BULK OF EU AID TO TURKISH CYPRIOT COMMUNITY

C O N F I D E N T I A L NICOSIA 001114

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/13/2016
TAGS: EAID PREL PGOV EUN CY
SUBJECT: BULK OF EU AID TO TURKISH CYPRIOT COMMUNITY
DELAYED DUE TO GREEK CYPRIOT POWER PLAY FOR CONTROL OF
ASSISTANCE PROGRAM

REF: NICOSIA 781

Classified By: Ambassador Ronald Schlicher. Reasons 1.4 b and d.


1. (U) This is an action request. Please see paragraph 10.


2. (C) Summary: EU Member States failed to approve the
first "quick" phase of projects under the European
Commission's 139 million Euro assistance program for the
Turkish Cypriot Community. At the July 3 PHARE meeting,
negative votes from Cyprus and Greece and abstentions from
seven others prevented the European Commission from receiving
the qualified majority needed to proceed with tenders for
38.5 million Euro in programs. Before the meeting, the GoC
lobbied hard to postpone approval, arguing that it had not
been adequately consulted and needed more details, especially
on how the aid might affect property belonging to Greek
Cypriots displaced in 1974. Commission officials reported
that they had consulted with the GoC, but that the GoC seemed
to be holding out for co-decision authority rather than just
consultation. The Commission plans to go ahead with the
formal opening of an office in the north and has already
started hiring staff. Some small programs that did not
require PHARE approval will be able to begin immediately.
The bulk of the programs, however, will have to wait until
approval at the next PHARE meeting currently scheduled for
October 20. EC officials warn that failure to approve the
aid in October will effectively kill the program, as all the
aid must be obligated by the end of the year and it will take
at least two months to put out tenders and award contracts.
End summary.

PHARE Committee Fails to Approve Aid
--------------

3. (SBU) On February 27, 2006 the EU approved Council
Regulation 389/2006 making 139 million Euro available to
support economic development in the Turkish Cypriot
Community. According to the regulation, all assistance over
5 million Euro or that might affect property of displaced
Greek Cypriots must be approved by the Member States, PHARE
Management Committee, which was originally established in
1989 to advise the Commission on assistance to Poland and
Hungary. The PHARE Committee consists of one member from
each EU Member State, and its decisions are taken by
qualified majority. In April, the Commission submitted to
the PHARE Committee plans for the first phase of the programs
valued at 38.5 million Euro (see reftel) Specifically the
Commission proposed spending:

-- 21.2 million Euro for a solid-waste sector program,
including the creation of a waste-management plant,
installation of a medical-waste treatment facility and
rehabilitation of garbage dumps, including the Dikmen site,
which has become an ecological disaster.

-- 900,000 Euro for a feasibility study on the rehabilitation
of the Lefke mining area. (Note: The Lefke Copper Mine,
which belonged to the U.S. Cyprus Mining Corporation, was
forcibly expropriated by the Turkish military in 1974 and
subsequently "leased" to European mining interests, which
conducted activities virtually without oversight or
regulation. End note.)

-- 5 million Euro for upgrading the management of the energy
sector. This will include installation of metering systems,
reactive energy-compensation devices, and a Supervisory
Control and Data Acquisition System (SCADA).

-- 1.5 million Euro for dissemination of information on the
European Union political and legal order.

-- the remaining 9.5 million is for promoting economic and
social development through the UNDP-Partnership for the
Future program.


4. (C) Commission officials and EU Ambassadors reported that
the July 3 PHARE Management Committee, however, failed to
approve this first phase of programs, delaying their start by
at least two months. The GoC had lobbied aggressively to


have the meeting postponed, arguing that it had not been
properly consulted, especially on how these projects might
affect property owned by Greek Cypriots displaced in 1974.
In response the European Commission argued that they had
consulted the GoC fully and would only be able to answer the
GoC's property concerns once feasibility studies, which were
the first stage in all the proposed projects, had been
completed. One senior DG Enlargement official suggested that
a significant problem is that the GoC appears to have chosen
to interpret the Commission's commitment to consult with it
as being the same as giving the GoC co-decision authority.


Seven Abstentions Prevent Qualified Majority
--------------

5. (C) According to DG Enlargement official Miriam Ryan, who
attended the meeting, the GoC representative forced an
immediate vote to postpone discussion of the Turkish Cypriot
aid until the October meeting. This proposal was defeated
and DG Enlargement formally presented the proposed projects.
Only the Greek and the Latvian representatives spoke up in
favor of the GoC position. In the end, only Cyprus and
Greece voted against formal approval of the projects. Seven
countries (Latvia, Lithuania, Malta, Czech Republic, Hungary,
Spain and Portugal),however, chose to abstain, thus denying
the Commission the qualified majority needed for approval of
the projects. (Each EU Member State gets a set number of
votes loosely connected to its population. 232 votes -- out
of 321 -- are needed for a qualified majority. Because of
the abstentions, the Commission only received 213 votes in
favor).


