VZCZCXYZ0000
OO RUEHWEB

DE RUEHUNV #0027/01 0231528
ZNR UUUUU ZZH
O 231528Z JAN 09
FM USMISSION UNVIE VIENNA
TO RHEBAAA/DOE WASHDC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 8927
INFO RUEHXX/GENEVA IO MISSIONS COLLECTIVE PRIORITY
RUEHII/VIENNA IAEA POSTS COLLECTIVE PRIORITY
RUEHRO/AMEMBASSY ROME PRIORITY 0404
RHEGGTN/DEPT OF ENERGY GERMANTOWN MD PRIORITY
RUEHFR/USMISSION UNESCO PARIS PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 1447

UNCLAS UNVIE VIENNA 000027 
 
SENSITIVE 
SIPDIS 
 
FOR IO, ISN/MNSA; DOE FOR NA-24, NA-25, NA-21 
 
E.O. 12958: N/A 
TAGS: IAEA AORC KNNP TRGY UN PREL CN UK
SUBJECT: IAEA PROGRAM SUPPORT COSTS - FORCING THE ISSUE 
 
REF: 08 UNVIE 587 
 
¶1. (SBU) Summary:  The issue of Program Support Costs (PSCs) 
at the IAEA has become increasingly irksome.  The IAEA's 
unpublished policy of charging 7 percent PSCs has grown to 
include even the cost-free experts on loan to the IAEA from 
Member States, while continuing to exempt donations to the 
Technical Cooperation Fund (a favorite of the G-77).  The 
U.S. has refused to pay PSCs until the policy is clarified 
and 3.8 million USD in DOE donations are currently in limbo 
as a result.  Mission is working to build Geneva Group 
consensus around three conditions for an acceptable PSC 
policy: 1) Publish a fair, transparent and universal PSC 
policy that covers all extra budgetary contributions 
(including the Technical Cooperation Fund); 2) make an 
explicit, line-item reference to the PSC rate in all extra 
budgetary, "transfer of funds" documents; and 3) establish a 
flat fee for cost-free experts.  Implementation of these 
demands would likely arouse G-77 resistance, but may be worth 
tackling in the interest of budgetary transparency and good 
governance.  Geneva Group members are interested in pressing 
the issue, and cognizant of the opportunities and 
complexities presented by the next meeting of the Board of 
Governors, March 2 - 6.  If progress is not made on the 
issue, Mission recommends a reassessment of the overall USG 
policy on cost-free experts, possibly reducing their number 
with a greater focus on high-priority, technical 
appointments.  We also need to consider more closely the 
possibility of eventually moving programs like nuclear 
security and technical cooperation into the regular budget. 
End Summary. 
 
A Stealth Policy Expands 
------------------------ 
 
¶2. (SBU) On May 20, 2008 the IAEA Secretariat gave a 
presentation to Member States on the PSC policy, including 
details of the 7 percent rate, the exception for 
contributions to the Technical Cooperation Fund (TCF), and 
the establishment of a PSC "sub-fund" to collect the 
anticipated annual income of two million Euros.  Member 
States failed to agree on the policy during the June Board of 
Governors, and the policy was never formally implemented.  In 
reality, however, the IAEA Secretariat has moved forward with 
the May policy. 
 
¶3. (SBU) On December 24, Deputy Director General David Waller 
responded to a November 12 letter from the Geneva Group 
questioning the policy (reftel).  Waller's letter reiterates 
points from the May presentation, and notes that the income 
generated from PSCs in 2008 amounts to 386,000 Euros.  The 
letter offers another briefing for Member States early in 
2009, and assures donors that PSCs will only be charged "as 
agreed with the contributors of such funds" (a reference to 
Financial Rule 108.02). 
 
PSC Headaches Continue 
---------------------- 
 
¶4. (SBU) As it turns out, the situation has progressed far 
beyond the May presentation and Waller letter.  For example, 
PSCs are now being applied not only to projects that include 
the donation of a cost-free expert (CFE) or consultant, but 
also to the individual CFE agreements themselves. 
Individuals on their own contract cost the USG anywhere from 
50,000 to over 300,000 USD annually and now carry potential 
PSC charges of 3500 to over 20,000 USD each.  (The USG 
currently provides 25 - 30 CFEs to the IAEA in both technical 
and non-technical capacities.) 
 
¶5. (SBU) Even more troublesome are rumors that donors no 
longer need be explicitly informed that PSCs are being 
charged.  Contrary to the Waller letter, one IAEA staff 
member told us that the IAEA legal office had "scammed" a 
donor into paying PSCs by employing ambiguous language.  If 
it is true that the IAEA is charging PSCs without permission, 
the Agency may be in violation of Financial Rule 108.02. 
 
