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Anne W McNeill  10/20/2006 02:46:41 PM  From  DB/Inbox:  Search Results

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UNCLAS        WARSAW 01161

SIPDIS
CXWARSAW:
    ACTION: ECON
    INFO:   MGT ORA FCS DCM POL AMB PAS ADM

DISSEMINATION: ECOX
CHARGE: PROG

APPROVED: DCM:KHILLAS
DRAFTED: ECON:MKATULA
CLEARED: ECON: LGRIESMER FCS: DMCNEILL

VZCZCWRI517
RR RUEHC RUEHZL RUEHKW RUEATRS RUCPDOC RUEHBS
DE RUEHWR #1161/01 1641428
ZNR UUUUU ZZH
R 131428Z JUN 06
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC 1019
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHKW/AMCONSUL KRAKOW 1139
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 04 WARSAW 001161 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EUR/NCE DKOSTELANCIK AND MSESSUMS 
DEPT FOR EB/IFD/OMA AND OES/ENV 
 
E.O. 12958: N/A 
TAGS: EAID SENV KSCA PL
SUBJECT: POLAND'S ECOFUND: CRISIS OR MISUNDERSTANDING? 
 
REF: A. WARSAW 450 
 
     ¶B. WARSAW 1898 05 
 
Sensitive but unclassified - not for internet distribution. 
 
¶1.  (SBU)  Action request for State, EB/IFD/OMA and OES/ENV, 
paragraph 10. 
 
¶2.  (SBU)  Summary.  Internal disputes at Ecofund discussed 
in Ref A have grown worse, threatening to disrupt the 
operations of the Fund.  At the heart of the matter is the 
role that the Polish Treasury Ministry is playing at Ecofund, 
and donor state dissatisfaction over losing blocking control 
over the Fund's decisions.  Donor state Switzerland is now 
considering withdrawing from the Fund, although it is 
uncertain whether it will follow through.  Assuming continued 
full donor state participation, the Fund would expect to 
disburse roughly $170 million on projects before its sunset 
date in 2009.  Of course, this would be less if some donor 
states withdraw.  As a group, the four remaining European 
donor states provide about 50 percent of the Ecofund budget. 
 
------------------ 
Veto Power Revoked 
------------------ 
 
¶3.  (U)  As described in Refs A and B, Ecofund was set up 
with contributions from six original donor states: the US, 
Sweden, France, Italy, Norway and Switzerland.  (Sweden 
withdrew from the Fund in 2004 due to Poland's EU entry, on 
the grounds that it does not provide bilateral assistance to 
EU members.)   The U.S. provided its original funding via 
Poland's July 3, 1991 Paris Club debt rescheduling, in which 
10 percent of the "principal" was defined as "canceled 
principal" to "be used by Poland to finance an environmental 
fund ..."  In contrast, we understand that the European 
donors provide support on an annual basis. 
 
¶4.  (SBU)  Ecofund's Supervisory Council can consist of 7 - 
15 seats according to its statutes, and now has 15.  It 
essentially controls the Fund's activities by approving 
projects and personnel moves.  Votes are decided by a 
majority of two-thirds.  Originally, each of the six original 
donor states had one representative on the council, with the 
other nine appointed by the Government of Poland.  The 2004 
Swedish withdrawal left the fund with 14 council members. 
Because the Polish Belka Government did not did not appoint a 
Council member to replace the Swedes, the donor states 
continued to be able to block decisions by voting as a group. 
 
 
¶5.  (SBU)  This situation changed with the fall 2005 election 
of a new Polish Government.  The new Secretary of State in 
the Ministry of the Treasury responsible for the Ecofund, 
Pawel Szalamacha, has sought to make changes in the personnel 
and operations of Ecofund (Ref A).  The Ministry of Treasury 
moved quickly to establish control of the Supervisory Council 
by appointing a 15th member that allows a GOP voting bloc to 
defeat any threat of donor state veto.  Some donor state 
representatives, notably the French and Swiss, have reacted 
negatively to the change in the Council's decisional balance, 
noting that the donor states essentially no longer have 
control over how Ecofund spends their financial 
contributions.  The European donor states believe that the 
spirit of cooperation that characterized Ecofund has been 
damaged by Szalamacha.  We have a less pessimistic 
perspective.  Misunderstandings have compounded the difficult 
changes Szalamacha has pushed through.  But he has told us 
that he viewed Ecofund as overstaffed and overpaid, certainly 
an arguable proposition.  Now that he has streamlined 
Ecofund's management, he has stated his willingness to 
restore the previous decisional balance by vacating one of 
the 15 current positions. 
 
