WIPO

PROGRAM AND BUDGET COMMITTEE

Second Session

Geneva, September 20 to 22, 2000

REPORT

adopted by the Committee

1. The second session of the WIPO Program and Budget Committee, hereinafter referred to as "the Committee," was held at the headquarters of WIPO from September 20 to 22, 2000.

2. The members of the Program and Budget Committee are the following States: Algeria, Bulgaria, Canada, Chile, China, Colombia, Croatia, Ecuador, Egypt, France, Germany, Hungary, India, Jamaica, Japan, Mexico, Morocco, Netherlands, Nigeria, Norway, Pakistan, Paraguay, Philippines, Republic of Korea, Russian Federation, Senegal, Slovakia, South Africa, Sri Lanka, Switzerland (ex officio), United Kingdom, United States of America and Uzbekistan (33). The members of the Program and Budget Committee which were represented at the session were the following: Bulgaria, Canada, China, Colombia, Croatia, Egypt, France, Germany, Hungary, India, Japan, Morocco, Mexico, Netherlands, Nigeria, Pakistan, Philippines, Russian Federation, Slovakia, Switzerland (ex officio), United Kingdom and United States of America (22). In addition, the following States members of WIPO but not members of the Program and Budget Committee were represented by observers: Albania, Congo, Côte d'Ivoire, Democratic People's Republic of Korea, Dominican Republic, El Salvador, Ghana, Guinea, Iraq, Indonesia, Ireland, Kazakhstan, Lithuania, Madagascar, Malaysia, Portugal, Republic of Moldova, Spain, Uganda and Zambia (20). The list of participants is provided as an Annex.

3. Discussions were based on documents WO/PBC/2/2 ("Adjustment to Budget Process, Policy on Reserve and Working Capital Funds, Policy on Budget Surplus"), WO/PBC/2/3 ("Program 12 (Information Technology Projects): Reappropriation of Elapsed Budget Authority 1998-1999 Financed by the Special Reserve Fund for Additional Premises and Computerization") and its addendum, WO/PBC/2/4 ("Revised Plan and Budget for the Renovation, Modernization and Extension of the ex-World Meteorological Organization (WMO) Building") and WO/PBC/2/5 ("Premises Plan 2000 to 2007, Progress Report on New Construction and Study on Energy Station").

4. The session was opened by Mr. François Curchod, Deputy Director General, who welcomed the participants on behalf of the Director General of WIPO.

5. The Committee unanimously elected Mr. Arturo Hernández Basave (Mexico) as Chairman and Mr. Vladimir Banský (Slovakia) and Mr. Raffaël Vonovier (Switzerland) as Vice-Chairmen of the Committee.

6. The Chairman invited any observations on the draft agenda contained in document WO/PBC/2/1 Prov.2. In the absence of any comment, the agenda was adopted.

Adjustment to Budget Process, Policy on Reserve and Working Capital Funds, Policy on Budget Surplus

7. Discussions were based on document WO/PBC/2/2.

8. The Secretariat was invited to introduce the document. It emphasized that the International Bureau was currently experiencing a paradox, namely that whereas on the one hand there were high levels of liquidity, on the other hand there were shortfalls in having adequate reserve and working capital funds. Moreover, the program and budget process witnessed disconnected decision-making, as it included decisions on the regular budget and decisions on projects funded from surplus resources. As a result, Member States involvement in the elaboration of the regular program and budget remained limited.

9. The Secretariat proposed to address these issues in four ways: first, by aligning the reserves and working capital funds with the financial risk to which each Union was exposed. Reflecting the requirements for each Union, the total levels of reserves and working capital funds, referred to as RWC funds, would be expressed as a percentage of estimated biennial expenditure, referred to as PBE factor, and implemented gradually over a number of biennia; second, by presenting all activities in a comprehensive manner as part of the regular budget process; third, by linking unforeseen budget surpluses with biennial budget processes. It was expected that this would have the effect of reducing excess liquidity and placing available funding to full use for the benefit of Member States and the users of WIPO services. Fourth and finally, a new budget process, including having a reconvened session of the Program and Budget Committee prior to the meeting of the General Assembly, would improve the involvement of Member States in the budget process, supporting decision-making and agreement on budget proposals. These proposals would transform the budgetary and financial operations of WIPO in a fundamental manner. The proposals were elaborated also in response to the request of Member States for a new policy on budget surplus and reserves put forward in March 1998. The Secretariat highlighted that the implementation of these proposals would contribute to prudent and efficient management, as well as to the empowering of Member States in the program and budget process.

