Fifty-ninth General Assembly

Fifth Committee

24^th Meeting (AM)

Budget Committee takes up capital master plan

 

aimed at refurbishing UN Headquarters

 

Delegates in the Fifth Committee (Administrative and Budgetary) this morning expressed serious concern about the state and possible means of financing of the capital master plan for the refurbishment of the United Nations complex in New York, which was initiated by the Assembly in resolution 57/292 two years ago.

Although nobody doubted the need to move expeditiously on the plan to update the United Nations Headquarters and bring the buildings in conformity with modern standards, several speakers expressed misgivings over the fact that, while an interest-free loan from the host country would have been the most advantageous financing option, the United States had only offered the Organization an interest-bearing loan in the amount of $1.2 billion, pending approval by the Congress.

Speaking on behalf of the European Union and associated States, the representative of the Netherlands said that the condition of the United Nations Headquarters in New York were not only inadequate by almost all modern standards, but also downright dangerous, with falling concrete, asbestos, exploding steam valves, inaccurate fire alarm signals, and incomplete or non-existent sprinklers.  In the context of the Committee’s discussions on safety, one needed little imagination to picture the disastrous consequences in the event of a serious emergency.

It was regrettable that the current provisional financing offer from the host country had not, thus far, moved the Committee forward as much as expected two years ago, and that the Organization had to investigate other financing options, he said.  Not only did host countries bear special responsibilities towards the United Nations, they also derived special benefits from its presence.  The countries he represented would keep looking at alternatives that would bring the United States’ offer more into line with the practice established in other host countries.

Cuba’s representative found it unacceptable that, if the United Nations agreed to the host country’s offer, the Member States in the long run would end up paying, including interest, more than twice what was lent to the Organization.  He was struck by the fact that, despite the Secretary-General’s reservations about terms of the provisional offer, that deal seemed to be considered the only real and feasible option at the present time.

It was clear that the possibility of obtaining an interest-free loan was not viable at this stage, the representative of Venezuela said.  However, when adopting resolution 57/292, Member States had acted on an understanding that the Organization would get interest-free financing from the host country.  As a result, the Committee was now confronted with the question of how to proceed.  Under the circumstances, the decisions on phases I and II of the plan had changed their meaning.  Now, it was necessary to carry out a study of the proposal before the Committee, its implications and other options.  Based on that, the entire concept could change.

Several speakers also remarked on the worrying developments regarding the new building, referred to as “UNDC-5”, which was intended to act as “swing space” during the refurbishment of the Headquarters complex.  Although the construction of the new building had been planned to begin in 2004, delegates commented on the fact that the Organization was now faced with a delay of at least 27 months in its completion.  In the meantime, the costs had risen; the planned financing through issuing tax-free bonds seemed uncertain; and there had been significant delays in the architectural and planning work.

Updating the Committee on the latest developments, the representative of United States said his country’s offer of up to $1.2 billion as a loan to the United Nations remained on the table.  President George W. Bush had made that offer personally to Secretary-General Kofi Annan, and it had been incorporated in the President’s budget request to the Congress for fiscal year 2005.  His delegation was optimistic that it would become a firm and formal offer when the Congress finished its work on the budget.  He hoped to see an approved budget on the President’s desk by the end of this year, and his country was prepared to work with the Secretary-General and MemberStates to find the most cost-effective way to draw on the loan.

Regarding the UNDC-5, he said that his delegation was engaged in the efforts to secure the approval of the New York state legislature to extend the United Nations District in Manhattan to include Robert Moses playground at 42nd Street and First Avenue.  Work was also under way to “de-map” that part, so that a new building, UNDC-5, could be constructed there as a swing space.  The state legislature was expected to act this week to approve a bill to extend the United Nations District.  The urgent need for a second bill to be approved before the May 2005 resumed session had been conveyed to the legislative leaders in Albany.

Also speaking today were representatives of New Zealand (also on behalf of Australia and Canada), China and Japan.  Documents before the Committee were introduced by Assistant Secretary-General for Central Support Service, Andrew Toh; Under-Secretary-General for Internal Oversight Services, Dileep Nair; and Chairman of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), Vladimir Kuznetsov.

The Committee will meet again at 10 a.m. Thursday, 18 November.

Background

The Fifth Committee (Administrative and Budgetary) this morning was expected to take up the capital master plan for the refurbishment of the outdated United Nations complex in New York.

