VZCZCXYZ0000
OO RUEHWEB

DE RUEHUNV #0313/01 1811451
ZNR UUUUU ZZH
O 301451Z JUN 09
FM USMISSION UNVIE VIENNA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9767
INFO RUEHII/VIENNA IAEA POSTS COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEANFA/NRC WASHDC PRIORITY
RHEBAAA/DOE WASHDC PRIORITY

UNCLAS UNVIE VIENNA 000313 
 
SENSITIVE 
SIPDIS 
 
FOR ISN, IO; DOE FOR NA-24, NA-25, NA-21; NSC FOR 
SCHEINMAN, CONNERY; NRC FOR DOANE, SCHWARTZMAN 
 
E.O. 12958: N/A 
TAGS: AORC PREL KNNP IAEA EAIO UN
SUBJECT: REQUEST FOR GUIDANCE: POSSIBLE IAEA BUDGET DEAL 
WITH THE G-77 
 
REF: A. STATE 48677 
     ¶B. UNVIE 275 
     ¶C. UNVIE 279 
 
¶1. (U) This is a request for guidance.  Please see paragraphs 
11-12. 
 
¶2. (SBU) Summary: Recognizing the deadlock in IAEA budget 
negotiations, the Board Vice Chair will present IAEA Member 
States with yet another budget proposal on July 1.  This will 
be the fourth budget proposal since Director General 
ElBaradei initially proposed an astonishing 23 percent 
increase in February.  This latest, more moderate proposal is 
likely to fulfill U.S. objectives, with an 8-9 percent 
nominal increase that supports U.S. priorities in Nuclear 
Security and Safeguards.  With some tweaks, it may also prove 
acceptable to the G-77.  Unfortunately, the European "budget 
hawks" - France, Germany, UK - are poised to reject the 
proposal out of hand.  In recognition of this obstinacy, 
Mission anticipates working intensely with the G-77 to hammer 
out a deal that makes the latest proposal acceptable to the 
majority of Member States and isolates the budget hawks. 
Mission requests guidance on supporting or proposing a 
formula to stabilize funding for the Technical Cooperation 
Fund (TCF) in exchange for G-77 support to Nuclear Security 
(para 11).  Once a deal with the G-77 is in place, pressure 
will mount on the budget hawks to relinquish their hard-line 
zero growth approach to budget negotiations.  If a solution 
is not achieved by the conclusion of the G-8 Summit in 
L'Aquila on July 10, IAEA budget negotiations will likely 
stall until the fall.  End Summary. 
 
¶3. (SBU) Vice Chair and head of budget negotiations 
Ambassador Cornel Feruta (Romania) expects to finalize a 
fourth iteration of the IAEA budget proposal by today, June 
¶30.  Feruta will then present the proposal to Member States 
on July 1.  According to Romanian Second Secretary Dan 
Necalaescu, the latest budget proposal will include an 
increase that hovers around 8-9 percent, with an 
approximately 2 million Euro regular budget increase for the 
Nuclear Security program (on top of its current, 1.1 million 
Euro allocation).  The Major Capital Investment Fund (MCIF) 
will be funded with voluntary contributions and savings out 
of the Regular Budget.  (Note: At first blush, it appears the 
latest proposal conforms with Washington guidance received in 
ref a.  It also represents a dramatic step back from the 
first budget proposal unveiled by DG ElBaradei in February, 
which entailed a jaw-dropping, 23 percent increase.  End 
Note.) 
 
¶4. (SBU) The European "budget hawks" (Germany, France, UK) 
and their allies in the budget debate (Mexico, Canada, 
Australia) are likely to reject Feruta's latest proposal out 
of hand.  Reflecting earlier UK signals of accommodation, UK 
First Secretary Creena Lavery admitted to some flexibility in 
the UK position that might allow for a 5 percent increase, 
but doubted that France and Germany would go along with 
anything other than strict adherence to zero real growth 
(ZRG), i.e., a 2 - 3 percent price adjustment to account for 
inflation. 
 
¶5. (U) More positively, G-77 representatives are finally 
showing some willingness to negotiate the budget beyond the 
hitherto blinkered focus on Technical Cooperation.  In a 
letter received by Feruta on June 29, the G-77 laid out the 
Group's own take on the budget: 
 
- The Vice Chair's efforts on the budget "provide a good 
basis for reaching consensus." 
 
- No additional reductions to Major Programs 1, 2, 6 (nuclear 
energy, nuclear applications, technical cooperation) 
 
- No internal borrowing from the Technical Cooperation Fund 
(ref b) 
 
- A "minor increase" for Major Program 3 (nuclear safety and 
security) is acceptable, in exchange for a consideration of 
1) "shielding," and 2) an agreement to link the Technical 
Cooperation Fund (TCF) to increases to the Regular Budget. 
 
¶6. (U) The final element - on shielding and links between the 
TCF and RB - will prove the most challenging.  Shielding 
refers to an instrument that allows developing countries to 
pay a lower share of the safeguards portion of the Regular 
 
Budget.  It was introduced in the 1970s in anticipation of 
rapid growth in NPT safeguards implementation.  The Board 
agreed in 2000 to phase out shielding, but delayed the 
phase-out as part of budget negotiations in 2003.  Memories 
of "de-shielding" and the grueling budget negotiations of 
2003 still haunt diplomats and members of the Secretariat 
involved at the time.  As a result, the "budget hawks" have 
stated their refusal to even consider reopening the 
discussion during current budget negotiations. 
 
