IAEA BUDGET: FRAGILE CONSENSUS BUILDING AROUND

UNCLAS UNVIE VIENNA 000362

SENSITIVE
SIPDIS

STATE FOR D(S),P, T, IO, ISN
DOE FOR NA-20, NA-21, NA-24, NA-25
NSC FOR SCHEINMAN, CONNERY, HOLGATE
NRC FOR DOANE, SCHWARTZMAN

E.O. 12958: N/A
TAGS: AORC PREL KNNP IAEA UN
SUBJECT: IAEA BUDGET: FRAGILE CONSENSUS BUILDING AROUND
MODEST INCREASE

REF: A. UNVIE 339

B. UNVIE 328

C. UNVIE 321


1. (U) This is an action request for IO; please see para 7.


2. (SBU) Summary: After five months of budget
negotiations, IAEA Member States appear to be moving toward
a consensus to increase the IAEA's Regular Budget by 5.4
percent from 2009 to 2010, a level that satisfies minimal
U.S. objectives. Bucking isolated protests from Germany
(the lead budget hawk) and Pakistan (a champion of
technical cooperation),negotiations leader Romania
described this latest proposal as "minimally satisfying to
all" and announced his intention to hold a special meeting
of the Board of Governors August 3 to approve the
proposal. While an uneasy air of resistance remains among
Member States, it is unlikely any one Member will stand in
the way of the gathering consensus; Germany and France may
however reinforce one another in holding out. Mission
requests Washington begin drafting a statement for
presentation at the Special Board for the contingency of
success, and welcomes further engagement with Berlin and
Paris to ensure that success. End Summary.


3. (SBU) Romanian Ambassador and Board of Governors Vice
Chair Cornel Feruta convened just over two dozen G-77 and
OECD Member States July 29 to release yet another iteration
of the IAEA 2010-2011 budget proposal, known as the "Vice
Chair's Proposal - Version Three." The V3 is characterized
by an overall increase of 5.4 percent (2.7 real growth plus
2.7 price adjustment). Satisfying minimal U.S. objectives,
the proposal allocates 3.1 million Euros to "regularize"
Nuclear Security. It relies on savings and U.S. and
Japanese extra-budgetary funding to whittle down the
Regular Budget line item for the Major Capital Investment
Fund to only 0.1 million. In a nod to the G-77, the
Technical Cooperation Fund (TCF) would be subject to a
USD-Euros 50-50 split assessment starting in 2011, and
increases to the 2012 TCF levels would be "considered."
Incorporating language provided by the U.S., the Board
would convene a working group "to consider priorities and
resource requirements related to the 2011 budget level and
the 2012-2013 biennium"; Charge had proposed, in a meeting
July 28 with major contributor states only, the convening
of a systematic assessment of Agency needs as a step toward
preparing numbers for 2011, the second year of the
biennium. This aspect of Feruta's draft budget resolution
for Board adoption (accompanying the V3 numbers) won strong
endorsement from budget hawks France, Switzerland, and
Canada, and drew no criticism. The G-77 may still seek to
include explicit reference to discussing TC funding in the
mandate of the strategic needs assessment.


4. (SBU) Confronted with Feruta's proposal to meet again
July 30, France, Switzerland and Argentina begged for more
time to share the proposal with capitals, France pointing
out that there were complex decisions to be made between
ministries (Foreign Affairs and Finance). The Swiss
Ambassador in particular emphasized that departing from
"zero real growth" would not be without precedential impact
and was therefore a major step requiring time to digest.
Ambassador Feruta deftly rejected calls for much more time
as equivalent to failure, relented on convening again until
July 31, but went ahead with his stated intent to hold a
Special Board on Monday, August 3. France and Germany both
stated that 5.4 was too high, but French Ambassador Mangin
used more conciliatory language that referred to
"flexibility" while Germany opined that even a 2.7 percent
price adjustment was "generous." French Ambassador and
German Charge each undertook, nevertheless, to advocate to
capital to join consensus. The UK, another budget hawk,
was the most conciliatory about respecting the fact that
"some Member States" had come down very far in their
aspirations (a reference to the U.S.) and that London must
approach these final negotiations with some give-and-take.


5. (SBU) Among the G-77, only Pakistan spoke on substance,
while fellow heavyweights Egypt (ambassador was present),
Brazil, India, South Africa and China remained silent
throughout. Pakistan complained that the budget proposal
did not contain a linkage or method of automaticity to

increase the TCF along the same lines as the Regular
Budget. The complaint was quickly rebutted by a number of
OECD representatives, while other G-77 heavy hitters
remained mum. That Brazil, Egypt and South Africa (all
active participants in budget parrying thus far) refrained
from contributing to the discussion in any way suggests the
G-77 may go along with the "V3" proposal as it stands, (and
a side conversation between Romanian Ambassador Feruta, the
Pakistani representative, and A/DCM after the meeting added
to our sense that the Group will join consensus). In the
large group meeting, Charge reiterated the U.S. desire for
sufficient financing for the IAEA and offered to support
the modest increase in V3 "reluctantly and with a sense of
disappointment."

Comment and Next Steps
--------------


6. (SBU) The tone of today's group meeting was palpably
unenthusiastic, but Board Vice Chair Feruta made important
progress toward bringing the budget negotiations to a
close. Many of those present welcomed Feruta's insistence
that Member States move to close the deal now rather than
let it drag on and disrupt September proceedings (most
notably, the annual General Conference and appointment of
the new IAEA Director General). Given the financial crisis
and hard-line position of the European budget hawks, the
ability to secure even a modest real increase is a
significant U.S. achievement. As Ambassador Feruta
described it, the V3 is not perfect, but is at least
"minimally satisfying" to most Member States. For the
United States this budget is minimally sufficient to meet
our objectives. With its adoption we would:

- establish that the IAEA's mission is sufficiently
important that the Agency cannot be bound by zero real
growth policies we apply at other International
Organizations;

- build a regular budget foundation under the Nuclear
Security program and establish the principle that nuclear
security is a core function of the IAEA; and,

- thanks largely to American and Japanese funding, set a
course to deal with the IAEA's overhang of capital expenses
while ensuring the continued readiness of the Safeguards
Analytical Laboratory, even though out-year funding remains
to be identified.


7. (SBU) Timeline and Action Request: Feruta has convened
a broader budget meeting open to all Member States on
Friday, July 31, and will follow with a Special Board
Meeting to approve the budget on Monday, August 3. Mission
encourages Washington preparation of a brief statement for
the Special Board that highlights: U.S. political
commitment to the IAEA, willingness to support this
commitment with financial resources (i.e., through extra
budgetary and regular budgetary support),and our
expectations for the strategic review. UNVIE POC Usha
Pitts (pittsue@state.gov) conveyed the full V3 budget
proposal via email to Washington inter-agency colleagues.

PYATT