The Committee had before it the Secretary-General’s second annual progress report on the implementation of the capital master plan (document A/59/441), which outlines activities undertaken in 2004, provides updates on developments since the first annual progress report, and seeks necessary appropriations to finance the continuation of activities in 2005.

The capital master plan was approved by the Assembly in December 2002, when, by the terms of its resolution 57/292, it expressed concern over the hazards and deficiencies of the current United Nations buildings and endorsed modernization of the existing complex and construction and lease purchase of a new United Nations building south of 42nd Street.  The project was initiated following a report of the Secretary-General, which showed that “users of the Headquarters site, including delegates and staff members, have a lower chance of survival during a fire, consume more energy at a higher cost, and face greater obstacles to accessibility and productivity than they would elsewhere in New York City or in other major cities of the world”.

By the resolution, the Assembly appropriated $25.5 million for the first design phase of the capital master plan and provided commitment authority of $26 million for 2004-2005 for the second design phase, consisting of the preparation of construction documents.  The design development phase was originally to be completed in 2004, and the construction documents phase by the end of 2005.  However, as the procurement and contracting process has taken longer than anticipated, the design development phase is now projected to be completed in 2005, with construction documents completed in 2006.

The report states that, despite the delays, both phases of the plan are projected to be completed within the budgets approved and the level of commitment authority provided by the General Assembly.  However, the Secretary-General recommends that the General Assembly convert $18.64 million of the commitment authority into an appropriation for the 2004-2005 biennium, and to extend the validity of the remaining balance of $7.36 million into the 2006-2007 period.

The report also includes an update on the progress in the construction of a new building to function as a “swing space” for conference and meeting rooms during the refurbishment of the Headquarters complex.  Construction of the new building, referred to as UNDC-5, was anticipated to begin in 2004.  However, the higher revised estimates for the building and ongoing negotiations with the city and state of New York could call into question the viability of the building as a swing space.  Accordingly, the Secretary-General intends to identify and evaluate other options.  In the meanwhile, he recommends that the Assembly support continued negotiations with the city and state for construction of a new building at a lease-purchase cost in line with the costs of UNDC-1 and UNDC-2.

In an update on procurement, the report states that 13 contracts, in the total amount of $10.4 million, have been awarded since the beginning of the design development phase of the capital master plan in 2003.  These include five design contracts and related contracts for advisory services.  In addition, the contract for design services for the Secretariat and South Annex buildings and the contract for the provision of programme management services for the design phase will be finalized shortly, together totalling an estimated $3.8 million.

A report on the status of possible funding arrangements for the capital master plan (document A/58/729) detailed a provisional offer received from the host country for a loan of $1.2 billion for its financing at an interest rate of 5.54 per cent, pending approval by the United States Congress.  Under the terms of the offer, after the construction phase, which is to last five years, the loan would be converted to a permanent loan to be repaid over a period of 25 years.  The total principal and interest repaid over the life of the loan –- including the construction phase –- would amount to $2.51 billion.

Since the submission of the first progress report, the Secretariat has solicited additional financing options from the host country that are more advantageous to the United Nations.  Once approved by the United States Congress, a loan agreement must be entered into before 30 September 2005 (the end of the United States fiscal year) or the offer lapses.  Once the agreement is signed, the loan could be activated at any time over the next 35 years.  The host country has informed the Secretary-General that the United Nations will incur no liability if it signs the loan agreement but does not activate the loan.

In the opinion of commercial financial institutions contacted by the Secretary-General for advice, the United Nations could not obtain, in the current market, a lower fixed rate than that proposed by the host country.  The Secretariat also explored additional options to reduce the amount of interest payable over the course of the loan.  Such options, however, are conditional on the United Nations using the offer of a loan from the host country as a guarantee, and on the loan being structured into two distinct components:  a loan for construction financing and a permanent loan.

The interest on the amounts borrowed by the United Nations will have to be paid through contributions by Member States, the report continues.  One payment option would be the normal assessment process, starting the year construction begins.  Alternatively, prior to the start of construction, a MemberState could pay the totality of its assessed share of the $1.2 billion.  A MemberState choosing this second option would have no commitment to meet any future interest charges associated with repayment of the loan from the host country.  Any payments made in this manner would also reduce the overall loan amount required.