--------------------------- 
Absence of a Financial Plan 
--------------------------- 
 
¶6.  (SBU)  Another bone of contention between the GOP and 
donor states has been the absence of an Ecofund financial 
plan.  The Supervisory Council drafted and approved a plan 
late last fall, and submitted it to the Ministry of Treasury 
for approval.  In the absence of a financial plan the 
Supervisory Council was not able to approve projects.  (Note: 
There are currently 11 projects awaiting Council evaluation.) 
 Secretary of State Szalamacha eventually approved the 
financial plan on May 25, 2006, approximately six months 
after the draft was received.  Furthermore, the donor states 
were not officially notified of Szalamacha's action until 
June 6, 2006.  The fact that Szalamacha failed to either 
approve the financial plan or to send it back for so long to 
the Supervisory Council for cause arguably constituted a 
breach of Ecofund by-laws. 
-------------------- 
Politicizing Ecofund 
-------------------- 
 
¶7.  (SBU)  There is a perception among European foreign 
donors that Ecofund is viewed by the current GOP as a tool of 
the state and not an independent Foundation.  The GOP seems 
bent on coopting the fund entirely after firing all of the 
independent members of the Supervisory Council (Ref A) and 
recently removing three of five members of Ecofund's 
Management Board, ostensibly for mismanagement.  Whereas in 
March Szalamacha demanded the entire Management Board be 
fired, he was content at the May 24 meeting to go after only 
three members, notably sparing, at least for the time being, 
the Board's embattled President, Maciej Nowicki.  The donor 
states refused to take part in the meeting, with all five 
walking out shortly after the meeting's agenda was approved. 
Donor states objected to the motion to fire the Board, since 
no explanation to justify the dismissals had been presented, 
but were unable to block this item with only five votes 
against the rest of the Supervisory Council's 10 votes. 
 
¶8.  (SBU)  In a letter (text below) dated June 6, 2006, 
Szalamacha suggests that two Board members will not be 
replaced, and that an open competition will be held to 
determine the third member.  Szalamacha has stated he 
believes the Board should consist of only three members. 
Furthermore, Szalamacha describes as "urgent" the need to 
address the high salaries of Board members.  Ecofund by-laws 
state the Management Board's President should earn 12 times 
the average Polish annual salary.  A survey is conducted each 
year to determine the President's salary, which is currently 
approximately USD 10,000 monthly.  Szalamacha also mentions 
the "Supreme Chamber of Control's" (Note: GOP equivalent of 
the GAO) seemingly negative position on this matter, again 
suggesting that the GOP sees Ecofund as a state organization, 
and concluding that Ecofund's salary levels greatly exceed 
the normal public service scale.  Szalamacha will also 
reportedly seek to cut an unknown number of Ecofund's staff, 
currently 42 strong.  It is important to note that overhead 
costs, such as staff salary, are paid for by donor states' 
contributions.  Ecofund salaries in 2005 constituted 
approximately 3.6% of Ecofund's total income. 
 
BEGIN TEXT 
 
Warsaw, 6 June, 2006 
 
The Council of the EkoFundusz Foundation 
ul. Bracka 4, 
00-502 Warszawa 
 
Dear Sirs, 
 
With reference to the passing, on May 24, 2006, by the 
Council of the Foundation, of a resolution on dismissal of 
three out of five Members of the Board of the Foundation, I 
would like to thank those of you who supported the Founder's 
motion.  I acknowledge the results of the voting. 
 
Additionally, I would like to inform the Members of the 
Council of the Foundation that, on May 25, 2006, the Minister 
of the Treasury approved the Financial Plan of the EkoFundusz 
Foundation for the year 2006. 
 
In connection with the changes made to the composition the 
Board, I would like to kindly inform you that I uphold the 
position of the Ministry of the Treasury comprised in the 
letter of March 13, 2006, concerning the manner in which the 
candidates for the Board are selected, and put forward a 
motion for holding a competition in order to select the third 
Member of the Board of the Foundation.  In the opinion of the 
Founder, selection of a candidate by way of competition will 
ensure transparency of the procedure and will allow 
appointment of a person who is politically neutral, solely on 
the basis of the criteria of competence and suitability for 
the position.  In the Founder's view, the requirements that 
must be met by candidates should, in particular, take into 
account experience in the field of project budgeting, 
familiarity with financial issues (e.g. banking) and 
environmental problems. 
 
