UN CAPITAL MASTER PLAN: GENERAL ASSEMBLY APPROVES

UNCLAS USUN NEW YORK 000053 SIPDIS SIPDIS E.O. 12958: N/A TAGS: AORC UNGA KUNR SUBJECT: UN CAPITAL MASTER PLAN: GENERAL ASSEMBLY APPROVES FINANCING PLAN AND BUDGET REF: A. USUN 2116 ¶B. SECSTATE 190201 ¶C. USUN 2194 ¶D. SECSTATE 193094 ¶E. USUN 2228 ¶F. SECSTATE 198796 ¶1. SUMMARY: After several years of debate over how to finance the project, during which time the cost has significantly increased, the General Assembly (GA) decided that Member States should be directly assessed for their share of the total costs for the UN Capital Master Plan (A/61/251). The General Assembly also approved a project budget of $1,876.7 million, the establishment of a letter of credit facility, and a $45 million working capital reserve fund. The resolution includes U.S. language emphasizing the importance of the project staying on schedule and within budget and does not include language critical of the U.S. as host country. Due to the late issuance of the Secretary-General's report, the Fifth Committee did not have SIPDIS much time to consider the very technical issues related to the financing of the project. However, since all delegations desired to reach a conclusion on the topic during the main session of the 61st UN General Assembly in order to allow the project to move ahead without further delay, the Committee worked through many important issues in a generally cooperative spirit. Discussions principally focused on issues related to the letter of credit and the amount of time Member States would have to make payments. END SUMMARY. ¶2. The Fifth Committee made all the decisions requested by the Secretary-General in his report, including approving a project budget, deciding on a financing plan, agreeing to the establishment of a letter of credit facility, and creating a working capital reserve fund. At this stage, the General Assembly has made all of the necessary decisions that are required for the Capital Master Plan (CMP) to move forward. It is now up to the Secretary-General to implement the project and to ensure the work stays on schedule and within budget. The GA will continue its oversight of the project through yearly progress reports. ¶3. Pre-construction work will continue in 2007, with construction expected to begin in early 2008. In order to ensure that the Secretary-General has obligation authority equal to expected expenditures in 2007, the GA approved an additional appropriation of $42 million. In combination with 
previous appropriations, this amount provides authority for expected spending in 2007. The cash required to fund this appropriation will come from the 2007 assessments of Member States and does not represent an additional cost. STAYING ON SCHEDULE AND WITHIN BUDGET -------------- ¶4. The GA approved a project budget of $1,876.7 million, including additional scope options for security, redundancy and sustainability. This budget level does not include any fees associated with a letter of credit facility; those costs will be assessed separately. The resolution includes U.S.-initiated language that emphasizes the importance of staying on schedule and within budget. The GA requested the Secretary-General to make every effort to avoid budget SIPDIS increases through sound project management practices and to ensure that the CMP is completed within the approved budget and time schedules. There is also language emphasizing the importance of effectively managing the multiple relocation of staff that will be necessitated in order to keep the entire project on schedule. Finally, noting that forward pricing escalation is already included in the approved budget level, the General Assembly requested the Secretary-General to provide options on how to remain within the approved budget level in the unlikely event the cost will exceed the approved budget. LETTER OF CREDIT -------------- ¶5. Members of the Group of 77 and China (G-77) were particularly concerned about the letter of credit, and in particular, possible drawdowns, especially if the normal thirty-day rule applied for payments. (NOTE: The UN Financial Rules and Regulations state that Member States have thirty days from receipt of an assessment letter in which to make their payments. Most Member States do not make their payments in this time period, but there are no punitive actions for not doing so. In the case of the CMP, those Member States that do not make their payments in full and within the prescribed payment period will be assessed a portion of the interest charges incurred from a drawdown on the letter of credit. END NOTE.) Based on these concerns, the G-77 sought to defer a decision on the letter of credit and make an exception to the thirty-day payment period for CMP assessments, suggesting a 120-day period to make payments and to be considered "on time." The EU, CANZ, and Switzerland preferred the normal 30 days and resisted attempts to lengthen the payment period. After being provided clarifications from the Secretariat regarding the need for the letter of credit (and the need for a decision on it at the main session of the General Assembly),the G-77 agreed to move ahead with its establishment as part of a larger deal that would include a longer payment period. ¶6. The resolution therefore allows the Secretary-General to proceed with the establishment of a letter of credit as well as with any drawdowns that may be necessary. In agreeing to drawdowns, the GA also requested the Secretary-General to advise Member States, as far in advance as possible, but preferably ninety days in advance, if a drawdown was likely. The GA also agreed to allow the Secretary-General to assess Member States for their share of the interest charges related to the drawdown, using the methodology proposed in his report to determine each Member State's share. Only Member States that have not paid their full assessment within the 120-day payment period AND whose lack of payment caused the need for a drawdown will be charged. Therefore, a Member State whose payment is simply late, but does not cause a cash flow problem, will not be charged. As instructed, USDel stated that the U.S. could agree to this mechanism, but was legislatively prohibited