources suggested that
20 million euros could be released shortly.

8. (C) The second tranche of 40 million euros is much more
complicated; it has not yet been deposited because certain
conditions must first be met. The conditions include pension
contributions, external audit and understandings on the
salary payments for the security services through deposit
accounts. (Note. These conditions were made at the request
of the PA during prior consultations with the EC. End Note.)
A meeting between PA Prime Minister for Finance Salam Fayyad
and President Prodi on 2/18 helped to clarify the problems
surrounding security payments. According to DG RELEX, Fayyad
now has 40 percent of all security personnel receiving salary
payments through deposits into their accounts. He would like
to expand this to the remaining 60 percent within the next
few weeks, but he is facing "fierce resistance". PM Qurei
told HiRep Solana this week that the PA cabinet has taken a
decision to begin all salaries under the bank transfer
method, but was vague on how/when this would be implemented.
The EC agreed to look at possibilities over the next few
weeks. RELEX stressed that although the funds are currently
unavailable, they can be used as collateral to acquire loans
and pay salaries. In essence, it should not be seen as a
substantial hindrance to the functioning of the PA.

SCHNABEL