US embassy cable - 04BRUSSELS752

C O N F I D E N T I A L SECTION 01 OF 03 BRUSSELS 000752 
 
SIPDIS 
 
DEPARTMENT FOR PRM/ANE - RWARD; E - ADERSE; EUR/ERA - 
KALLEGRONE; NEA; DEPARTMENT PLEASE PASS USAID - ANE AND DCHA 
 
E.O. 12958: DECL: 02/20/2014 
TAGS: KPAL, PREF, EAID, UNRWA, EUN, USEU BRUSSELS 
SUBJECT: EC FUNDING FOR UNRWA AND PALESTINIAN AUTHORITY IN 
2004: DEMARCHE RESPONSE 
 
REF: STATE 29074 
 
Classified By: PRMOFF Marc J. Meznar.  Reasons 1.4 (b) and (d). 
 
1.  (C)  Summary.  The European Commission (EC), through 
funding mechanisms in ECHO, DG RELEX and EuropeAid, will 
continue to provide substantial funding for vulnerable 
Palestinians, as well as for the Palestinian Authority, in 
2004.  However, it does not have immediate plans to respond 
to UNRWA's emergency appeal.  The EC has long advocated that 
UNRWA incorporate the repeated "emergency appeals" into its 
core budget.  End Summary. 
 
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EC Downbeat on UNRWA Emergency Appeal 
------------------------ 
 
2. (C) On 2/18, PRMAsst delivered reftel demarche to Giuseppe 
Angelini, ECHO desk officer for UNRWA and Palestinian issues, 
and Christian Berger, UNRWA Aid Counselor for DG RELEX. 
Though there was agreement that the situation for 
Palestinians, specifically those in the occupied territories, 
has deteriorated substantially, both Berger and Angelini 
expressed reservations when asked to increase funding to 
UNRWA's emergency appeal.  Angelini chided UNRWA's "emergency 
appeal" process and emphasized that the EC does not look upon 
the Palestinians as victims of an immediate, short-term 
crisis but rather as casualties of a long and protracted 
emergency.  Berger noted that although ECHO's response to 
UNRWA's emergency appeals has declined, total funding for 
UNRWA had actually increased.  Berger explained that for this 
reason the EC has reallocated significant funding for 
Palestinians to the MEDA II program, the principle financial 
instrument of the EU for the implementation of the 
Euro-Mediterranean Partnership, and limits its use of 
humanitarian and emergency accounts. 
 
3. (C) According to Berger, a feeling of mistrust between the 
EC and UNRWA is growing out of this issue of 
non-responsiveness to the emergency appeals.  Berger said the 
EC has repeatedly urged UNRWA to move away from emergency 
appeals and to incorporate these long-standing needs into the 
main budget.  He opined that UNRWA utilizes the "sexy" 
programs as bait for its emergency appeals thereby 
undermining legitimate needs assessment by donors.  According 
to Angelini, these funding strategies have prompted ECHO to 
increase funding to NGOs vis a vis funding for UNRWA. 
 
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Support to Vulnerable Palestinians to Continue 
------------------------ 
 
4. (C) Angelini indicated that ECHO plans to provide roughly 
35 million euros to assist vulnerable Palestinians in the 
Middle East.  He added that the amount could increase, as was 
the case in 2002 and 2003 "when UNRWA eventually, but not as 
a pre-planned choice, received about one third of the euros 
38 million that were finally allocated to Palestinians."  He 
said ECHO will adopt a first funding decision near the end of 
April, which he estimated to total around 25 million euros, 
with about one third responding directly to the UN's 2004 
consolidated appeal (CAP).  Angelini said that the largest 
portion of these CAP-related funds probably will be allocated 
to UNRWA and WFP. 
 
5. (C) Angelini also described ECHO's planned response of 
shelter needs.  To address the house demolitions in Rafah, 
ECHO will probably make one million euros available to UNRWA. 
 Another euros 4 million has been reserved for shelter needs, 
but is pending discussion with UNRWA and the results of the 
June Geneva Conference.  Angelini emphasized that ECHO does 
not make allocations by agency, but instead based upon an 
assessment of the operational capacity of its implementing 
partners and therefore cannot "plan" exactly how much they 
"intend to contribute specifically to UNRWA this year." 
 
------------------------ 
Support to the Palestinian Authority 
----------------------- 
 
6. (C) Based on information obtained during the 2/18 meeting 
with Berger and additional information obtained by USAID 
Development Counselor on 2/19 from DG RELEX, the EU's 
financial support to the Palestinian Authority (PA) is 
currently under discussion and should be proposed within the 
next week.  (Note.  The OLAF report on alleged irregularities 
on the use of EC funds is due to come out in March.  While 
the EC does not expect anything dramatic, their ability to 
deliver on the 2004 budget is directly related to the OLAF 
findings.  End Note.)   Funding decisions are based on a 
four-year cycle, with the 2002-2005 cycle nearing its end. 
Though there is a desire to match last year's funding amount 
of 80 million euros to the PA, this year's contribution may 
be smaller due to overall budget constraints.  The EC's 
strong preference is to provide support through the World 
Bank Trust Fund but will do so only if their contributions 
are matched by other donors. They will be actively seeking 
support for matching funds from other donors, including EU 
Member States, Japan, Norway, Arab League, the U.S., etc. 
 
7. (C) On the issue of disbursements from the 2003 budget 
support fund, the first tranche of 40 million euros has been 
deposited into a single Treasury account for the PA budget 
and is currently pending review. The EC has a certifier and 
an Ernst & Young auditing team to review and release payment 
based on satisfactory documentation.  Of this first tranche, 
6 million euros has been released, with the remaining euros 
34 million euros under review.   Both sources suggested that 
20 million euros could be released shortly. 
8. (C) The second tranche of 40 million euros is much more 
complicated; it has not yet been deposited because certain 
conditions must first be met.  The conditions include pension 
contributions, external audit and understandings on the 
salary payments for the security services through deposit 
accounts.  (Note.  These conditions were made at the request 
of the PA during prior consultations with the EC.  End Note.) 
 A meeting between PA Prime Minister for Finance Salam Fayyad 
and President Prodi on 2/18 helped to clarify the problems 
surrounding security payments. According to DG RELEX, Fayyad 
now has 40 percent of all security personnel receiving salary 
payments through deposits into their accounts.  He would like 
to expand this to the remaining 60 percent within the next 
few weeks, but he is facing "fierce resistance".  PM Qurei 
told HiRep Solana this week that the PA cabinet has taken a 
decision to begin all salaries under the bank transfer 
method, but was vague on how/when this would be implemented. 
The EC agreed to look at possibilities over the next few 
weeks.  RELEX stressed that although the funds are currently 
unavailable, they can be used as collateral to acquire loans 
and pay salaries.  In essence, it should not be seen as a 
substantial hindrance to the functioning of the PA. 
 
SCHNABEL