WORKING TO CLARIFY THE IAEA'S POLICY ON PROGRAM

UNCLAS UNVIE VIENNA 000149

SENSITIVE
SIPDIS

FOR ISN/MNSA, IO/T, IO/PPC, IO/MPR; DOE FOR NA-24, NA-25,
NA-21

E.O. 12958: N/A
TAGS: AORC IAEA KNNP TRGY PREL UN
SUBJECT: WORKING TO CLARIFY THE IAEA'S POLICY ON PROGRAM
SUPPORT COSTS

REF: A. UNVIE 80

B. UNVIE 27

C. 08 UNVIE 587


1. (SBU) Summary: The IAEA has made progress on the issue of
Program Support Costs (PSCs) with the recent release of an
official policy that addresses some - but not all -
transparency issues raised by the U.S. and Geneva Group
(reftels). Ambassador met with IAEA officials to define
these issues and help move the IAEA toward an acceptable
policy that will allow U.S. extrabudgetary contributions to
flow unhindered. Ambassador also raised other U.S.
management reform objectives, including whistleblower
protections, the establishment of an audit committee, the
release of Joint Investigative Unit reports, and an ethics
office. Mission awaits the IAEA's response to our questions
on the PSC policy, with a view to moving toward
reconciliation. End Summary.

Program Support Costs (PSCs)
--------------


2. (SBU) Following up on the February release of a
Secretariat Directive on Program Support Costs (PSCs),
Ambassador Schulte presented IAEA Deputy Director General
David Waller April 2 with a set of questions to help clarify
the policy. The questions focused on three major areas of
concern: 1) how PSCs will be treated in the budget and
allocated among the programs, 2) how PSCs will be applied to
the approximately two dozen Cost-Free Experts funded by the
U.S., and 3) the application of PSCs to safeguards
activities, despite Regular Budget provisions for the Member
State Support Program.


3. (SBU) Regarding the treatment of PSCs in the budget, IAEA
Budget Director Gary Eidet explained that the funds are
registered in the Agency's accounts, amounting to over seven
hundred million Euros for 2008 and anticipated to rise to two
million Euros annually. The revenue will be farmed out to
the various support units based on the proportion of work
each office dedicates to supporting voluntary programs
(budget, human resources, legal affairs, procurement, etc.).
The Director General makes the final determination on how the
funds are disbursed.


4. (SBU) On Cost-Free Experts (CFEs),Waller and Eidet agreed
to look into the possibility of a flat charge (rather than
charging a variable, 7 percent on each CFE's salary). This
would allow the U.S. to pay the same amount on each of the
approximately two dozen American CFEs donated to the Agency.
Eidet also agreed that the U.S. would be granted a PSC
"credit" for CFEs donated to support programs. (Mission will
ask for written verification of this offer.) Waller and
Eidet appeared unfazed by the observation that PSCs charges
on CFEs could ultimately cut into the number of CFEs
supported by the U.S.


5. (SBU) Waller and Eidet denied that Member State funding
for the Safeguards Support Program covered the full range of
central services provided by the Agency to Major Program 4
(Verification). They also denied any inequity attached to
the PSC exemption for contributions to the Technical
Cooperation Fund in Major Program 6 (Technical Cooperation).
They argued that because the Fund is subject to a scale of
assessments levied against all Member States, these
contributions are viewed and treated differently from
unilateral donations to a program of special concern to one
Member State.


6. (SBU) Waller and Eidet gave no indication they would
revisit or reissue the Secretariat Directive on PSCs, but
Eidet offered to respond to the set of specific issues raised
by the U.S. (Mission will follow up with Eidet and relay the
response.)

Management Reform Issues
--------------


7. (SBU) Ambassador also presented Waller a set of top U.S.
objectives for IAEA management reforms, including
whistleblower protections, the establishment of an audit

committee, the release of Joint Investigative Unit reports,
and establishment of an ethics office. Waller claimed he was
pursuing a policy for whistleblower protections through his
chairmanship of the Joint Advisory Committee (JAC),and that
he hoped to achieve approval of a policy in the coming
months. The news was less positive regarding Waller's
efforts to set up a framework for an audit committee, an
effort that had been truncated by Director General ElBaradei.
At the Ambassador's behest, Waller promised to revisit the
issue with ElBaradei, noting Geneva Group consensus on audit
committees would support the effort. (Note: In a separate
conversation, Msnoff learned that the IAEA's external
auditor, from Germany's Federal Audit Chamber, dismisses
creation of an IAEA audit committee as redundant. End Note.)


8. (SBU) On ethics, Waller noted that the IAEA had made
strides in ethics training, financial disclosure, and the
identification of four ethics counselors. He said, however,
that an actual ethics office had not been established "for
financial reasons." Regarding the release of JIU reports,
Waller and Eidet regretted the perception that the IAEA
secretariat had withheld JIU reports. They proposed
circulating them to Member States via the intranet site
"govatom."

Comment
--------------


9. (SBU) We may have gotten the best we can extract for now
in our quest to secure an equitable policy on PSCs. While
the release of an official policy is a major step toward
transparency, the exemption issued for the nearly 100 million
USD donated each year by Member States to the Technical
Cooperation Fund still appears to constitute a
politically-motivated carve-out for G-77 countries rather
than an exercise in good governance. On the other hand,
given the sacred status of TC funding among developing
countries, we should avoid a situation where we make perfect
the enemy of good. For example, the Secretariat indicated
greater flexibility on charges for Cost-Free experts and a
more comprehensive explanation of how PSC revenues will be
budgeted and allocated. With these issues still in play,
Mission will continue working with the Secretariat to achieve
a level of comfort with the PSC policy that will allow for
the renewed flow of extrabudgetary contributions to the IAEA.
We recognize the concern enunciated by DOE and NRC
participants in the IAEA's recent nuclear security seminar
that the PSC debate could jeopardize U.S. programs to
strengthen the IAEA's critical nuclear terrorism activities,
and would like to put this budgetary debate behind us as soon
as possible. End Comment.
SCHULTE