from paying interest charges should the U.S. be so assessed. Only the EU commented on the U.S. position. The UN will report on the status of negotiations on the letter of credit in the next progress report, due in the fall of 2007. This report will also update the GA on the fees associated with the letter of credit and will request authority to assess Member States for their share of the fees for 2008. ASSESSMENTS AND TIMING -------------- ¶7. The General Assembly agreed to give Member States the option of paying their assessments for the project either through a one-time payment or through five equal installments. The default plan is the multi-year payment plan, so if the one-time payment is chosen, the Member State must notify the Secretariat of this decision within 60 days of the issuance of the assessment in 2007. After an additional 60 days (total of 120 days from the date of assessment),this decision will be irrevocable. However, a Member State that is on the multi-year payment plan can at anytime choose to pay its outstanding remaining balance in one payment, a point that was clarified in the formal meeting by the Controller. The assessment rate is fixed at the 2007 scale as decided in December 2006 by the GA, even if a Member State chooses to pay over five years. As stated above, Member States are given 120 days from the date of assessment to make their payments. If the full payment is received during that time period, the Member State will be considered to have paid on time. Assessments will be issued during the first working week of January each year. The total to be assessed to Member States is $1,716,700,000, the net amount of the budget after taking into account appropriations to date. For the U.S. this equals $377,674,000, for a one time payment or five yearly payments of $74,534,800. Should the budget ever increase over the approved level of $1,876.7 million, all Member States, regardless of the payment plan chosen, will be required to fund their share of the additional costs. However, the UN cannot go over the authorized budget level without GA approval. The UN will earn interest on the funds and each Member State will receive a credit (at its 2007 assessment rate) at the end of the construction period. Member States can apply this credit to another assessment if they so choose. WORKING CAPITAL RESERVE -------------- ¶8. In the event that the cash on hand does not cover anticipated expenditures, the first source of additional cash for the UN would be the working capital reserve fund. It is set at $45 million and all Member States will be assessed in 2007 for a one-time contribution to the fund. The U.S. share at 22 percent is $9.9 million. OTHER ISSUES -------------- ¶9. In addition to the decisions noted above, there are a few other issues that should be highlighted: -- The Secretary-General is requested to have consultations with the host country regarding possible ways the letter of credit could be established without the imposition of fees or charges to the United Nations. As instructed, USDel agreed to the language but clarified that agreeing to have consultations did not guarantee any particular outcome. -- The resolution includes previously agreed language on oversight and procurement, emphasizing the importance of oversight and the need for procurement processes to be conducted in a transparent manner. In addition, the GA emphasized that contracts for the CMP should stipulate that the UN will not be responsible for any delays, damage or loss on the part of the contractor. -- The Secretary-General is requested to ensure that gifts and works of art are handled appropriately, and that related costs are foreseen. According to the Secretariat, the CMP budget includes funds to handle unmovable works of art, while the Facilities Management office will request funding in the context of the regular budget to deal with movable works of art. In addition, those Member States that wish to take care of their gifts may do so, but there is no obligation in this regard. -- Finally, concerning financing for the CMP, the GA made a number of exceptions to the Financial Rules and Regulations and other normal ways of dealing with financial issues. The resolution clarifies that the CMP is unique and exceptional and shall not be construed as setting a precedent for or creating any permanent changes to the Financial Rules and Regulations. ¶10. In addition to the statement made by the Controller referenced in paragraph 7 above, the Controller made other points, all at delegations' request, during the formal meeting, prior to the adoption of the resolution. He clarified the CMP schedule, stating that all work was to be completed by 2014, and noted that contributions would be considered as received once the physical check arrived in the contributions service or the funds were electronically transferred into the UN's account. He also stated that Member States that pay their contribution in full within the 120 day period would not be at risk of being charged for any interest incurred by the UN from a drawdown on the letter of credit. He also explained again the methodology to be used to apportion interest charges to Member States. ¶11. After the adoption of the resolution during a formal meeting of the Fifth Committee, several delegations, including USDel, made brief statements welcoming the adoption of the resolution. In its statement, South Africa, on behalf of the Group of 77 and China, noted that the original swing space envisioned for the project was no longer available and, bearing in mind host country responsibilities, hoped that consultations with the host country would be productive. Cuba stated that it was regrettable that the host country had not offered an interest-free loan, especially given the benefits received from the UN presence generally and from this project in particular. Jamaica reiterated its interest in having a permanent building on the North Lawn and asked delegations to reconsider the planned demolition of the temporary conference building. ¶12. USUN appreciates the Department's prompt responses to requests for guidance, which helped ensure that USUN could effectively pursue U.S. interests on this matter. WOLFF