The report notes that the offer from the host country of an interest-bearing loan did not meet the expectations of the Assembly, and that the Secretary-General maintains the view that an interest-free loan would be the most advantageous option.  Nevertheless, the offer does provide a financing package that, if accepted by the Assembly, would allow the Organization to lock in the current interest rate for the loan.  The offer of the loan, when used as a guarantee, will enable the United Nations to have access to capital-market interest rates that could reduce interest costs.  The Secretary-General recommends that the Assembly take up this matter again during the resumed part of its fifty-ninth session.

The Secretary-General’s report on plans for three additional conference rooms and viable solutions for allowing natural light into the rooms (document A/58/556) outlines three possible options.  Among those is the possibility of creating three new mid-sized conference rooms on the first basement level of the Headquarters building, which was identified in the capital master plan report submitted to the Assembly in June 2000.  The projected budget for the capital master plan includes $6 million for the cost of creating the new conference rooms.  Among the criteria used in planning the layout for the new conference rooms, were the considerations of optimizing natural light; minimizing impact on pedestrian circulation flows; and overall cost.

The report notes that, on the basis of recent demands and future trends, one larger conference room with a seating capacity of 100 delegates and two combinable smaller conference rooms with a seating capacity of 60 delegates each will be required in the future.  Natural light can be introduced into the new conference rooms through skylights, or windows.  The introduction of natural light would increase the cost of the rooms by some $.7 million to $1.2 million, depending on the scheme selected.  As two of the options fully satisfy the basic criteria, they will be pursued in the design development work of the capital master plan.  During the confirmation phase of design development, it will be necessary to select a single option.  The decision to include construction options to introduce natural light into the conference rooms will be subject to the overall cost of the refurbishment of the General Assembly building as a whole, while remaining within the budget at subsequent phases.

The report on viable options for ensuring sufficient parking space at United Nations Headquarters (document A/58/712) sums up past and projected demand and presents options to increase the number of parking spaces.  Option 1, reallocation of storage and configuration of parking spaces, would entail reorganization and rationalization of the existing garage and would add 66 parking spaces at a low initial cost and no additional operating cost.  The second option, new construction, contains a group of possibilities.  The costs associated with option 3, mechanized space-saver parking, would be substantial and its added value-to-cost ratio would be low.  Option 4, attendant-assisted (valet) parking, could provide better use of limited parking space and parking capacity could be increased without additional construction.  It could be introduced in certain areas and could be justified for use by those garage users who were willing to pay about $500 a year.

The Secretary-General recommends the first option, namely reorganizing and rationalizing storage and parking space at the sub-basement levels as a cost-effective solution for ensuring sufficient parking space at the Headquarters parking garage.  New construction and mechanized and attendant-assisted parking necessitate substantial construction and operating costs and would exceed the baseline budget for the capital master plan.

The report on cooperation with the city and state of New York related to the capital master plan (document A/58/779) provides an update on the status of negotiation with the city and state on implementing the plan.  New York City has developed a plan to mitigate the effects on the community of the construction of the new building, to be known as the UNDC-5 building.  The city has been working with New YorkState legislature to develop an appropriate mitigation plan, which is expected to be introduced and enacted at the upcoming 2005 legislative session.  Progress has also been achieved by the United Nations Development Corporation regarding the design work, which would allow construction of the building to begin in late 2005, pending the resolution of other related matters.

Also before the Committee was a report of the Board of Auditors on the capital master plan (document A/59/161), for the biennium ending 31 December 2003, which found that delays in the initiation of the design development and construction documentation phases may result in an estimated 3.5 per cent increase in design fees and a rise in administrative and operating expenses of approximately $2.6 million per year.

The Administration agreed with the three major recommendations made by the Board —- namely, that the Administration should study and adopt measures to minimize administrative and management costs; comply strictly with United Nations regulations and rules on procurement and contracting; and identify and address all causes of delay in the initiation of the design development and construction documentation phases to ensure their timely and economical completion.

However, the Administration noted that the effect of internal delays on the design development and construction documentation phases would have little to no effect on the overall project cost, in view of the fact that the critical schedule date, based on the availability of the swing-space building, had been moved to the end of January 2008.  Given the delay in the schedule for the swing-space building, the Administration was of the view that that design activity for the capital master plan should not be completed significantly in advance of the bidding, as design documents must reflect up-to-the-minute catalogue and model numbers, the latest technology, information about manufacturers, current availability of labour and material types, and actual events in the construction of the swing space.

