LATEST IAEA PROPOSAL FRUSTRATES BUDGET HAWKS

C O N F I D E N T I A L UNVIE VIENNA 000267

SIPDIS

FOR D, P, T, ISN, IO; DOE FOR NA-24, NA-25, NA-21; NSC FOR
SCHEINMAN, CONNERY; NRC FOR DOANE, SCHWARTZMAN

E.O. 12958: DECL: 06/08/2019
TAGS: AORC PREL KNNP IAEA UN
SUBJECT: LATEST IAEA PROPOSAL FRUSTRATES BUDGET HAWKS

REF: STATE 57105

Classified By: Ambassador Greg Schulte for reasons 1.4 b/d


1. (SBU) Summary: IAEA budget hawks (UK, Germany, France, et.
al.) are frustrated and annoyed that the IAEA Secretariat has
not submitted a revised budget based on Zero Real Growth
(ZRG). To their dismay, Board Vice Chair Feruta circulated a
third budget proposal June 5 featuring a 12.7 percent
increase for 2010. The new proposal - while too high from a
U.S. perspective - positively reflects U.S. priorities and
can be used as a basis for negotiation. G-77 representatives
are also open to the new proposal, though they continue to
reject funding for Nuclear Security. China, Russia and Japan
are heavy hitters who support a budget increase privately,
but keep mum publicly. Nordic states, on the other hand, are
increasingly vocal in their support. The Board of Governors'
leadership remains optimistic about bringing Member States to
a consensus by July, an unlikely but not impossible scenario.
It will be difficult to persuade the budget hawks without
increasing the pressure through G8 fora and in capitals, but
at least it is now clear to all involved that the majority of
Member States support a budget increase. End Summary.

Third Budget Proposal Released
--------------


2. (SBU) The third iteration of the 2010-2011 IAEA budget
proposal was released June 5. The first year of the proposed
increase, 2010, envisions a 12.7 percent increase in the
regular budget (7 percent for programs, 2.9 for capital
investment and a 2.9 percent price adjustment). Like its
predecessor, this third version stretches proposed increases
over four years, but IAEA officials are quick to point out
that Member States have authority only to approve a budget
for 2010 during this year's General Conference (making
out-year projections "indicative" but not binding). Several
Member States - including the U.S. - have made it clear they
will resist any agreement that locks them into a budget
increase beyond 2010-2011.


3. (SBU) "Bootleg" versions of the document had surfaced
several days earlier. It prompted an intense discussion at a
May 29 meeting of the 16-member Geneva Group of major donors,
where most participants expressed their frustration with the
Secretariat and repeated their calls for a zero growth
budget. The tone of the meeting deteriorated, with Italy
threatening to renege on its commitments to the Technical
Cooperation Fund and Switzerland affecting contentment over a
deadlock that could force the Agency into a situation
comparable to a U.S. continuing resolution. Some Geneva
Group states implicated the U.S. in "splitting" the Group and
allowing the G-77 to "lay a trap" that would lead to
increases for Technical Cooperation. The U.S. was alone with
this group in expressing support for the latest budget
proposal as a basis for negotiations.


4. (SBU) On June 4, immediately prior to the release of the
latest proposal, the UK and eight other large donor states
circulated a letter to Board Vice Chair Cornel Feruta (the
Romanian Ambassador in charge of budget negotiations),asking
that he submit a new budget proposal based on zero growth.
The letter also asks for a 10 percent cut in overhead and
alternative funding for capital investment (such as
borrowing). The letter negates G-77 calls for a direct and
proportional link between regular budget increases and future
growth in the Technical Cooperation Fund (TCF).


5. (SBU) Notwithstanding the UK's hardline approach to the
budget, Ambassador Schulte and UK Ambassador Simon Smith
co-chaired an ambassadors-level meeting of the Geneva Group
June 5 to discuss the third budget proposal. Board Vice
Chair Cornel Feruta led the meeting by announcing, "We will
have a budget!" - perhaps as early as July. He cited
increasing momentum in the process and described the latest
budget proposal as a good basis for developing an acceptable
compromise. IAEA Deputy Director General David Waller also
attended and outlined 12.7 Million Euros in savings over four
years that would be stripped from salaries, travel,
consultants and other direct costs. The Japanese
representative mentioned that an additional 3 Million Euros
for the Japanese plutonium fabrication facility (JMOX) could
be delayed to 2012. Several participants spoke in favor of
borrowing to save additional cash outlays by Member States
(septel). The tone was more constructive than the previous
Geneva Group meeting, due to positive statements by
Ambassadors Feruta and Schulte.

