VZCZCXYZ0009
PP RUEHWEB

DE RUCNDT #2116/01 3072139
ZNR UUUUU ZZH
P 032139Z NOV 06
FM USMISSION USUN NEW YORK
TO SECSTATE WASHDC PRIORITY 0678

UNCLAS USUN NEW YORK 002116 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: AORC KUNR UNGA
SUBJECT: UN CAPITAL MASTER PLAN: REQUEST FOR GENERAL 
ASSEMBLY DECISION ON BUDGET AND FINANCING 
 
REF: A. USUN 1937 
     ¶B. USUN 1901 
 
¶1. ACTION REQUEST:  Discussion on the capital master plan 
(CMP) is expected to begin as early as the week of November 
¶13.  USUN requests guidance on all items highlighted in this 
cable in time for Fifth Committee discussions. 
 
¶2. SUMMARY: The fourth annual report on the capital master 
plan, available in draft form (emailed to IO/MPR on 10/31), 
provides an update on the various elements of the project 
since the issuance of the third annual report (A/60/550) 
almost one year ago.  The Secretary-General's report updates 
the General Assembly (GA) on a number of issues: status of 
design and pre-construction work; the current project 
schedule, including swing space; cost information, with and 
without scope options; status of appropriations and 
expenditures, an advisory board, procurement and financial 
disclosure; and financing options. As anticipated, the 
Secretary-General (SYG) requests the GA to approve a budget 
 
SIPDIS 
and a financing mechanism for the remainder of project costs, 
as well as a letter of credit facility and reserve fund.  The 
report also notes the need for an appropriation of $42 
million that will be required in 2007 for "early action 
work."  END SUMMARY. 
 
STATUS OF WORK AND SCHEDULE: STILL ON SCHEDULE 
--------------------------------------------- - 
 
¶3. Based on the GA decision (resolution 60/282) on strategy 
IV in June 2006, the UN has begun design of the temporary 
conference building and has begun a real estate search for 
office swing space.  Construction of the temporary conference 
building will proceed after a revised project budget and 
funding mechanisms are agreed by the General Assembly.  The 
selection of the construction manager is underway and is 
anticipated to be awarded by late 2006.  Under the current 
schedule for the project, the renovation will commence in 
early 2008 and finish in mid-2014.  This is based on the 
assumption that decisions on scope, budget and financing 
mechanism are made during the main part of the sixty-first 
session. 
 
 
UPDATED COST INFORMATION: COSTS HAVE RISEN IN PAST YEAR 
--------------------------------------------- ---------- 
 
¶4. The overall cost of the project, estimated at $1,587.8 
million in November 2005 has increased to $1,646.3 million as 
of August 2006, excluding scope options.  The change in the 
estimate consists of the following: 
-$4.5 million net increase for construction costs, owing to 
updated costs based on January 2006 prices; 
-$16.5 million net reduction for contingencies, due to an 
update of prices and reflection of actual (vs. estimated) 
fees and design work; 
-$62.6 million net increase for professional fees and 
management costs, owing mainly to a difference in 
representation from prior charts- escalation related to fees 
is now counted here rather than in the escalation line- but 
also due to increases in expected construction manager fees, 
fees related to on-site relocation and an allocation for 
potential additional expert services; 
-$42.3 million net reduction in forward pricing escalation, 
reflecting a transfer of amounts to other line items based on 
work done, as well as an increase to reflect changes in the 
industry; 
-$50.2 million increase in swing space, due to the higher 
asking price for rents in midtown Manhattan and changes to 
the cost of the temporary library and conference functions. 
 
¶5. In addition to the aforementioned changes to the cost for 
the base scope, the Secretary-General's report also provides 
an update on scope options related to security, redundancy 
and sustainability.  In resolution 57/292, the GA asked the 
SYG to continue to design for these options, but deferred a 
decision on whether to include these elements in the base 
project.  The SYG requests a decision on these options at 
this time and the inclusion of the costs of implementing 
these items within the budget approved by the GA.  The report 
divides the options into two tiers.  In total, the SYG 
proposes that the GA add $166 million for additional blast 
protection and other security measures, $36.5 million for 
additional redundancy, and $27.9 million for sustainability, 
for a total additional cost of $230.4 million.  COMMENT: It 
is unclear why the options are split into two tiers as all of 
the items in both tiers are recommended for adoption by the 
GA.  Also, there is little explanation regarding the 
significant increases related to security or why certain 
options are not recommended for adoption.  END COMMENT. 
 