10. The Delegation of France, speaking of behalf of Group B, expressed the Group's appreciation to the International Bureau and more particularly to the Director General and to the Office of the Controller for the proposals put forward to improve the budget process, as well as policies concerning working capital funds and reserve funds, and on the issue of budget surpluses. The consultation process which had enabled the satisfactory articulation of proposals by the Secretariat was also appreciated. A more rational and transparent budget process was now expected. Increased financial security should lead WIPO to further reduce fees, to produce more realistic budget estimates, to maintain budget discipline, and to increase transparency in the budget process. Expenditures related to fee-financed activities and those non-related to fee-financed activities should be held to the same stringent budgetary standards applied to other United Nations system organizations. Rolling surpluses into the regular biennial budget process was seen to improve transparency and also offered an opportunity to meet the needs of Member States and end users of WIPO's services.

11. The Delegation of Uganda, speaking on behalf of the African Group, congratulated the International Bureau for the proposals contained in the document prepared in a true spirit of transparency, particularly as these issues had already been discussed on earlier occasions. The proposed mechanism would lead towards streamlining the budget process in the International Bureau. In this respect, past concerns with parallel discussions when it came to dealing with budget surpluses would be avoided. It was hoped that in the future the Secretariat would ensure that resources available matched budgeted programs, as the proposal provided for self-adjustment mechanisms within the current legal framework. The efforts of the Director General in involving Member States in the budget formulation exercise and in providing increased transparency were commended. Concerning the level of reserves, the current proposals and the recommended adjustment mechanism were perceived neither as excessive nor insufficient to provide for changes in risk exposure and liquidity requirements. The proposal of adjusting budget surpluses was also appreciated, noting that its implementation would in the long run be in the interest of the International Bureau and its Member States, as it would not only streamline the budget process, align the RWC funds with the financial risk to which each Union was exposed, but also, more important, it would link unforeseen budget surplus with the biennial budget process of each Union, which would result in enhanced performance of WIPO.

12. The Delegation of Malaysia, speaking on behalf of the Asia Pacific Group, supported the proposal on adjustment of the budget process. It expressed the Group's view that the new and improved proposal would eventually help to streamline and shorten the existing two-stage review process, in particular by addressing the non-utilization of the five-month period between the last meeting of the Program and Budget Committee and the meeting of the General Assembly. On the proposals on policies on budget surplus, the need to give renewed attention to development cooperation activities was emphasized, and it was felt desirable that the Director General should be given flexibility regarding the use of budget surpluses.

13. The Delegation of Mexico agreed with the need to streamline the budget processes through a new schedule, as this provided for better involvement of Member States. It concurred with the proposed level of the RWC funds and stressed the need to maintain flexibility in the use of possible surpluses. It expressed its support to the proposals.

14. The Delegation of Bulgaria, speaking on behalf of the Central European and Baltic States, supported the proposals made by the Secretariat. It further stated that extensive informal consultations conducted by the Chair of the Program and Budget Committee during the last year made it possible to reach significant unanimity around the proposals. Adjustments to the budget process would contribute to make better use of time and to maintain sufficient consultations during this process. The proposed new policies on RWC funds, which would maintain the necessary flexibility to respond to new challenges, were also endorsed.

15. The Delegation of the Russian Federation expressed its support to the proposals in the document. In particular, it believed that the new approach to budget formulation was more rational, by allowing Member States to make efficient use of time in the preparation of the program and budget for each biennium. In addition, proposals referring to reserve funds would make it possible to make more prudent and transparent use of such funds by WIPO. The Delegation also expressed its support to the proposals for the use of budget surpluses.

