IAEA BUDGET TALKS IN NEED OF SALVATION

UNCLAS UNVIE VIENNA 000339

SENSITIVE
SIPDIS

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

E.O. 12958: N/A
TAGS: AORC PREL KNNP IAEA UN
SUBJECT: IAEA BUDGET TALKS IN NEED OF SALVATION

REF: A. UNVIE 321

B. UNVIE 328


1. (SBU) Summary: IAEA budget negotiations in Vienna are
seized up; a consensus outcome is readily imagined but key
local players lack the authority to effect it. Germany and
France have not budged from their zero growth positions,
though French representatives told us they have recommended
flexibility. Given the deadlock, a fifth iteration of the
2010-2011 budget proposal has been prepared but may not be
released until later in July. The Romanian lead negotiators
and the IAEA Secretariat still hope that Washington will "do
its magic" to resolve the budget discussion, but with
vacation season upon us, crucial states will be slowed in
their ability to bargain. Mission wants to bring the budget
debate to a positive conclusion, but will avoid letting the
issue fester through August and possibly erode our political
agenda this fall. Vienna Missions have little room to
maneuver; we are depending on Washington to go over some
local (European) heads and break through the deadlock. End
Summary.

Budget Proposal Purgatory
--------------


2. (SBU) The IAEA Secretariat is preparing a fifth iteration
of the 2010-2011 budget proposal, known as the Vice Chair's
Proposal - Version Three. Though the proposal will be ready
by June 20, it is unclear when the Romanian budget
negotiators will release it. The "V3" reportedly envisions
something around a 7 percent increase (4 percent real growth)
for 2010, which, the European "budget hawks" continue to say,
is unacceptable. Members of the IAEA Secretariat and the
Romanians agree that it makes little sense to release yet
another budget proposal that will be shot down on arrival by
France and Germany. It is possible the "V3" could languish
in Secretariat computers until later in July or get whittled
down further before release, unless we receive some sign of
flexibility from the budget hawks.


3. (SBU) Neither the Secretariat nor the Romanians are eager
to face another rejection by the hawks. According to
Romanian First Secretary Dan Necaelescu, based on current
positions, the only way to wrap up budget negotiations
quickly - i.e., in July - is to simply give in to a minimal
increase of 4 - 5 percent (1 - 2 percent real growth, or an
additional 3 - 6 million Euros). This would be enough to
provide some Regular Budget support for Nuclear Security and
token amounts for capital investments, but will do nothing to
address the long-term resource concerns of the Agency. Such
a small increase would do little to support U.S. priorities
in safeguards, safety and infrastructure (including
information technology and the Safeguards Analytical
Laboratory - SAL).


4. (SBU) IAEA Budget Chief Carlo Reitano is also worried
about scheduling. If Member States do not approve the budget
in a Special Board meeting by early August, Reitano will not
have time to prepare the final documents for approval by the
General Conference in September. His anxiety is heightened
by the occasional comment by Member States (including
Germany) that there is plenty of time to approve the budget
and that the IAEA could schedule a "Special General
Conference" later in the year if a package is not ready in
September. In Reitano's iew - shared by UNVIE - the
European delaying tatic is meant to force a final, panicked
approvalof a zero growth budget in September.


5. (SBU) eitano is also frustrated by the Europeans'
constant specious phone calls and questions. The latest
argument now is that "there is no need to increase the budget
in support of Director General ElBaradei, because he is a
lame duck." (Comment: Given that several of these same
European states worked so hard to elect Japanese candidate
Amano as the next DG, arguing against providing financial
resources for his first year in office seems a remarkable
instance of cutting off a nose to spite one's face. End
Comment.) The Europeans also claim that the Agency has
benefited from 2.8 percent average annual real increases over
the past decade and should simply economize better. (Reitano
estimates the average real increase over the past decade is
closer to 1 percent.) Other than SAL, the Europeans and
Canada in particular argue that the Safeguards Department is
well resourced. They do not object to regularizing Nuclear
Security, which requires a real increase of around 1 percent
in the overall regular budget, but so far have indicated no
recognition that we will need to accept a quid-pro-quo that
would make such a deal acceptable to the G-77.

No Change in the European Position
--------------


6. (SBU) Board Vice Chair Cornel Feruta (Romania) has left
Vienna for ten days. Necalaescu continues working with the
core "budget hawks," France, Germany and the UK. He
complained to us about the assertions of a French diplomat
(which we heard directly from French DCM as well) that
Washington did not raise the IAEA budget issue during a
recent visit by French non-proliferation officials.
Consequently Romania sees no change in the French negotiating
position. Necalaescu said France would likely accept an
increase of 4 percent (1 percent above zero growth),but
French instructions are to continue pushing strongly for ZRG.
(Note: In separate conversations with Charge, new French
Ambassador Florence Mangin and her departing DCM each
indicated they had recommended a more flexible posture to
Paris. End Note.) According to Romania's assessment, the
Germans remain absolutely committed to ZRG. The UK is
slightly more flexible, and could accept a 5 percent increase
(2 percent above zero growth).

Safeguards Lab a Looming Problem
--------------


7. (SBU) Reitano showed Msnoff a matrix of the Secretariat's
predicted funding for upgrades to SAL. The matrix was quite
detailed and, Reitano said, approved by Safeguards Director
Olli Heinonen. The matrix projects the amounts of 6.3
million Euros are required for SAL in 2010 - the design phase
- and 22.5 in 2011 - the construction phase. (These figures
appear generally realistic, though the 2010 figure is
somewhat at odds with a lower estimate passed confidentially
to Mission by an Amcit IAEA consultant.) Unfortunately, the
2011 figure will create instant "sticker shock" among the
budget hawks, who expect that any token budget deal would
extend across the 2010-2011 biennium. This sticker shock
could negatively impact their willingness to be flexible on
an increase for 2010, let along the full biennium.


8. (SBU) Reitano also passed along frustrating news regarding
Japanese extra budgetary contributions. An expected 2
million Euros for SAL for 2010 was designated by the Japanese
for "equipment." When Reitano explained that there were no
immediate equipment needs remaining for 2010, the response he
received was "Tokyo really wants equipment." Japanese
inscrutability on the exact amounts and designation of the
"Amano dowry" makes it even more difficult for Reitano to
calculate a 2010 budget (ref a). Furthermore, the current
internal disarray in the Japanese government makes it even
less likely that Tokyo will be forthcoming about its
contributions in a timely manner.

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


9. (SBU) There is a growing expectation in Vienna that the
likely resolution of the budget falls closer to the European
nickel-and-dime approach than to the "significant" increase
advocated by the U.S.. Neither the IAEA Secretariat nor the
Romanian negotiators nor a number of key Member States desire
this outcome, but negotiations are at a standstill in Vienna.
We expect many G-77 and smaller industrialized countries
would join consensus on a budget providing three or more
percentage points in real growth; Germany is the hold-out
that must be turned. The inertia will only get worse when
the Europeans shut down in August. Meanwhile, the energetic
Romanians continue to argue for a bigger picture approach to
the budget that responds to the IAEA's needs and recognizes
its unique role among international organizations. They and
the Secretariat also hope that Washington will "work its
magic" on the Europeans. Without some quick work at high
levels, however, Mission will recommend bowing to the fiscal
austerity position of the larger EU states. We will need to
put the bad blood behind us this summer so as to avoid
serious divisions that could affect our political priorities
in the upcoming General Conference beginning September 14.








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