G-77 Lackadaisical
--------------


6. (C) According to Romanian Second Secretary Dan Necalaescu,
G-77 representatives were "happy" about the latest proposal.
Less positively, the G-77 has been slow to elucidate its
priorities beyond calls for an increase in the three Major
Programs that support development activities and nuclear
power. Nor is the G-77 in any rush to approve a budget. As
Argentine Ambassador Eugenio Curia (current G-77 chairman)
told Ambassador Schulte May 29, "September is fine." Curia
went on to express his interest in "exploring concepts"
before discussing numbers. Ambassador encouraged Curia to
consider the damage done by dragging budget talks on for
months and asked him to reserve conceptual discussions for
the Future of the Agency process. Curia went on to dismiss
the Nuclear Security program as Director Anita Nilsson's
"monster," and claimed that NS had "taken Safety hostage."
(Note: Despite this public line, Necalaescu told Msnoff that
the G-77 had privately communicated its willingness to accept
a 100 percent increase - 1.1 Million Euro - in regular budget
funding for Nuclear Security. This meager offer does not go
as far as the latest budget proposal, which awards Nuclear
Security close to a 300 percent increase from its inadequate
base. End note.)

Small but Vocal
--------------


7. (C) More positively, Nordic states have become
increasingly active in their support of the budget. In a May
28 meeting at UNVIE, Finnish Ambassador Kirsti Kauppi
surprised her Nordic colleagues by announcing that Finland
had supported a budget increase all along - including the
Secretariat's bold, initial request for a 24 percent
increase. The Norwegian Ambassador, for his part, joined
Ambassador Schulte June 3 in defending a budget increase
before an audience of hostile WEOG (Western Europeans and
Others group) colleagues. Encouraged by his counterparts'
activism, Swedish Ambassador Hans Lundborg told DCM he had
gone back to Stockholm with a strong recommendation to
support a budget increase. (In general, the Swedes are
amplifying their profile as they anticipate taking on the EU
presidency in July.)

Big but Quiet
--------------


8. (C) In contrast to the activist Nordics, some of the
biggest players in the field are keeping quiet. China and
India have both avoided endorsing an increase, though India
is thought to be in favor, and Chinese Ambassador Tang told
Ambassador Schulte privately that he could support a
"reasonable" increase but without taking a leadership role.
Russia has become more open of late, with Counselor Sergey
Khalizov admitting privately that Russia would like a 6 - 7
percent increase. When asked if Russia could be more
supportive of U.S. efforts to push the Europeans toward
flexibility, Khalizov said, "No need. Life itself will push
them to a more flexible position." Russian Ambassador
Zmeyevsky was even more forceful, telling Ambassador Schulte
June 5 that he could not understand Berlin's refusal to
acknowledge the IAEA's resource needs.


9. (C) Japanese diplomats are also quiet about the budget,
though they lose no opportunity to remind Msnoffs that they
regret the U.S.-inspired "split" in the Geneva Group. Second
Secretary Shota Kamishima told Msnoff that Japan was in a
position to fund an increase in both the regular budget and
the Technical Cooperation Fund, but felt very uncomfortable
expressing the view before his traditional, zero growth
allies in the Geneva Group. Kamishima mourned, "We are
quiet, and now we have to be even quieter than normal." He
asserted that Japan's budget position was a result of
principled support for U.S. goals and was unrelated to
Japan's interest in electing Yukiya Amano as the next
Director General.

Comment - Gathering Momentum
--------------


10. (SBU) It is now clear that the majority of Member States
favor an increase over inflation in the IAEA budget, even if
they differ on priorities or refrain from voicing their
positions. Budget negotiations have gone well under
Ambassador Feruta, and he is clearly confident about Member
States' ability to come to agreement earlier rather than
later. His motivated leadership reflects not only his desire
to go on vacation in July, but also the increasing sense that
consensus is within reach. The greatest threat to consensus
is the entrenched position of the budget hawks led by
Germany, the UK, and France. Increasing our pressure on
these states through G8 fora and in capitals (per reftel) is
the only tool available for nudging them out of their zero
growth trench. The upcoming Global Initiative to Combat
Nuclear Terrorism (GICNT) initiative June 15-18 in the Hague
provides another opportunity to press our views on the
Nuclear Security budget. Until the budget hawks see
themselves facing political and moral isolation, they will
not agree to a budget increase.



SCHULTE