16. The Delegation of the United States of America expressed its general agreement with the statement made on behalf of Group B and the proposals presented by the Secretariat. However, it stressed that it was of vital importance for WIPO to link increased financial security with a continuous move towards fee reductions, better income projections and increased accountability and transparency in WIPO's budgeting. Although it supported the proposal to roll surpluses into the budget process, it maintained that the most equitable way to reduce potential future surpluses was the implementation of progressive reductions in user fees and more accurate income forecast by the Secretariat. As regards the budgeting process, it supported the recommendations in the document for an improved budgeting cycle. It stressed the importance of having the program and budget document at least six weeks in advance of the Program and Budget Committee meeting, thus enabling a serious review by Member States. Concerning the proposed policy on RWC funds, it supported the proposal to establish a total level of RWC funds through a PBE factor for the contribution-financed Unions, the PCT Union, the Madrid Union and the Hague Union. It supported the proposal to adjust RWC funds by amending the level of reserve funds without having to seek additional working capital contributions from Member States. However, it proposed to have the words "for this and subsequent biennia" added at the end of paragraph 49 (ii). The proposed PBE factors of 15 per cent for the PCT Union, 25 per cent for the Madrid Union and 15 per cent for the Hague Union were supported. The Delegation opposed, however, the establishment of a provision of 10,390,000 Swiss francs for the contribution-financed Unions to cover arrears accumulated prior to 1994 as proposed in item (v) of paragraph 49. Instead, it was suggested to maintain the PBE factor for the contribution-financed Unions at 49 per cent rather than reducing the factor to 20 per cent. The Delegation also expressed that it could not support the consolidation, proposed in item (vi) of paragraph 49, of the presentation of the working capital funds for the contribution-financed Unions in the financial management report, as it considered that it would reduce transparency to Member States.

17. Concerning proposals on reserves, it proposed the addition to paragraph 49 of a new item (vii) with the text "to maintain a clear separation between reserve funds and working capital funds." Furthermore, it joined the consensus in adopting the proposal made by the Secretariat to discontinue the additions of future surplus revenues to the Special Reserve Fund for Additional Premises and Computerization and to apply such revenues in the first place to increase the reserve and working capital fund of the Union from which it was generated. Concerning the proposal to authorize the Director General to propose projects funded from available surplus, it proposed to add to paragraph 71 (iii) the following text: "Such project activities should be short-term and non-recurring in nature, and directly or indirectly benefit the end-users of WIPO services." Finally, it joined the consensus on the proposed implementation of the revised budget process and policy in the context of the 2002-2003 program and budget exercise.

18. The Delegation of Japan expressed its support to the intervention made by the Delegation of the United States of America. It requested the Secretariat to provide additional information concerning the formulation of proposed PBE factors, such as the 15 per cent proposed for the PCT Union. It expressed the view that establishing a provision to cover arrears prior to 1994 should not be viewed only under a financial perspective since Member States contributions were deeply rooted to other rights and obligations under the treaties. Concerning the prerogative proposed for the Director General to exercise under paragraph 71 (iii), the Delegation wished to have the Secretariat further explain the circumstances that could lead the Director General to propose projects funded under that provision. It also believed that the overall budget process should ensure sufficient transparency to Member States so that they could provide inputs from its early stages.

19. The Delegation of Canada expressed its support to the statement made on behalf of Group B. It pointed out that clear policies together with accurate cost accounting and good revenue forecasting would be critical for WIPO and its Member States in order to review possible surpluses or deficits in the context of the program and budget formulation. Integrating risk management strategies in setting aside reserve funds and introducing a four-year cycle to monitor surpluses and deficits would also be important. Reducing the time of planning and developing budget proposals was a matter of concern, considering the need to prepare documents with sufficient anticipation to enable meaningful review by Member States. Finally, it expressed its preference for a four-year business and financial plan rather than for a shortened budget approval process.

20. The Delegation of the United Kingdom endorsed the statement made on behalf of Group B. It agreed with the Secretariat's proposals for more streamlined budget process, the re-balancing of RWC funds as well as the mechanisms set in place for maintaining that level. It supported the discontinuation of the transfer of surpluses generated by the PCT, Madrid and Hague Unions into the Special Reserve Fund for Additional Premises and Computerization. Finally, it expressed the view that realistic income estimates would be the key to ensure that this new system worked effectively.

