DOUBLING THE IAEA BUDGET? WHERE TO PUT THE MONEY

UNCLAS UNVIE VIENNA 000052

SENSITIVE
SIPDIS

FOR D, P, T, IO, ISN
DOE FOR NA-24, NA-25, NA-21

E.O. 12958: N/A
TAGS: AORC PREL KNNP IAEA UN
SUBJECT: DOUBLING THE IAEA BUDGET? WHERE TO PUT THE MONEY
AND HOW TO OVERCOME THE OBSTACLES

REF: A. UNVIE 0011

B. UNVIE 0047


1. (SBU) Summary: The Administration's stated aim of doubling
the IAEA's budget has ignited high expectations within the
IAEA Secretariat and high anxiety among most other Member
States. Anticipating a change in U.S. approach, DG ElBaradei
has instructed managers to build significant increases into
their upcoming budget presentations, to be unveiled later
this month. Conversely, fiscal austerity hawks among our
closest allies (UK, Canada, Japan, Australia) have warned
Mission officers the U.S. would find itself "isolated" among
key allies should we press for significantly more resources
this year. A difficult struggle in 2001-3 to increase the
budget presaged the challenges we would face in (a) gaining
approval among Member States to increase the regular budget
and (b) ensuring resources went to high priority programs.


2. (SBU) To ensure that any new resources for the IAEA go to
U.S. priorities, Mission proposes a hybrid strategy based on
a rapid doubling of extra-budgetary contributions to support
nuclear security, safeguards, safety, power, and technical
cooperation. This combination would serve to address U.S.
nonproliferation priorities while mending relationships with
developing countries bruised by past battles over safeguards
in the Middle East, scrutiny of technical cooperation for
Syria, and the role of the Director General. Mission also
proposes launching a high-level diplomatic campaign to
convince the majority of Member States to increase the
regular IAEA budget by forty percent over the next several
years. This initiative will take longer, but supports the
IAEA's long-term health, effectiveness and bedrock programs.
Finally, Mission proposes a "one-time" investment in a menu
of initiatives that would not only support nonproliferation
priorities, but also aid efforts to improve the Agency's
performance and correct budgetary disparities between
departments. Preliminary numbers are attached to each of
these proposals. Overall, Mission estimates a price tag of
160 million USD in increases over several years, effectively
doubling the IAEA's overall resources with emphasis on
national security priorities.



3. (SBU) Action Request: To begin progress toward a doubling
of resources by 2012, or even 2020 as set out in the May 2008
report of the ElBaradei-appointed Commission of Eminent
Persons, the Department must examine quickly whether first
installments are affordable in 2010-2011. Negotiation of the
Agency's biennial budget will begin with a Secretariat
presentation of requested levels on February 20; intensive
negotiations traditionally take up the spring. Parallel to
this, the Board Vice Chair will begin her own consultations
keyed to the Commission of Eminent Persons report on the
Future of the Agency (ref A). There too, our counterparts
will be seeking a signal of U.S. intentions. End Summary.
Core Activities, Basic Obstacles
--------------


4. (SBU) The IAEA is perennially under-funded, and several of
its priority missions rely principally on funding outside the
regular budget that is erratic and lacks universal support of
the Agency's 146 Member States. This message aims to
contribute to the Department's approach to these
circumstances with a discussion of four questions: 1) What
are the IAEA's core activities we seek to support? 2) What
other strategic gains can be won through a budget increase?
3) What is the most effective way to increase IAEA resources
- through the regular budget or targeted, extra-budgetary
contributions? 4) What political, legal and organizational
obstacles must we overcome?


5. (SBU) Any increase in IAEA resources should focus on the
core U.S. priorities of strengthening the IAEA safeguards
regime, preventing nuclear terrorism and ensuring that the
international expansion of nuclear power occurs within a
rigorous system of standards to ensure nonproliferation and
safety. Most critically, the U.S. supports a strong
investigative role for the IAEA, particularly at present in
regards to Iran and Syria, and robust verification in the
DPRK. The establishment of an IAEA-managed international
nuclear fuel bank is also a U.S. priority (ref B).



6. (SBU) From a political perspective, increased resources
could do much to restore our stature in Vienna after highly
divisive, recent battles over the annual resolution on
safeguards verification in the Middle East and IAEA
investigations in Syria and Iran. In this respect, increased
resources combined with good public diplomacy and outreach
could win the day, riding a wave of expectations that others
attach to the new Administration. As with many international
organizations, bloc divisions also plague relations between
Member States. Increased IAEA resources must take into
account G-77 priorities and finance technical cooperation
programs for peaceful uses of nuclear technology that will
ultimately attract broad member support for our own
initiatives.