6. (C) Ryan attributed the abstentions to both a sense of
solidarity among new member states and the fact that the
representatives of several countries had not received any
firm instructions on the issue, and thus were unsure how to
act. DG Enlargement official Alessandra Viezzer went
further, suggesting that Spain abstained because its sees
parallels between north Cyprus and Gibraltar, and that
Portugal abstained because Spain did. Latvia, Lithuania and
Malta had abstained out of solidarity with another small
member state. She was puzzled, however, over the Czech
Republic and Hungarian abstentions, attributing it to the
relative inexperience of their representatives, who appeared
not to understand that an abstention had the same effect as a
"no" vote. Two local EU Member State Ambassadors, however,
blamed the setback partly on the Commission, which they said
had mismanaged the meeting and had not adequately taken stock
of Member State positions before calling a vote.

Effect on Assistance
--------------

7. (SBU) The vote has put the first phase of EU programs on
hold pending the next meeting of the PHARE Committee
currently scheduled for October 20. At that meeting, the
PHARE Committee will also be asked to approve the second
phase of programs worth over 90 million Euro. Under EU
rules, all the 139 million Euro must be obligated by the end
of the year or lost. Since it will take a minimum of two
months to put out tenders and sign contracts, Commission
officials warn that failure to gain PHARE approval at that
meeting would significantly cripple the EU assistance
program. To ensure adequate time, DG Enlargement officials
are exploring ways to possibly expedite PHARE approval, such
as calling an extraordinary PHARE meeting or enabling
approval to occur through a written procedure.


8. (SBU) According to Ryan and local DG Enlargement
representative Andrea Batista, the best-case scenario
following the vote is that, instead of having an initial
phase of projects beginning in January and a larger second
phase of projects beginning in spring, all major projects
will now start together in April or May 2007. Nevertheless,
some small projects will be able to begin immediately. For
instance, the planned acquis-related training programs
offered by DG Enlargement's TAIEX (Technical Assistance and
Information Exchange) Office do not require PHARE approval as
their budget is under 5 million Euro. A TAIEX official is
already on the ground and TAIEX programs will start soon.


The vote will also not affect the opening of the European
Commission's office in the north and the hiring of new staff.
While the Commission's "main" office will be in the EU
Representation's building in the Greek Cypriot south -- where
two or three DG Enlargement officials will sit -- the
Commission will house as many as 20 DG Enlargement employees
in a satellite office in north Nicosia. The formal opening
of this office, however, may be postponed from July to
September. DG Enlargement is also finding it difficult to
hire professional Turkish Cypriot staff due to existing EU
hiring procedures and practices.

Turkish Cypriot Response: Further Proof EU Can't Deliver
-------------- --------------

9. (C) The vote has intensified doubts within the Turkish
Cypriot Community on whether the EU will ever be able to
deliver on its "promises." It has also increased fears that
any aid that does emerge will come with "unacceptable" Greek
Cypriot strings attached. Turkish Cypriot "President"
Talat's public response was typical. On July 5, he told the
press that the vote was: "not a surprise for me. The Greek
Cypriots are doing everything to prevent aid to the Turkish
Cypriots. It has been proven once again that it is not
possible to do something good for the Turkish Cypriots in a
mechanism (such as the EU) to which the Greek Cypriots
belong."

Comment and Action Request
--------------

10. (C) GoC officials have told us that they are unhappy
with the Commission's consultations over the EU aid program,
which they unfavorably compare to our consultations with them
on USG assistance to the Turkish Cypriot Community. While
the GoC may have some legitimate concerns over the design of
some of the projects, their opposition appears to be more of
a power play for control over the EU's assistance program,
something DG Enlargement is loathe to give up. It also
appears the GoC would shed no tears if EU assistance
continued to be blocked by the PHARE Committee, as long as
the GoC was not regarded as the villain of the piece. No
matter how the DG Enlargement-GoC power struggle unfolds, it
is likely to have consequences over GoC expectations for
influence over our own assistance. The delay in the EU's
program has also further undermined the EU's reputation
within the Turkish Cypriot north. This is especially the
case at the moment, as the EU struggles to deliver on its
parallel promise to establish some sort of direct- trade
outlet for the Turkish Cypriots. Post recommends that the
Department ask the Embassies in the seven abstaining
countries to lobby for approval of the EU assistance at the
next PHARE Committee meeting. End comment.
SCHLICHER