Of the financial issues raised by the Board, high staff costs in 2002-2003 prompted the greatest concern.  The Board noted that they comprised 48 per cent of all actual expenditures ($2.074 million out of a total $4.306 million).  Among the irregularities in procurement and contracting, the Board noted a $135,000 expense for models and three-dimensional renderings of the United Nations complex, delivered without prior approval or prior agreement, and the granting of an exceptional waiver from formal bidding for landscape and curtain wall replacement design.  Finally, with regard to programme management, the Board restated the importance of complying with General Assembly resolution 57/292, which requested that the Secretary-General put in place strict control standards for all phases of the capital master plan so as to ensure that there are no cost overruns associated with the overall project and that the project is completed successfully within the envisaged time frame and budget, and within the agreed technical specifications.

The Committee also had before it an Office of Internal Oversight Services (OIOS) report on the capital master plan (document A/59/420), which presents the results of an audit that took place in August 2003 to July 2004.  The OIOS audit was intended to determine whether adequate internal controls were established and implemented by the Office of the Capital Master Plan and other United Nations departments and offices responsible for the execution of the capital master plan project.  In that context, the OIOS reviewed contracts with an aggregate value of $59 million.

The OIOS concludes that the resources appropriated for the capital master plan were generally utilized in accordance with the United Nations financial rules.  However, it found that operating procedures and documents related to construction contracts needed to be improved.  The Office expresses concern that construction documents for the security strengthening project may not be entirely adequate, because the construction manager and contract administrator were not on board during the design stage.

Among other findings is the fact that inconsistencies in the construction documents and the potential for cost savings, identified by the constructability review, apparently had not been addressed by the Office of the Capital Master Plan prior to the issuance of the request for proposals.  This may create project implementation delays and cost overruns.  The OIOS also found that guarantees provided by the contractor for the performance of the security strengthening construction contract were not adequate.

According to the document, most of the OIOS recommendations addressing the issues identified during its reviews have been implemented or are in the process of being implemented by the Office of the Capital Master Plan, with the support of the Procurement Division and the Office of Legal Affairs, when needed.

On financing the project, the Advisory Committee on Administrative and Budgetary Questions (ACABQ), in a related report (document A/59/556), points out that the offer had been included in the proposed United States budget for fiscal year 2005 and would likely not be subject to change.  However, since the proposed offer cannot be formally made by the host country until the legislative process has been completed, the Advisory Committee is not in a position to submit any views on it at this time and will revert to the matter if and when a formal offer is made.

Further in the report, the ACABQ encourages the administration to continue to look for ways to reduce administrative expenses and urges the Secretary-General to expedite the setting up of the Advisory Board to advise him on financing matters and overall project issues.  It is expected that the Board will be established by the end of 2004.  The ACABQ also says that a wide range of options is needed to be considered for financing the project and for dealing with the need for swing space during construction.  As a number of basic parameters have changed since the Assembly adopted resolution 57/292, including the nature of the financing arrangements and the cost of construction, the Assembly may wish to take these developments into account when considering the recommendation of the Secretary-General that it reaffirm its decision in resolution 57/292 to implement the capital master plan.

Given the current uncertainties of the financial arrangements for the capital master plan as a whole, the Advisory Committee believes it is premature to make a recommendation on the issues of the layout of additional conference rooms or the options for increasing parking space at Headquarters.

The ACABQ further recalls that, owing to the delay in implementation of the first two phases of the plan, the Secretary-General will need to provide for expenditures to be incurred in 2005 and 2006.  He, therefore, proposes converting an amount of $18.64 million of the commitment authority of $26 million approved for the biennium 2004-2005 into an appropriation for the biennium 2004-2005 and extending the validity of the residual balance of the commitment authority in an amount of some $7.36 million into the biennium 2006-2007.  The Advisory Committee recommends approval of this proposal.

Introduction of Documents

ANDREW TOH, Assistant Secretary-General for Central Support Service, introduced, on behalf of the Under-Secretary-General for Management, reports of the Secretary-General on the second annual report on the implementation of the capital master plan; plans for three additional conference rooms and viable solutions for allowing natural light into the rooms; options to ensure sufficient parking spaces; and cooperation with the city and state of New York related to the capital master plan.

