UN CAPITAL MASTER PLAN: REQUEST FOR GENERAL

1. ACTION REQUEST: Discussion on the capital master plan
(CMP) is expected to begin as early as the week of November


13. USUN requests guidance on all items highlighted in this
cable in time for Fifth Committee discussions.



2. SUMMARY: The fourth annual report on the capital master
plan, available in draft form (emailed to IO/MPR on 10/31),
provides an update on the various elements of the project
since the issuance of the third annual report (A/60/550)
almost one year ago. The Secretary-General's report updates
the General Assembly (GA) on a number of issues: status of
design and pre-construction work; the current project
schedule, including swing space; cost information, with and
without scope options; status of appropriations and
expenditures, an advisory board, procurement and financial
disclosure; and financing options. As anticipated, the
Secretary-General (SYG) requests the GA to approve a budget

SIPDIS
and a financing mechanism for the remainder of project costs,
as well as a letter of credit facility and reserve fund. The
report also notes the need for an appropriation of $42
million that will be required in 2007 for "early action
work." END SUMMARY.

STATUS OF WORK AND SCHEDULE: STILL ON SCHEDULE


--------------------------

-



3. Based on the GA decision (resolution 60/282) on strategy
IV in June 2006, the UN has begun design of the temporary
conference building and has begun a real estate search for
office swing space. Construction of the temporary conference
building will proceed after a revised project budget and
funding mechanisms are agreed by the General Assembly. The
selection of the construction manager is underway and is
anticipated to be awarded by late 2006. Under the current
schedule for the project, the renovation will commence in
early 2008 and finish in mid-2014. This is based on the
assumption that decisions on scope, budget and financing
mechanism are made during the main part of the sixty-first
session.


UPDATED COST INFORMATION: COSTS HAVE RISEN IN PAST YEAR


--------------------------



--------------------------





4. The overall cost of the project, estimated at $1,587.8
million in November 2005 has increased to $1,646.3 million as
of August 2006, excluding scope options. The change in the
estimate consists of the following:
-$4.5 million net increase for construction costs, owing to
updated costs based on January 2006 prices;
-$16.5 million net reduction for contingencies, due to an
update of prices and reflection of actual (vs. estimated)
fees and design work;
-$62.6 million net increase for professional fees and
management costs, owing mainly to a difference in
representation from prior charts- escalation related to fees
is now counted here rather than in the escalation line- but
also due to increases in expected construction manager fees,
fees related to on-site relocation and an allocation for
potential additional expert services;
-$42.3 million net reduction in forward pricing escalation,
reflecting a transfer of amounts to other line items based on
work done, as well as an increase to reflect changes in the
industry;
-$50.2 million increase in swing space, due to the higher
asking price for rents in midtown Manhattan and changes to
the cost of the temporary library and conference functions.



5. In addition to the aforementioned changes to the cost for
the base scope, the Secretary-General's report also provides
an update on scope options related to security, redundancy
and sustainability. In resolution 57/292, the GA asked the
SYG to continue to design for these options, but deferred a
decision on whether to include these elements in the base
project. The SYG requests a decision on these options at
this time and the inclusion of the costs of implementing
these items within the budget approved by the GA. The report
divides the options into two tiers. In total, the SYG
proposes that the GA add $166 million for additional blast
protection and other security measures, $36.5 million for
additional redundancy, and $27.9 million for sustainability,
for a total additional cost of $230.4 million. COMMENT: It
is unclear why the options are split into two tiers as all of
the items in both tiers are recommended for adoption by the
GA. Also, there is little explanation regarding the
significant increases related to security or why certain
options are not recommended for adoption. END COMMENT.



