EU OFFICIAL BRIEFS ON TURKISH CYPRIOT ASSISTANCE

C O N F I D E N T I A L NICOSIA 000781

SIPDIS

SIPDIS

E.O. 12958: DECL: 05/24/2016
TAGS: EAID PREL PGOV EUN CY
SUBJECT: EU OFFICIAL BRIEFS ON TURKISH CYPRIOT ASSISTANCE
PLANS


Classified By: Ambassador Ronald Schlicher; reasons 1.4 (b)
and (d).


1. (C) Summary: The European Commission is going forward with
plans to implement the delivery of 259 million Euro of
assistance to the Turkish Cypriot community over the next
three years. DG Enlargement's Technical Assistance and
Information Exchange Unit (TAIEX) will begin work immediately
and could send a permanent official to an office in the north
before the June 25 Turkish Cypriot municipal elections.
Plans for the first tranche of 38.5 million Euro have also
been distributed to the EU Member States for their approval
at the June 30 PHARE Management Committee meeting. If
approved, most programs would begin in January 2007. Plans
for a much larger second tranche are expected to be
considered at PHARE meetings this fall.


2. (C) DG Enlargement will manage the assistance program and
is currently recruiting as many as 20 international staff,
who will begin arriving in Cyprus in early September. While
the main office will be in the same building as the EU
Representation in Cyprus (i.e., in the Greek Cypriot south),
the head of the program will report directly to Brussels and
will have a "project office" in the north, where most
employees will work. Commission officials admit that they
have yet to work out many thorny issues resulting from the
many GoC redlines, the non-recognition of the Turkish Cypriot
authorities, and the abundance of property in the north owned
by Greek Cypriots displaced in 1974. End summary.


3. (SBU) DG Enlargement Turkish Cypriot Community (TCC) Task
Force official Andrea Batista briefed us May 22 on the latest
thinking regarding the EU's assistance plans for the area
administered by Turkish Cypriots. 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. In April, the Member States approved at
the working level (in COREPER) the use of an additional 120
million Euro for this purpose, bringing the total in line
with the European Commission's original recommendation of 259
million Euro. The additional 120 million Euro, however, is
still subject to formal political (i.e., Council) approval.


4. (SBU) This new money supplements an earlier EU aid program
for the north. In 2003, the EU approved an assistance
package for the Turkish Cypriots of 12 million Euro, which
was administered primarily through the UNDP Partnership for
the Future (PFF). This included infrastructure projects in
the three major Turkish Cypriot municipalities (Nicosia,
Famagusta, and Kyrenia),a modest business-support program,
and a demining effort. A small part of the 12 million was
also used by DG Enlargement's Technical Assistance and
Information Exchange Unit (TAIEX) to help bring the Turkish
Cypriots closer to the EU by providing information and
training related to the EU,s body of law known as the acquis
communautaire. This program, however, expires in June 2006
and almost all of the 12 million Euro has been spent.


5. (SBU) For the 138 million Euro, a new provision was
inserted in the regulatory document. Any project over 5
million Euro or that may impact property owned by Greek
Cypriots displaced in 1974 must be submitted to the EU,s
PHARE Management Committee at least two months in advance and
be approved by PHARE before it can begin. PHARE, which
formally stands for "Poland-Hungary Assistance for
Restructuring their Economies," was formed in 1989 to oversee
EU aid to Poland and Hungary, but quickly expanded to include
assistance to all of Eastern Europe, the Balkans, and the
former Soviet Union. The PHARE Management Committee consists
of one representative of each of the 25 EU Member States,
including Cyprus. Formally, decisions are made by qualified
majority vote, meaning no one country has a veto. In
practice, however, most decisions are made by consensus.


6. (C) According to Batista, the new assistance will be
administered through three mechanisms. A little less than 5
million Euros (thus avoiding the need for PHARE approval)
will be given to TAIEX, allowing it to begin action
immediately. A TAIEX official from Brussels could be on the
ground even before the June 25 Turkish Cypriot municipal
elections, assuming Turkish Cypriot approval. The private
German company GTZ, which has been contracted to provide
TAIEX with logistical support world-wide, will establish an
office in its own name in the north, which will house the
TAIEX official and several local staff.