He described the capital master plan as, in a nutshell, a major renovation plan to improve the health and safety of everyone working in or visiting the Headquarters complex.  Recognizing the importance of the project to the welfare of staff and delegates, the General Assembly had appropriated $25.5 million at its fifty-seventh session for design and pre-construction activities, as well as commitment authority to the Secretary-General of up to $26 million for the biennium 2004-2005 to complete its work.

The report outlined the host country’s provisional offer of a $1.2 billion loan to finance the capital master plan, at an interest rate of 5.54 per cent to be paid annually.  The Secretariat had also explored other options, including cost-effective commercial alternatives using the host country loan as a guarantee.

He noted that the construction phase of the capital master plan was predicated on the temporary relocation of staff into a swing space, so that work can continue to be carried out on the current premises.  However, several factors, security being the most significant, may affect the cost of the swing space –- and other possibilities were being re-examined.  The United Nations had retained the services of a professional programme management firm to assist the Organization in managing design and implementation of the capital master plan, paying particular attention to schedule and cost control.  The Secretariat viewed recent developments in securing financing, as well as progress in design and management, as positive developments for that important project -– and sought the General Assembly’s approval to appropriate the remaining $26 million for the completion of the design phase in 2005.

DILEEP NAIR, Under-Secretary-General for Internal Oversight Services, presented the OIOS report on the audit of the United Nations capital master plan for the period from August 2003 through July 2004.  The report summarized OIOS audit activities during the reporting period and did not contain any new recommendations addressed to management.  The audit also included the construction phase of the Security Strengthening Project, the execution of which had been entrusted to the Office of the Capital Master Plan.  Overall, the OIOS reviewed contracts with an aggregate value of $59 million.

Based on its review, OIOS concluded that the resources appropriated by the General Assembly for capital master plan activities were generally used in accordance with the United Nations financial rules.  However, the Office also found that United Nations operating procedures and construction-related documents needed to be improved to ensure the capital master plan project was implemented efficiently and economically.

The results of the OIOS review of the construction phase of the Security Strengthening Project were being communicated in a separate report.  In the present report, the OIOS highlighted weaknesses in the preparation of the construction documents, which may cause project implementation delays and cost overruns.  The OIOS also found that the guarantees provided by the contractor for the performance of the Security Strengthening construction contract were not adequate.

Chairman DON MACKAY (New Zealand) also drew the Committee’s attention to a report of the Board of Auditors on the capital master plan for the biennium ending 31 December 2003.

The Chairman of the ACABQ, VLADIMIR KUZNETSOV, then introduced the related reports on the capital master plan.  The Advisory Committee had taken into account the report of the Board of Auditors.

He noted that a number of the initial expectations that were current when the capital master plan was originally approved had now changed.  First, it now seemed unlikely that the United Nations could obtain interest-free financing from the host country.  Also, security concerns and other factors had resulted in significant increases in the cost estimates for the swing space.  All of that underscored the urgency of establishing an advisory board, as called for in an earlier General Assembly resolution.

The ACABQ indicated that the General Assembly may wish to take the changed parameters concerning financial arrangements and increased construction costs into account –- and may also wish to provide guidance regarding options for financing and alternatives for the swing space.

Statements

MARK ZELLENRATH (Netherlands), speaking on behalf of the European Union and associated States, said that the Union’s position on the capital master plan was well known to all:  the condition of the United Nations Headquarters in New York were not only inadequate by almost all modern standards, but also downright dangerous, with falling concrete, asbestos, exploding steam valves, inaccurate fire alarm signals, and incomplete or non-existent sprinklers.  In the context of the Committee’s discussions on safety, one needed little imagination to picture the disastrous consequences in the event of a serious emergency.  Therefore, it was necessary to move expeditiously on that matter.

It was regrettable that the current provisional financing offer from the host country had not, thus far, moved the Committee forward as much as expected two years ago, and that the Secretariat had been asked to look for other financing options, he said.  He reiterated his belief that host countries bore special responsibilities towards their respective United Nations presence.  It should also be borne in mind that host countries derived special benefits from the presence of the United Nations.  The countries he represented would keep looking at alternatives that would bring the host country’s offer more into line with established practice in other host countries.  However, the Union recognized that the main part of the fifty-ninth session was not the time to discuss the financing of the capital master plan as a whole, particularly as the United Nations Congress had not yet made a final decision on a provisional loan offer.