6. If the GA approves the addition of the recommended scope
options, the total revised estimate comes to $1,876.7


million. The chart below outlines the changes from the
figures provided in A/60/550:

A/60/550 Current

Construction cost 734.6 739.1
Contingencies 184.4 167.9
Professional fees, mgmt costs 144.3 206.9
Forward pricing escalation 360.2
317.9
Subtotal, renovation 1,423.5 1,431.8

Office swing space 96.4 129.0
Library swing space 13.2 19.4
Conference swing space 54.7 66.1
Subtotal, swing space 164.3 214.5
Total, estimate 1,587.8 1,646.3

Scope options 161.0 230.4
Total with scope options 1,748.8
1,876.7


FINANCING ISSUES


--------------------------





7. Letter of Credit: The SYG report notes the need for a
letter of credit to be available during the construction
phase in order to comply with host country construction
industry practice. It is expected that the letter of credit
would be bid through the procurement process. A fee would be
charged in order to establish a letter of credit, at
somewhere between .05% and .5% ($3m-$21m over the
construction period). The fees would be payable quarterly
and in advance and it is possible that management and
amendment charges may also be incurred. The amount of the
fee for the letter of credit facility will be larger earlier
in the project, when the unpaid balance of costs are higher,
but will decrease as the balance declines. The SYG requests
approval of the letter of credit and the ability to draw down
on it as needed.



8. Charges related to letter of credit: The report indicates
that, in order to create a mechanism that ensures that only
Member States that do not pay "on time and in full" will bear
liabilities associated with the cost of drawing down on the
letter of credit (i.e. interest charges), a consensus must be
reached on the definition of "on time and in full." The
report suggests that certain exceptions and clarifications be
made to the Financial Rules and Regulations, to apply to the
capital master plan only. These clarifications would include
an understanding that a Member State is considered late, and
therefore can be penalized for any interest charges incurred
by the UN, if it has not paid its full assessment within the
thirty day period set out by regulation 3.4 of the Financial
Rules and Regulations. Based on this understanding, the
Secretary-General proposes a complicated scheme to calculate

SIPDIS
individual Member State shares of interest charges. COMMENT:
USUN will follow up with the UN with regard to this proposal.
This convoluted proposal appears to be an attempt to address
the fact that under normal practice with regard to assessed
contributions, no penalty is charged to a Member State for
not paying its assessment in full within the thirty day
period set out by Regulation 3.4 of the financial rules and
regulations. In the case of the CMP, the UN might incur a
penalty due to lack of payments and therefore there must be,
only for the CMP, a way to address this possibility. END
COMMENT.



9. Assessments: With regard to assessment options, the
report notes that Member States can choose from three
options: one-time assessment, multi-year assessment
(recommended at five years), or a mix of one-time and
multi-year assessments. In the latter two options, due
consideration must be given to the issue of scale of
assessments, as the scale will change if the assessment
period is longer than three years. The report presents
several ideas for addressing this issue, including fixing the
scale at 2007 rates and using a three-year period for
assessments.



10. Working capital reserve fund: The SYG reiterates the
need to establish a working capital fund of $45 million to be
used to cover temporary cash flow deficits. The assessment
for the fund, if approved, would occur in 2007 and any
credits remaining at the end would be returned to Member
States.



11. Expenditures: The Secretary-General notes that total
expenditures for 2007 to complete the design phase and for
the construction, fit-out and related requirements of the
conference, office and library swing space, are expected to
be $193.7 million. To date, the GA has appropriated $152


million. Therefore, the Secretary-General requests the GA to
appropriate $42 million for these "early action" 2007
expenses. COMMENT: In past discussions in the Fifth
Committee, the idea of "early action" funding has not been
mentioned. This will therefore likely be a point of
discussion in the Committee; USUN wonders why this funding
was not requested in the previous tranche. It is not clear
when in 2007 this appropriation would be needed and how it
would impact the timing of the rest of the assessment for the
year. USUN intends to clarify these issues with the UN. END
COMMENT.



12. The revised estimate of $1,876.7 million would reflect
the estimated cost of an updated scope of work. It does not
include the cost of the fees associated with a letter of
credit or an additional assessment for the working capital
fund. If the GA agrees to these items, their respective
costs would need to be added to the current estimate.
BOLTON