¶6. If the GA approves the addition of the recommended scope 
options, the total revised estimate comes to $1,876.7 
 
 
million.  The chart below outlines the changes from the 
figures provided in A/60/550: 
 
                  A/60/550          Current 
 
Construction cost                   734.6             739.1 
Contingencies                 184.4             167.9 
Professional fees, mgmt costs       144.3             206.9 
Forward pricing escalation                360.2 
317.9 
Subtotal, renovation                1,423.5           1,431.8 
 
Office swing space                  96.4              129.0 
Library swing space                 13.2              19.4 
Conference swing space              54.7              66.1 
Subtotal, swing space               164.3             214.5 
Total, estimate               1,587.8           1,646.3 
 
Scope options                 161.0             230.4 
Total with scope options                  1,748.8 
1,876.7 
 
 
FINANCING ISSUES 
---------------- 
 
¶7.  Letter of Credit: The SYG report notes the need for a 
letter of credit to be available during the construction 
phase in order to comply with host country construction 
industry practice.  It is expected that the letter of credit 
would be bid through the procurement process.  A fee would be 
charged in order to establish a letter of credit, at 
somewhere between .05% and .5% ($3m-$21m over the 
construction period).  The fees would be payable quarterly 
and in advance and it is possible that management and 
amendment charges may also be incurred.  The amount of the 
fee for the letter of credit facility will be larger earlier 
in the project, when the unpaid balance of costs are higher, 
but will decrease as the balance declines.  The SYG requests 
approval of the letter of credit and the ability to draw down 
on it as needed. 
 
¶8. Charges related to letter of credit:  The report indicates 
that, in order to create a mechanism that ensures that only 
Member States that do not pay "on time and in full" will bear 
liabilities associated with the cost of drawing down on the 
letter of credit (i.e. interest charges), a consensus must be 
reached on the definition of "on time and in full."  The 
report suggests that certain exceptions and clarifications be 
made to the Financial Rules and Regulations, to apply to the 
capital master plan only.  These clarifications would include 
an understanding that a Member State is considered late, and 
therefore can be penalized for any interest charges incurred 
by the UN, if it has not paid its full assessment within the 
thirty day period set out by regulation 3.4 of the Financial 
Rules and Regulations.  Based on this understanding, the 
Secretary-General proposes a complicated scheme to calculate 
 
SIPDIS 
individual Member State shares of interest charges.  COMMENT: 
USUN will follow up with the UN with regard to this proposal. 
 This convoluted proposal appears to be an attempt to address 
the fact that under normal practice with regard to assessed 
contributions, no penalty is charged to a Member State for 
not paying its assessment in full within the thirty day 
period set out by Regulation 3.4 of the financial rules and 
regulations.  In the case of the CMP, the UN might incur a 
penalty due to lack of payments and therefore there must be, 
only for the CMP, a way to address this possibility.  END 
COMMENT. 
 
¶9. Assessments:  With regard to assessment options, the 
report notes that Member States can choose from three 
options: one-time assessment, multi-year assessment 
(recommended at five years), or a mix of one-time and 
multi-year assessments.  In the latter two options, due 
consideration must be given to the issue of scale of 
assessments, as the scale will change if the assessment 
period is longer than three years.  The report presents 
several ideas for addressing this issue, including fixing the 
scale at 2007 rates and using a three-year period for 
assessments. 
 
¶10. Working capital reserve fund:  The SYG reiterates the 
need to establish a working capital fund of $45 million to be 
used to cover temporary cash flow deficits.  The assessment 
for the fund, if approved, would occur in 2007 and any 
credits remaining at the end would be returned to Member 
States. 
 
¶11. Expenditures:  The Secretary-General notes that total 
expenditures for 2007 to complete the design phase and for 
the construction, fit-out and related requirements of the 
conference, office and library swing space, are expected to 
be $193.7 million.  To date, the GA has appropriated $152 
 
 
million.  Therefore, the Secretary-General requests the GA to 
appropriate $42 million for these "early action" 2007 
expenses.  COMMENT:  In past discussions in the Fifth 
Committee, the idea of "early action" funding has not been 
mentioned.  This will therefore likely be a point of 
discussion in the Committee; USUN wonders why this funding 
was not requested in the previous tranche.  It is not clear 
when in 2007 this appropriation would be needed and how it 
would impact the timing of the rest of the assessment for the 
year.  USUN intends to clarify these issues with the UN.  END 
COMMENT. 
 
¶12.  The revised estimate of $1,876.7 million would reflect 
the estimated cost of an updated scope of work.  It does not 
include the cost of the fees associated with a letter of 
credit or an additional assessment for the working capital 
fund.  If the GA agrees to these items, their respective 
costs would need to be added to the current estimate. 
BOLTON