Turning to the issue of swing space, he said that the progress report identified several worrying developments regarding the UNDC-5.  The costs had risen, the planned financing through issuing tax-free bonds seemed uncertain; there was, as yet, no agreement on the mitigation process with the New York city and state authorities; and there had been significant delays in the architectural and planning work.  The Organization was now faced with a delay of at least 27 months in the completion of the building and serious doubt regarding the viability of the building as a long-term consolidation building for the United Nations.  The Union would like to know when it could receive more certainty on UNDC-5.  He also asked about the contingency plans, should UNDC-5 fall through.

Continuing, he said that the advisory board should be formed as expeditiously as possible to provide advice to the Secretary-General on possible commercial borrowing and financing options.  He wondered why that had not happened earlier, and would be interested in the details on the projected membership.  On the progress of additional conference rooms, allowing natural light into the rooms and parking spaces, he agreed with the ACABQ that it would be premature to make decisions on those issues.  However, he would ask some questions in connection with the Board of Auditors report in informals.

In conclusion, he said that much had changed since the capital master plan had been discussed two years ago.  Many questions still needed to be resolved.  Nevertheless, he still believed that the plan could not be simply put on hold.  Therefore, he approved the conversion of $18.6 million of the original commitment authority into an appropriation for 2004-2005.  He also approved the commitment authority for 2006-2007.  The activities to be funded through that appropriation would be of such a basic nature that they would remain necessary, notwithstanding any major changes to the original capital master plan.

ANDREW BEGG (New Zealand), also speaking on behalf of Australia and Canada, said that the capital master plan was extremely important because of the collective obligation of Member States to create a safe and efficient environment for the staff and others who used United Nations facilities.

The Secretary-General’s progress report provided important, if not encouraging information on the status of possible funding arrangements for the renovation and the work by the United Nations Development Corporation on the DC-5 building, he continued.  In the context of the host country’s offer of an interest-bearing loan, the report provided helpful information on how total costs varied with the amortization period.  It also showed how a loan through capital markets for the construction period could reduce costs.  On preliminary review, none of the options involving an interest-bearing loan seemed more economical than simply paying through assessment as the project proceeded.  He could only regret that the idea of an interest-free loan was not now under active consideration.  Such an option would reflect economic benefits that accrued to the host country from its position as host.

The delegations he represented were concerned about the serious delays in the development of DC-5 and the sharp escalation in costs, which raised questions about its viability, he said.  While continuing to work with the United Nations Development Corporation, the Secretary-General would need now to report to the Assembly on other swing-space options.  He would like to know how much of the cost escalation stemmed from security-related design features.  What was the status of tax exemption for the bonds to finance the DC-5 building and how did that affect the cost?  He noted that the legislative action to enable the building to be built had not yet been taken.  He looked forward to those practical expressions of the stated commitment of host authorities.

The appointment of an advisory board was overdue, he added.  He was pleased that the Secretary-General now intended to proceed with that immediately.  He agreed with the ACABQ on the viability of parking space options and the timing of recommendations on the layout of conference rooms.  He was glad that the Secretary-General had agreed to the recommendations of the Board of Auditors, including taking steps to minimize administrative costs.  He could support the proposal to appropriate $18.7 million of the $26 million commitment authority approved for design and pre-construction services.

HOWARD STOFFER (United States) said that his country remained fully committed to the capital master plan and the decision of the Assembly to implement it as expeditiously as possible.  He fully supported the recommendations of the Secretary-General that called for the General Assembly to authorize full appropriations requested for 2005 and 2006 to continue the design work, related project management and management of pre-construction services for the baseline scope of the plan.

As a host country, the United States was offering up to $1.2 billion as a loan to the United Nations, he continued.  President George W. Bush had made that offer personally to Secretary-General Kofi Annan, and it had been incorporated in the President’s budget request to the Congress for fiscal year 2005.  That offer remained on the table, and his delegation was optimistic that it would become a firm and formal offer when the Congress finished its work on the budget.  Both houses of Congress had already approved the Department of State’s budget for 2005 that included a provision for a $1.2 billion loan to the United Nations.  He hoped to see an approved budget on the President’s desk by the end of this year.