7. (C) Batista reported that another 9.5 million Euro will be
provided to the EU-funded UNDP-PFF program to continue its
work. (Note: Batista was not sure if this required PHARE
approval, but we note that it is included in the TCC Task
Force's first submission to PHARE). Specifically, the new
money would go toward upgrading of urban and rural
infrastructure (including modernization of water and
sanitation systems, and development of youth and cultural
centers) and supporting private-sector development.


8. (C) According to Batista, however, the bulk of the aid
will be administered by DG Enlargement's TCC Task Force.
(Earlier suggestions that this role might be fulfilled by the
European Agency for Reconstruction have been rejected.) The
TCC Task Force is currently recruiting in Brussels as many as
20 new international staff for this purpose, the first of
whom should arrive in Cyprus in early September. The Task
Force's main office will be in the south in the same building
as the EU Representation office. Only two or three officials
will work there, while the rest will work in a "project
office" in the north. So far, 10 potential sites with clear
Turkish Cypriot titles have been located in north Nicosia,
including one in the same building as the U.S. "North
Office."


9. (C) Late last month, the Task Force submitted to the
Member States its plans for the first tranche of 38.1 million
Euro for their consideration. The plan, which is very
general and does not mention specific Greek Cypriot property
which may be affected, will be formally discussed at the June
30 PHARE committee meeting. Assuming PHARE approves the
plan, the Task Force will put its various projects out to
bid, a process which should last six months. Thus,
implementation of the plan could begin as early as January
2007 and will last through July 31, 2009. The plan consists
of:

-- 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-PFF (see above).


10. (C) Batista noted that the TCC Task Force is preparing
plans for the remaining funds (i.e., the 101.5 million plus
the expected additional 120 million Euro) and plans to submit
this in time for consideration at the PHARE Management
Committee's meeting in either September or October. The
contracting process for the various programs in the second
tranche would also take around six months, suggesting that
these as yet unspecified projects could begin as early as
spring 2007.


11. (C) Batista reported that the European Commission was
stressing to both Turkish and Greek Cypriots that this aid
project will be run by the Commission out of Brussels. The
head of the TCC Task Force in Nicosia will report directly to
the newly appointed Task Force head, Andrew Rasbash, who
formally replaced Leopold Maurer earlier this spring, and not
the Greek Cypriot head of Delegation, Themis Themistocleous.


12. (C) Batista noted that the Task Force expected the GoC to
use its EU membership to aggressively protect what it
perceived as its interests, and the Turkish Cypriot
authorities to be very sensitive to any appearance of GoC
influence over the program. Thus, many thorny issues
remained unresolved and would be dealt with only as they

arose. For now, the Commission was concentrating on
identifying the location of offices (both sides are demanding
the main office be in their community). On which banks could
be used to transfer funds connected with the program, Batista
thought that the EC would be able to work with any bank that
was internationally-recognized. Thus, branches of Turkish
banks could be used. Similarly, the Task Force's intent is
to leave it up to its contractors whether to ship goods in
through Turkish Cypriot or Greek Cypriot ports. Batista
noted that a Finnish company that won a Turkish Cypriot
energy contract for four 15 kw turbines would be shipping the
turbines to Famagusta during the Finnish EU presidency.


13. (C) Comment: Like the U.S. funded bi-communal and
economic development programs (ACT and CyPEG, respectively),
the EU assistance will increase the likelihood of the
reunification of the island. A more prosperous,
better-trained Turkish Cypriot community aligned with EU
standards and practices will make any future settlement more
workable. It will also lower the perceived costs the Greek
Cypriot community will have to bear to finance any
settlement. In the short term, however, the EU assistance
may actually increase tensions between the two communities as
issues surrounding the implementation of the aid program,
such as location of offices, use of banks, etc., become
battles in the overall war. While we navigate these waters
every day in running our programs, the EU -- with the GoC
serving in its decision-making structures -- may lack the
flexibility needed to avoid the rocky shoals. End comment.

SCHLICHER