7. (SBU) Closer to the ground, increased resources for
safeguards should take forward the transformation of
safeguards into an "information-driven" verification regime,
not just nuclear material accountancy. It should also
support the modernization of safeguards technology and
infrastructure for investigations and lab work.
Organizational and cultural changes are also needed, to
ensure that IAEA personnel are well-trained, proactive, and
effective. Administrative improvements to enhance
transparency and accountability are also high on Mission's
agenda. Such a cultural change will hopefully flow from the
arrival of a new Director General in December. As several
U.S. commissions have pointed out -- including the recent
Graham/Talent report -- there is ample opportunity for
increased resources to modernize and improve the IAEA,
ultimately leading to a safer and more secure place for the
U.S. and the world. As one IAEA staff member pointed out,
"there are few institutions that give the U.S. so much bang
for the buck."

Mechanisms for Increasing the Level of Resources
-------------- ---


8. (SBU) There are two basic ways to increase funding to the
IAEA: through regular budget assessments (RB) and extra
budgetary contributions (XB). RB assessments support the
organization as a whole and are largely under the control of
IAEA Management. These are charged annually to all 145
Member States, governed by a rates scale based on each
Member's GDP. As the largest donor, the U.S. pays 25 percent
of the RB, or approximately 96 million USD for CY 2008.
These assessments are paid from the State Department's
Contributions to International Organizations (CIO) Account.


9. (SBU) Unlike RB assessments, our XB contributions are
highly discretionary. They support programs that are of high
priority to the U.S. but do not otherwise command sufficient
resources from the RB (for political, operational or legal
reasons). The U.S. contributes XB funds to the IAEA from a
variety of sources, the majority being from the State
Department's NADR fund (Nonproliferation, Antiterrorism,
Demining and Related Programs) as well as DOE and the Nuclear
Regulatory Commission (NRC). XB contributions support
nuclear security, safety, power promotion and
nonproliferation activities. NADR funds also support
technical cooperation projects for water conservation and
human health, in particular the Plan of Action for Cancer
Therapy (PACT),an activity that curries goodwill among the
G-77 and builds political support for U.S. nonproliferation
priorities. Last year's aggregate XB contribution from the
U.S. rivaled our RB contribution in total amounts.

RB versus XB
--------------


10. (SBU) RB contributions support the Agency as a whole,
i.e., the IAEA as an institution - its human capital,
physical infrastructure and major programs (including
safeguards verification). Programs funded from the RB enjoy
stable resource flows from year to year and are well
positioned to engage in long-term planning. RB programs have
little to fear from changes in the political tides or the
whims of donors, and are less apt to be dismissed as
political pawns carrying out the pet projects of rich Member
States. Most importantly, RB programs enjoy the legitimacy

that comes from the support of all 146 Member States. For
these reasons, UNVIE strongly supports increasing the RB and
bringing U.S. priority programs in nuclear security and
safety under this umbrella.


11. (SBU) Unfortunately, the U.S. cannot unilaterally effect
an RB increase. Because of the RB scale of assessments, an
increase for one Member State is an increase for all, and a
majority of Members must agree to it. Each move upwards will
likely require paying off the developing countries with
technical cooperation while pressing for better financial
stewardship and sensible investments in projects to win over
the budget hawks. Early in the process, close allies who
agree with us on the Agency's priorities will need to be
convinced to join us in paying more for them. Allies who
supported the U.S. in its past "zero growth" policy are
asking aggressive questions about U.S. campaign promises and
making preemptive warnings to UNVIE officers about any
attempt to increase the RB. (The Australian Ambassador
stated February 4 in a "like-minded" meeting that his
government would not be alone in looking "aghast" at any
increases during this year's budget negotiations.) Others
have pointed to legal obstacles that inhibit the
straightforward inclusion of many IAEA programs into the RB.
Given these hindrances, UNVIE expects that any attempt to
increase the RB would take some time and require extensive
and high-level lobbying by U.S. officials. Fiscal realities
in the current financial crisis make this challenge even
tougher. Nonetheless, senior IAEA staff have confirmed to us
that ElBaradei is committed to setting a trajectory that will
put a growing share of safety and security activities under
the RB, which will ultimately require a budget increase.


12. (SBU) Assuming the U.S. wishes to strengthen IAEA
capabilities, XB contributions would be the logical solution
to increasing resources without the long time lags and
political confrontation with allies of an RB increase. Even
better - most XB contributions support the programs of
importance to the U.S., and are under greater U.S. control.
XB contributions do not establish the legitimacy, stability
and long-term institutional health gained by an RB increase,
but XB funds are quick to deploy and can wield significant
public diplomacy impact if properly presented.