¶7. (SBU) Mission has previously noted the proposal to link 
the Technical Cooperation Fund to Regular Budget growth (ref 
c).  The idea is to guarantee that the TCF - a voluntary fund 
that nevertheless subjects Member States to a scale of 
assessments - receives increases that match or approximate 
increases in the Regular Budget.  The G-77 letter proposes a 
formula for calculating TCF increases based on 1) the average 
of the real RB increase and the price adjustment, with the 
stipulation that 2) the result never falls below ZRG.  For 
example, if the Regular Budget real increase is 6 percent and 
the price adjustment is 2 percent, TCF would receive a 4 
percent increase.  Conversely, were the Regular Budget to be 
cut in nominal or real terms, the TCF would still benefit 
from the prevailing price adjustment.  U.S. contributions to 
the TCF under this 4 percent scenario would increase a little 
less than a million dollars, from approximately 20 million 
dollars to nearly 21 million in 2012 (the next year the TCF 
opens for negotiations). 
 
¶8. (U) The G-77 has been informed on a number of fronts - 
most energetically from the Europeans - that their efforts to 
lock in commitments to a voluntary fund were unrealistic. 
They have been informed that many capitals (including 
Washington) would be leery of such a commitment.  Per ref c, 
G-77 representatives were open to considering the TCF 
calculation on a one-time, one-year basis rather than as a 
standing expectation.  The G-77 also needs to recognize that 
the hypothetically extreme circumstances leading to a cut in 
the IAEA's Regular Budget would necessarily force similar 
cuts in the TCF, rather than an upward price adjustment for 
TCF.  With regards to the U.S., increases in the TCF are paid 
for out of the State Department's NADR Account 
(Nonproliferation, Antiterrorism, Demining and Related 
Programs).  As NADR levels for 2012 have not yet been 
requested, let alone approved, any commitment to increase the 
TCF for 2012 would necessarily include some kind of "escape 
clause." 
 
¶9. (U) In a June 29 "Future of the Agency" meeting on 
Technical Cooperation, a statement by the G-77 reiterated the 
TCF calculation but softened the proposal by describing it as 
an "interim measure."  Many G-77 members publicly supported 
the calculation, referring to the "humiliating" process of 
appealing for support for a core IAEA function.  Others went 
even further, such as Pakistan's rote comment that the TCF 
should be fully incorporated into the Regular Budget.  Board 
Vice Chair Kirsti Kauppi (Finland) summarized the "broad 
agreement" on finding a new way to negotiate TCF targets. 
Charge stated that the U.S. had no wish to repeat last year's 
lengthy and polarizing TCF negotiations and was open to 
considering other options.  The UK supported the U.S. 
intervention but described the TCF calculation as "overly 
simplistic."  Egypt stepped in again to reassure Member 
States that the G-77 proposal was merely an opening and to 
welcome other suggestions for solving the lack of 
predictability in TCF levels. 
 
¶10. (SBU) The Romanians are pushing hard to reach a consensus 
on the budget.  Necalaescu has warned the budget hawks that 
the latest budget proposal will be the last one of the 
summer.  He and Vice Chair Feruta plan to use the Special 
Board meeting July 2 to build support for the proposal.  If 
consensus is not reached the week following the Board Meeting 
(July 6 - 10), then budget negotiations will stall as the 
Board leadership leaves town for the summer and high-level 
opportunities to build support (most notably, at the G-8 
Summit in L'Aquila July 8 - 10) are expended.  Necalaescu 
predicted that nothing would restart on the budget until the 
end of August - leaving little time to come up with a budget 
solution before the September Board of Governors meeting. 
 
Comment and Request for Guidance 
-------------------------------- 
 
¶11. (SBU) Reflecting an intensive and single-handed U.S. 
 
effort, the G-77 is finally being proactive on the budget, 
with this first statement of broad support from the Group as 
a whole.  The G-77 has also shown, for the first time, a good 
faith willingness to consider other countries' priorities 
outside the constant call for more resources for Technical 
Cooperation.  The nod toward Nuclear Security is particularly 
important.  If Mission must engage in "consultations" - but 
no commitments - on shielding in order to get funding for 
Nuclear Security, then the price would seem acceptable.  The 
G-77 proposal to link the TCF to the Regular Budget, however, 
is more problematic.  On the one hand, this is clearly an 
attempt to inject some predictability into TCF funding while 
dispensing with the time-consuming (and, in the G-77 
characterization, "humiliating") process whereby Ambassadors 
from different camps spend weeks haggling over TCF levels 
rather than program objectives.  A good faith effort on our 
part to resolve the TCF funding instability and discuss 
shielding (which is already far more than the Europeans are 
willing to do) would earn mountains of goodwill from the 
G-77.  Over the long run, it could clear the way for more 
productive interactions between Member States at Board 
Meetings and further advance our strategic goal of rebuilding 
a "spirit of Vienna" based on a shared commitment to 
non-proliferation principles.  On the other hand, the budget 
hawks and others are rightly reluctant to commit to a formula 
for increasing a voluntary fund that has, admittedly, a 
spotty record of program delivery.  They are also justifiably 
wary of creating precedence when it comes to a TCF linkage to 
the Regular Budget. 
 
¶12. (SBU) Mission requests guidance on how to address the 
thorny issue of TCF predictability and its link to Nuclear 
Security during the final opportunity to reach consensus on 
the budget this summer (July 6 - 10).  One option might be to 
signal U.S. openness to a "one-time, one-year" option, with 
the heavy caveat that U.S. funds for 2012 have not yet been 
appropriated.  Whatever the proposal, Washington policymakers 
should take into account the opportunity to curry good will 
with the G-77 while making progress - perhaps decisive 
progress - toward a budget solution that fulfills U.S. 
priorities in Safeguards and Nuclear Security. 
PYATT