21. The Delegation of France gave its support for the new proposed schedule for the budget process, while proposing the addition of a paragraph stipulating that the Secretariat would be authorized to include its own revisions to the program and budget proposal in addition to amendments called for by Member States during the April session of the Committee for the proposed September session of the Program and Budget Committee. Such reviews would enable the Secretariat to properly update and adjust its income projections in light of more recent information, while not introducing new program proposals. In this way, the final decision of Member States at the September session would not be based on outdated projections which initially were drawn up by the Secretariat in February or March. Furthermore, it supported the proposal from the Delegation of the United States of America concerning the proposed provision to cover past arrears in contributions, stating that there should be no cut in the current level of RWC funds for the contribution-financed Unions. It welcomed the proposed new budgetary system as it would provide Member States with a more global vision of budget proposals, with a view that surpluses now became an integral part of the budget policy. This was important since WIPO received fees for work which would be completed later and in order to avoid an accumulation of cash and surpluses as well as structural debts. One of the aims of the proposed policy was to reduce surpluses to a level which is sufficient to cover WIPO's long term needs while reducing fees to an acceptable level. Budgetary decisions would now be taken in a unified manner allowing Member States to have a comprehensive view of the Program and Budget proposals. The Delegation inquired about the way proposed by the Secretariat for PBE factors to be calculated by the Secretariat, in particular for the PCT and Madrid Unions. It also wondered whether it was appropriate to express them in fixed percentages or whether it would be preferable to find a more flexible approach. It inquired about the concepts of working capital funds and reserve funds and the ways they were applied and expressed its understanding that working capital funds cover cash flow requirements only. Concerning the proposed policy on budget surplus, the Delegation noted that it linked the assets and liabilities which arise during different budget periods in a new way.

22. The Secretariat indicated that its current plans included the continuation of fee reductions in the future, in particular for the PCT, lowering the level of fees to the maximum possible extent. It brought to the attention of Delegations that a proposal for PCT fee reductions was already submitted to the Assembly of the PCT Union, which would meet in the following week. It also clarified that paragraph 71 (iii) referred to a prerogative of the Director General to propose project activities funded from surplus available. It should be noted that this simply referred to the possibility to formulate proposals which was nothing new and was included in the proposal for clarification only. Decision on such proposals remain with the Member States. It would be desirable if the Director General could be authorized to include in the final version of the draft Program and Budget those amendments that he considered appropriate, on the basis of comments received during previous meetings, or because of additional refinement of some forecasts. This is because proposals have to be prepared up to three years in advance of actual implementation, including activity projections for the PCT, Madrid and Hague Unions and for the WIPO Arbitration and Mediation Center.

23. Referring to the statement made by the Delegation of the United States of America with regard to a new provision proposed for the contribution-financed Unions, the Secretariat elaborated that this presented a follow-up to a recommendation of WIPO's External Auditor. In the Financial Management Report for the 1998-1999 biennium, WIPO's External Auditor commented on the current reserve arrangement for the contribution-financed Unions, acknowledging that current reserve funds were actually utilized to cover past arrears rather than to protect against future events. According to the External Auditor and the understanding of the Secretariat, accrued liabilities, such as arrears in contributions, are properly recognized through the establishment of a provision, whereas reserves are established to cover future financial risks. In order to de-link those issues, and in accordance with what was indicated by the External Auditor, it was therefore proposed to establish a provision of 10,390,000 Swiss francs for the contribution-financed Unions which corresponded to the level of current arrears up to the end of 1993. This provision would be reduced in accordance with payment of past arrears being received. At the same time, the level of the reserve for the contribution-financed Unions would be reduced by the same amount and established at a level which reflected the current income risk following the introduction of the unitary contribution system in 1994. This new arrangement would provide for the financial transparency recommended by the External Auditor. Should it be decided not to establish the proposed provision, the PBE factor for the contribution-financed Unions would need to be increased from the current proposal of 20 per cent to a level of 50 per cent. While it was acknowledged that such change would not have major financial implications, it was perceived that it would limit financial transparency.