13. (SBU) Weighing the advantages and disadvantages of RB
versus XB, UNVIE recommends a hybrid approach that begins
with a quick and dramatic increase in annual NADR funding for
nuclear security, safeguards, safety, power, and technical
cooperation. At the same time, the USG should begin a
high-level push to gain support from other Member States for
a 40 percent increase in the RB over the next several cycles.
The combined cost of these two steps would eventually amount
for the State Department to a roughly 80 million USD
increase, bringing U.S. XB and RB contributions to over 200M
USD annually.


14. (SBU) In addition, UNVIE proposes approximately 50M USD
in "one-time" costs for XB initiatives that would require
five years or less of attention, including an overhaul of the
IAEA's main laboratory faciliy and funds to jump-start fuel
bank operations. Finally, UNVIE proposes an additional menu
of XB projects that would improve the workings of the
oganization and rectify RB disparities between progams.
While it is difficult to estimate the cost f organizational
reforms up front and without futher consultation among USG
interagency experts, UNVIE estimates 20M to 40M USD.


15. (SBU) The ovrall price tag for these annual and one-time
inceases hovers at 160M per year, effectively doublin U.S.
contributions to approximately 300M USD. notional
breakdown of this proposal is included below. Additional
details are contained in an inormal UNVIE paper emailed to
IO/T and are refleced in part in our FY-2011 Mission
Strategic Plan


16. (U) Proposals for Annual Increases: 78M US

- Increase U.S. Contributions to the Regular Budget by 40
percent (38M increase, from 96M to 134)

- Increase NADR Funding (non TCF) by 133 percnt (30M

increase, from 30M to 60M)

- Increase NADR Funding for TCF by 25 percent (5M increase,
from 20M to 25M)

- Establish an annual fund of 5M to support and reward
Top-Performing IAEA Programs (medical applications, emergency
preparedness, disease eradication, etc.)


17. (U) Proposals for One-Time Expenditures: 53M

- Overhaul the Safeguards Analytical Laboratory (40M)

- "Operationalize" the Nuclear Fuel Bank (8M)

- Reform the Technical Cooperation Department (5M)


18. (U) Strategic and Organizational Goals: 20M - 40M

- Create a CEO position to oversee IAEA program operations.

- Reorganize the Nuclear Security and Safety programs as
separate departments.

- Increase RB resources for Nuclear Security and Safety.
(Septel will offer more detailed UNVIE thoughts on
"mainstreaming" the Nuclear Security program into the RB,
building on Secretariat moves in this direction. If moving
these activities into the RB proves unworkable for political
or legal reasons, including the interpretation of the IAEA
Statute, the two programs could be subjected to a scale of
assessments along the lines of TCF.)

- Dedicate additional RB resources to administer the Nuclear
Fuel Bank in addition to the $50 million already authorized.

- Dedicate RB resources to support the Program of Action for
Cancer Therapy.

- Achieve RB increases for the Incident and Emergency Center
(IEC).

- Expand the duties of the Management Division to cover all
administrative support services across the Agency.

- Support the "Nuclear Renaissance" with technical training
and infrastructure development for countries embarking on
nuclear power programs.

- Enhance cooperation with DOE on the research and
development of next generation nuclear reactors.

A Note From Past Experience
--------------


19. (SBU) Mission's effort to marginally increase funding
for safeguards, nuclear security, and safety after September
11, 2001, foreshadows the issues we may face in the future.
The 2002-03 effort raised energetic opposition and took well
over a year to achieve, beginning with a letter in May 2002
by the Deputy Secretary to the Geneva Group (of major UN
donors) advocating a budget increase. That opening salvo was
supported by extensive technical information about safeguards
activities and projections of growth in nuclear materials
stocks. U.S. officials consulted closely with the IAEA
Secretariat to bring about a needs assessment and budget
plans, while Mission negotiated within a budget working group
at the IAEA. Building support within the G-8 was central and
resulted in the 2003 summit declaration including an
affirmation the IAEA should be granted "the necessary means
to implement its monitoring tasks." Over a year after the
process began, a special meeting of the Board in July 2003
finally adopted the USD 15 million budget increase, the first
in more than fifteen years.


20. (SBU) Some of the opposition faced during that budget
exercise may be expected in any effort to more broadly
increase IAEA resources. The financial situation has
exacerbated the problem, and both UK and France have admitted
that they may have trouble making timely payments to the
Technical Cooperation Fund in 2009. The UK has also

suggested that it may retrench to a "zero nominal growth"
position, with no allowances even for inflation or exchange
rate fluctuations. Mexico has also become a budget hawk,
thanks to its rising status in the OECD and increasing
assessments. Canada locally is among the most vocal skeptics
of IAEA financial management. In short, to the extent the
changes we want involve increased assessments across the
Agency's 146 members, some of our closest allies may require
the most convincing. In other quarters, especially with
developing countries and their political champions, the
disagreements will be about how to distribute the funds among
programs.

PYATT