His country was prepared to work with the Secretary-General and Member States to find the most cost-effective way to draw on the loan, including consideration of the financing options contained in annex I to the Secretary-General’s progress report, as well as options that would use the loan as collateral.  His delegation was also ready to look at options for drawing on the loan for shorter periods, to reduce the interest rate, or consider other mechanisms that would balance the overall cost of the project with flexible arrangements within the parameters of the loan that offered MemberStates and the Secretary-General every opportunity to use the loan to maximum advantage.  He supported the Secretary-General’s proposal that the Fifth Committee take up the capital master plan in its second resumed session.  It would be necessary to reach a decision at that time, for the Secretary-General would need to be given authority to sign an agreement for the loan prior to 30 September 2005, when the offer would lapse at the end of the United States fiscal year.

His delegation was working closely with the Office of the Capital Master Plan and the city and state of New York through the United Nations Development Corporation, he said.  It was engaged in a process to secure the approval of the state legislature to extend the United Nations District in Manhattan to include Robert Moses playground at 42nd Street and First Ave.  Work was also under way to “de-map” that part, so that a new building, UNDC-5, could be constructed there as a swing space.  The New York state legislature was expected to act this week to approve a bill to extend the United Nations District.  The urgent need for a second bill to be approved before the May 2005 resumed session had been conveyed to the legislative leaders in Albany.

His delegation was also carefully looking at ways to bring the design and engineering costs of UNDC-5 within the scope of comparable rents that could be expected in other new local office buildings over the next 25 years and beyond.  The current offices of the United Nations at DC-1 and DC-2 were well over 30 years old and were not as secure as planned for DC-5.  They would need to be refurbished, at a cost to be borne by the United Nations as an additional financial measure.  While more expensive in terms of future rent, DC-5 would belong to the United Nations after 25 years.  There would be no rental costs associated with that building after the handover, while DC-1 and DC-2 would have to pay rent for an indefinite period and would also soon need to be refurbished.

WANG XINXIA (China) began by noting that her delegation had received the report of the ACABQ only this morning and regretted that the document was issued so late.

She took note of the Secretary-General’s report, and particularly paragraphs 11 to 23, which explained in detail the provisional loan offer extended by the host country and the possibility of using commercial alternatives for financing the capital master plan.  Agreeing entirely with the view of the Secretary-General, China believed that an interest-free loan would be an ideal token of the host country’s responsibility –- and regretted the inability of the host country to extend such an offer.  Despite her delegation’s disappointment, they would remain open to the funding arrangements described in the report of the Secretary-General.  However, in studying all available options, China hoped that the Secretariat would try to find a solution that had minimal implications for Member States.  She asked whether it was possible, for example, to consider assessing Member States in stages, to meet the needs of actual construction requirements -- rather than charging them in a totality, in one fell swoop.

She noted that, while the OIOS found that resources were generally used in accordance with United Nations financial rules, some problems remained and there was more potential for cost-saving.  She highlighted the issue of inconsistencies in construction-related documents -– and registered concern about the OIOS finding that the guarantees provided by the contractor for the performance of the security strengthening construction contract were not adequate and fell far short of industry standards.  China asked that the Secretariat work to implement the suggestions of the OIOS in that regard.

She asked the Secretariat to clarify whether the security strengthening project described in the current report was related to phase 1 and phase 2 of the security strengthening plan.  Also, if the security plan was to be implemented together with the capital master plan, would the original plan be modified accordingly?  She also expressed concern about the use of the unspent balance of $4.8 million, which was pooled in a construction-in-progress account.

Mr. BERTI OLIVA (Cuba), while noting the importance of the capital master plan, stressed that the costs involved must be carefully analysed.  The issue of costs was especially significant for developing countries, including those that had recently had significant increases in their assessments.

Cuba was concerned that, even as these reports were presented, there was still no official offer from the host country.  The provisional offer submitted to the Committee last March did not meet the expectations of the General Assembly, as indicated in the Secretary-General’s report.  If the United Nations accepted the offer, the Member States in the long run would end up paying, including interest, more than twice what was lent to the Organization.  “This is something my delegation finds unacceptable”, he said.  He was struck by the fact that, despite the Secretary-General’s reservations about terms of the provisional offer, that deal seemed to be considered the only real and feasible option at the present time.

He hoped that an advisory board might offer new opinions.  He asked what commercial financial institutions had been contacted by the United Nations for advice on these issues, and also asked what was the planned composition of the advisory board.

He noted with concern the considerable increase in projected costs for the UNDC-5 swing space –- and asked whether the overall costs included mitigation of possible risks, including special reinforcements for the building.  Regarding the special security measures considered in the current session, he asked whether they had taken into account the readjustment of Headquarters, as well as construction of the new UNDC-5 building.  His delegation would like the Secretary-General to tell the Committee how the new security design would impact on planned costs.