24. Concerning the method applied to calculate the PBE factors proposed in the document, the Secretariat noted that the PBE factors were identified following a detailed analysis of the expenditure-related and income-related risks to which each Union was exposed. The different level of RWC funds was therefore an expression of these different risks. Since WIPO was not exposed to major expenditure-related risks, no reserve amount was proposed to cover such concerns. Possible expenditure-related risks, such as vendor bankruptcy prior to completion of delivery, did not apply since WIPO provided payment upon delivery of goods and services. Reserves were essentially required to cover income-related risks. The main issue was the income fluctuations for fee-financed Unions. These fluctuations could lead to a deficit in case actual income was below the budgeted amount. Since there was a time lapse between the drop in income and making the necessary changes to expenditure, such a possible deficit would need to be covered by a reserve. It was noted that in order to identify the potential risk of incurring such a deficit, the pattern of income fluctuation had to be analyzed in detail for each of the fee-financed Unions. In addition, a foreign exchange risk was identified for the PCT operation as fees were established in Swiss francs, while clients paid the fees in local currency. An additional concern, already noted by the Delegation of France, related to the processing costs beyond the budget period. WIPO received fees in advance of services rendered. As a result, there was a need to provide services beyond the biennium in which the income was recognized. Specifically, PCT applications incurred processing costs over a period of up to 30 months beyond the filing date and the files relating to each international application need to be kept for at least 30 years. For the Madrid Union, fees were payable up front whereas the international registrations need to be maintained for ten years. Any possible financial implications resulting from differences in the recognition of income and expenditure are covered under the reserve arrangement. With regard to the contribution-financed Unions, the reserve essentially covered the risk of delayed payment in contributions. On the assumption that a provision would be established to cover arrears prior to the introduction of the Unitary Contribution System and the four new contribution classes in 1994, the PBE factor for contribution-financed Unions could be established at 20 per cent as compared to the current level of 49 per cent.

25. The Secretariat has noted that the levels of the reserves had been elaborated while recognizing other options, in addition to utilizing a reserve, to respond to income-related risks. Such options included curtailing activities, cost containment and cost reduction measures or the deferment of program implementation. Whereas utmost care was taken to substantiate the proposed level of reserves, it was also acknowledged that this exercise was not only based on science but also on a blend of management judgement and practical experience. In this exercise, the Secretariat had consulted independent outside experts, including a consulting company and WIPO's External Auditors. The proposals were also benchmarked against other international organizations. It was noted that in the United Nations system, PBE factors ranged from essentially zero per cent for the United Nations Secretariat funded from assessed contribution to 35 per cent for certain United Nations organizations. With regard to other international organizations, reserve arrangements were identified with PBE factors in the range of five per cent to 40 per cent. Although it was difficult to compare organizations, the proposals put forward for WIPO which averaged a PBE factor of 20 per cent was seen to be located somewhere in the middle range among those organizations reviewed. Detailed consultation with Member States on the process of elaborating the PBE factors for each of the Unions has been undertaken in order to facilitate agreement on the proposals as put forward.

26. The Delegation of Mexico suggested that PCT fees should not be reduced further. Such reductions would imply a reduction in resources available for cooperation for development projects. Moreover, the current low level of fees was not considered to be a great burden for the users of the PCT system.

27. The Secretariat noted that recent experience had shown that a decrease in PCT fees did not have major effects on resources since the PCT system became more attractive which lead to an increase in the number of international applications filed. Making the PCT system cheaper was particularly important for small- and medium-sized enterprises, which were particularly active in developing countries. Consequently, reduction in PCT fees should not necessarily be considered limiting the resources available for WIPO programs which were not directly linked to the administration of the PCT system.

28. The Delegation of France, supported by the Delegation of Canada, expressed the wish that for the first consideration of the proposed program and budget during the April session, the Program and Budget Committee should have the financial statements for the previous biennium available in order to facilitate the review of the income projections for the coming biennium.