At the same time, I would like to draw your attention to the 
urgent issue of solving the problem of remuneration received 
by the Foundation's President and Members of the Board.  The 
position of the Supreme Chamber of Control in that matter 
placed the Ministry of the Treasury in an uncomfortable 
situation, as the general public is sensitive to such 
ethically dubious behaviour. 
 
With kind regards, 
 
Pawel Szalamacha 
 
END TEXT 
 
------------------ 
Ecofund Withdrawal 
------------------ 
 
¶9.  (SBU)  Against this backdrop, the European donor states 
are considering their options.  The Swiss representative has 
advised FCS, which represents the U.S. on the Council, that 
it can cancel its financial commitment and withdraw from the 
Ecofund and this move is under consideration in Bern.  Italy, 
France and Norway have also investigated this option, but 
reportedly can not decommit funding at this time, and so are 
not able to withdraw completely from Ecofund.  The European 
donor states simply can not accept that they no longer have 
control over Ecofund's activities, despite funding them 
(along with USG contributions, described in Ref B).  This 
fact, coupled with the Ministry of Treasury's blunt personnel 
moves at the Fund, has left the European donors irate and 
looking for options to recapture influence.  However, at this 
point, it is not clear what the European donors will demand 
from the GOP to settle the quarrel.  They will likely demand 
that the fifteenth Council member be removed, restoring their 
veto power.  Szalamacha could preempt such a proposal through 
unilateral action.  Furthermore, no institutionalized 
procedures would prohibit the GOP from reappointing a 
fifteenth Council member in the future. 
 
¶10.  (SBU)  The next Ecofund Council meeting is scheduled for 
June 19.  Given Treasury's approval of the financial plan, it 
is hoped that the Council will review and decide upon eleven 
projects currently up for review.  Two projects have 
significant U.S. content.  At a pre-Council meeting strategy 
session convened on June 12 between representatives of the 
donor states at the Swiss Embassy, it was agreed that all 
donors representatives will attend with the exception of the 
Swiss representative, who is on emergency leave and can not 
attend.  Donor representatives are taking a careful "wait and 
see" approach, mindful that Ecofund operations have been 
politicized, but optimistic that passage of the financial 
plan will allow the Fund to return to its core function of 
financing needed environmental projects. 
 
¶11.  (SBU)  For Department's background: It is our 
understanding that the main U.S.-Polish agreement providing 
general guidance on this subject is Poland's 1991 Paris Club 
debt rescheduling agreement, initialed July 3, 1991.  As 
reported in Ref B, neither the U.S.-Polish agreement -- nor 
any subsequent communications between our governments on GOP 
Ecofund payment schedules which we could locate in Embassy 
Warsaw files -- provides guidance on how the environmental 
foundation should operate or evaluate projects.  In contrast, 
the subsequent agreements between Poland and other donors -- 
the Polish-Italy, Polish-France, and Polish-Switzerland 
agreements -- stipulate in one way or another that a certain 
share of Ecofund projects will go to companies with donor 
nation involvement.  The U.S. agreement also involved a 
one-time cancellation of debt in 1991.  In contrast, we 
understand that Italy, France, Switzerland, and Norway fund 
their Ecofund participation annually, presumably out of their 
current development assistance budgets.  While Post does not 
believe consideration should be given now to withdrawal, it 
would be useful for Post to have a strong grasp of the legal 
status of the remaining U.S. funds that have not been 
disbursed. 
 
-------------------------- 
Comment and Action Request 
-------------------------- 
 
¶12.  (SBU)  Action request.  For our own benefit, Post 
requests Department to clarify the legal status of the 
theoretically remaining U.S. originated Ecofund funding yet 
to be disbursed. 
¶13.  (SBU)  Comment.  Throughout the dispute at Ecofund, Post 
has tried to maintain neutrality and sought to act as a 
bridge between the two quarreling sides.  Post ultimately 
views Ecofund's continued operations as being more important 
than the political squabbles currently troubling the Fund. 
We believe that if the decisional balance can be restored on 
the Supervisory Council, the European donors will begin to 
look past their current grievances and will move forward with 
Ecofund business.  Post notes that Department of Commerce A/S 
Bohigian will meet with Pawel Szalamacha on June 22 and will 
stress USG interest in the continued operation of Ecofund. 
HILLAS