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. PYATT