¶6. (SBU) Meanwhile, the PSC policy continues to foster 
resentment within the IAEA as agile, progressive offices that 
are highly dependent on voluntary funds (like Nuclear 
Security and the Program of Action for Cancer Therapy) work 
hard to attract voluntary funds, only to see 7 percent of 
their revenue skimmed off the top to subsidize their 
"parasitic" counterparts in the regular budget.  The harshest 
words from IAEA staff are reserved for the Management 
Department, which is not only funded out of the regular 
budget, but also manages the proceeds from PSCs. 
 
¶7. (SBU) The ever-glaring exception in this scenario is the 
Technical Cooperation Fund (TCF), which draws some 100 
million dollars a year in extra budgetary funds, but pays no 
PSCs.  (In one recent case, Spain was able to avoid paying 
PSCs on a project by relabeling it "TCF.")  The Canadians are 
quick to point out another exception, the nuclear fuel bank, 
which met its goal of 150 million USD (primarily with funds 
from the non-governmental Nuclear Threat Initiative and the 
USG) but pays nothing to the IAEA for the hundreds of staff 
hours that Canada alleges go toward its support. 
 
Three "Conditions" for an Acceptable Policy 
------------------------------------------- 
 
¶8. (SBU) During a January 13 meeting, Geneva Group Members 
worked to develop three basic conditions toward the 
establishment of an acceptable policy on PSCs.  While the 
Group has not determined how to put forward these conditions, 
some Members may determine to raise them in advance of - or 
during - the March Board of Governors: 
 
- PUBLISH AN OFFICIAL PSC POLICY THAT IS FAIR, TRANSPARENT 
AND UNIVERSAL.  The policy should include a "rates scale" 
that charges lower rates for large sums of money, cash 
transfers, rote procurement (including appropriate Government 
Cost-Sharing projects) and gifts.  The policy includes TCF, 
though many procurement projects will be covered by the lower 
rate.  (A similar sliding scale is in place at the WHO, 
allowing the organization to differentiate between real extra 
budgetary projects and money that is just passing through.) 
 
 
- REFER TO PSCs AS A SEPARATE LINE ITEM IN ALL EXTRA 
BUDGETARY, "TRANSFER OF FUNDS" DOCUMENTS.  This would allow 
Member States to view what is being charged, the 
justification, and the rate.  If there is any deviation from 
the regular, 7 percent rate, a reference to the "rates scale" 
must be included.  This would also bring the IAEA into 
compliance with Financial Rule 108.02. 
 
- CHARGE A FLAT RATE FOR COST-FREE EXPERTS.  The IAEA should 
produce an estimate of the institutional support required to 
support donated staff, whether consultants, CFEs, or JPOs. 
 
Potential Pitfalls 
------------------ 
 
¶9. (SBU) Despite the wide adoption of PSCs across UN 
agencies, diplomatic missions in Vienna tend not to 
appreciate this standard of good governance.  Even worse, 
progressive members of the G-77 who might otherwise support 
good governance initiatives turn atavistic under any 
perceived threat to technical cooperation.  (A similar 
scenario plays out at UNESCO in Paris.)  In the end, any 
attempt to reopen the PSC discussion would raise the ire of 
the G-77, possibly unleash a cantankerous exchange at the 
March Board, and even stall future TCF negotiations. 
 
¶10. (SBU) Another factor to consider is that the principle of 
transparency is not necessarily worth championing if it 
breeds G-77 resentment.  Other donors recognize this point, 
and, like the Japanese, have already admitted privately that 
they will eventually pay PSCs whether or not the policy is 
clear and fair.  The IAEA Secretariat is similarly aware of 
this reality, and may simply lay low until donor states drop 
the debate and continue contributing as before.  Canada, for 
example, is holding up a four million dollar donation, but 
will have to relinquish any hold on the donation by March 15 
or risk losing the funds altogether. 
 
¶11. (SBU) Finally, IAEA Management regularly argues that if 
Member States do not like PSCs, they should fund priority 
programs out of the regular budget and stop draining the 
institution of its resources.  This is a difficult argument 
to counter, and it is one of the reasons - despite the 
prospect of increased assessments - to move programs like 
Nuclear Security and TCF into the regular budget. 
Potential Gains in Good Governance 
---------------------------------- 
 
¶12. (SBU) Despite the specter of a (possibly) losing battle, 
a real effort to clarify the PSC policy would make a long 
term contribution to good governance at the IAEA.  Publishing 
a fair policy would also fulfill a universally-recognized and 
important pillar of budgetary transparency, as recognized by 
Goal 8 of the Department's UN Transparency and Accountability 
Initiative (UNTAI).  The UK, Canada and Japan (after the 
conclusion of the Director General's election) are likely to 
be strong partners in pushing for the fulfillment of the 
three conditions. 
 
¶13. (SBU) Comment:  Past PSC battles have led to practices 
that are neither transparent nor fair, and vulnerable to 
Secretariat manipulation.  Mission recommends continued 
Geneva Group cooperation to gain consensus on the three 
conditions above, as well as bilateral approaches to remind 
the IAEA that U.S. resources are vast but not unconditional, 
and that transparency is one way to ensure goodwill and the 
uninterrupted flow of resources. 
SCHULTE