He expressed deep concern over paragraph 33 of the report of the Board of Auditors, which noted that the administration did not strictly comply with the standards and regulations of the United Nations in terms of procurement in granting an exceptional waiver from formal bidding for the landscape design and window replacement.  He did not accept the explanation given by the administration.  Absolute transparency in the bidding process was crucial, and would strengthen the image of the United Nations, as it promoted models to fight corruption.  The incident reinforced the need to have a real and effective accountability system.  He asked for the Secretariat to comment on the situation.

He also asked why there had been delays in the design development and construction documentation phase of the project, which would lead to increased costs.  He noted paragraphs 42, 43, and 44 from the Board of Auditors report, the section that focused on the delays, and asked for clarification from the Board about whether there would be additional costs.  He also found it disturbing that a significant portion of the expenses for the capital master plan were consumed by administrative and management costs.

He took note of the requests of the Secretary-General, but believed that the decision to go ahead with the capital master plan was linked to the decision of the host country to offer an acceptable loan.  Given the various uncertainties, he believed that it was not necessary to grant a new appropriation when there was still no clear information on future costs and their implications on assessments for Member States.

HITOSHI KOZAKI (Japan) said that, since his delegation had just received the ACABQ report, he was not in a position to make a statement today.  However, he would raise some questions and concerns in informal consultations.

ASDRUBAL PULIDO LEON (Venezuela) agreed that the documents had been issued late and said that he would only make some general comments today.  He shared some of the opinions expressed by the representatives of the Netherlands (on behalf of the European Union), Cuba, China and New Zealand (also on behalf of Australia and Canada).  From the reports before the Committee, it was clear that the possibility of obtaining an interest-free loan was not viable.  As a result, the Committee was now confronted with the question of how to proceed.  When adopting resolution 57/292, Member States had had an understanding that the Organization would get interest-free financing from the host country.  Given the fact that was not the case, the General Assembly at this point still did not have a clear picture of financing mechanisms and the amounts of possible assessments.

He believed that, under those circumstances, the decisions on phases I and II had changed their meaning, he continued.  Now, it was necessary to carry out a study of the proposal before the Committee, its implications and other options.  Based on that, the entire concept could change.  As a result, he was concerned that the Secretary-General was asking for the appropriation of over $18 million to continue with phase II of the plan.  He would like to receive a breakdown of what those resources would be used for.  According to the Secretary-General’s report, resources provided so far had been used for staff, support and consultancy costs.  Given that there was no clear picture on how to proceed, the resources approved in resolution 57/292 could be misused, and he advocated caution in granting appropriations.  The time had come to make firm decisions.  It was necessary to take into account a cost/benefit ratio, and he agreed with Cuba that an accountability and responsibility mechanism was also of great importance.

In conclusion, he asked several questions regarding the construction of the new fence around the perimeter of the United Nations complex, wondering if it was an effective safety measure.  The effect so far was that it made the complex uglier.  Was it a temporary or permanent fence?  What was its purpose?

Mr. TOH, responding to statements from the floor, noted that several delegations had expressed concern over the delays in the design and construction of DC-5.  Everyone involved in the project shared that concern.  The Secretariat was working to resolve the issues that contributed to the delays, but some of those issues were outside their control, particularly the legislative issues.  They had received extremely strong support from the city of New York, particularly the Mayor’s office.  The United States mission had also been very helpful, especially in resolving issues in the legislative process, which requires action by New YorkState.

Regarding the advisory board, they had started looking for suitable candidates several months ago.  However, at such a preliminary phase it was difficult to determine the time commitment that would be required, and many prospective board members had expressed concern about that.  The Secretariat would continue to identify individuals with reputable positions in private industry, with experience in construction, as well as in finance.  He noted that several questions were raised regarding the security strengthening project, but deferred his response for when the Committee resumes its discussions on security, which was considered under a separate agenda item.

While several delegations had expressed concern over the use –- or misuse -– of resources given to the United Nations, he assured them that his colleague John Clarkson, Officer-in-Charge of the Capital Master Plan, was focused on stretching available resources as far as possible.  One measure already taken was to defer appointments of key personnel to implement the capital master plan, limiting recruitment only to those who were absolutely essential.

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