29. The Secretariat noted that the audited financial statements were issued in accordance with the procedure involving the External Auditor of WIPO. The recommendation put forward by France and Canada would be discussed with the External Auditor in order to determine if the audited financial statements could be made available in time for the budget process. It was noted that unaudited financial statements were available. Such information would be reflected in the proposed program and budget together with a new four-year financial plan, which provides some financial indication for a two-year period beyond the budget period. As a result, Member States would be given better indication with respect to activities to be planned following the biennium period. The next program and budget document would also include a detailed presentation of the income projection and the applied methodology to facilitate the review by Member States.

30. In response to comments made by a number of Delegations on paragraph 71 (iii) the Secretariat pointed out that, to identify in advance the circumstances which would lead to a proposal of a project to be funded from surplus might be rather difficult. Whereas the proposals put forward would facilitate the presentation of a comprehensive program and budget, it might become necessary to initiate new major activities during the biennium which had not been foreseen during the preparation of the initial budget proposals. Specifically, opportunities and demands in the information technology area might need to be accommodated. This would be considered within the approved budget ceiling. Should this not be possible, budget revisions would need to be proposed during the biennium. The additional funding could be made available from surpluses should WIPO continue to experience increases in demand for its services. Should the financial situation provide less flexibility in the future, it might be advisable to establish a contingency fund to accommodate new initiatives in the information technology area. This would ensure that WIPO could respond successfully and in a timely manner to new demands put forward by Member States. The need for such a contingency fund would be kept under review and the Program and Budget Committee would be informed accordingly.

31. The Chairman noted the following position of the Committee on the decision paragraphs contained in document WO/PBC/2/2 that were addressed to the Assemblies:

(a) the wording of paragraph 9 was approved without change;

(b) the wording of items (i), (iv), (v) and (vi) of paragraph 49 was approved without change;

(c) the wording of item (ii) of paragraph  49 was approved with the addition, proposed by the Delegation of the United States of America, of the words "for this and subsequent biennia";

(d) the wording of item (iii) of paragraph 49 was approved with the addition, proposed by the Delegation of France, of the words "subject to checking the relevance of these percentages";

(e) a new item (vii) of paragraph 49 was approved, as proposed by the Delegation of the United States of America, with the following wording: "to maintain a clear separation between reserve funds and working capital funds";

(f) the wording of paragraph 71 was approved without change;

(g) the wording of paragraphs 79 and 80 was approved without change.

32. The Chairman also noted the following position of Delegations on paragraph 49 of document WO/PBC/2/2:

(a) with regard to the wording of items (iii) and (v), the Delegations of the United States of America, France and Japan recommended that the Assembly also consider an alternative; it was recommended by those Delegations to delete item (v) and to adopt under item (iii) a PBE factor of 50 per cent for the contribution-financed Unions rather than a PBE factor of 20 per cent as proposed;

(b) with regard to the wording of item (vi), the Delegation of the United States of America recommended that the Assembly also consider the deletion of the item as an alternative.

Program 12 (Information Technology Projects): Reappropriation of Elapsed Budget Authority 1998-1999 Financed by the Special Reserve Fund for Additional Premises and Computerization

33. Discussion of this item was based on documents WO/PBC/2/3.

34. The Delegation of the United Kingdom, in recognizing the importance that it attached to the WIPONET and other information technology projects involved in the document, said that it could support the proposal for the reappropriation of unspent funds. However, it expressed concern at a lack of budgetary control and planning which had led to the need for such a proposal. The documentation presented to the Standing Committee on Information Technologies (SCIT) at its fourth Plenary session in December 1999 stated that the unspent balance for Main Program 12 would be about 10 million Swiss francs. This figure had now risen to 15.3 million Swiss francs. While the Delegation recognized that some of the delays and problems associated with information technology projects had been unavoidable or unforeseeable, an improvement in the area of planning was needed to prevent similar requests being necessary in the future.

35. The Delegation of Japan advocated the importance of information technology-related activities. In supporting the proposal, it hoped that there would be no further delay in WIPONET implementation.

36. The Delegation of the United States of America supported the proposal and stressed that, once WIPONET becomes a fully operational system, it should be self-funding and not maintained by Member State assessed contributions.

37. The Delegation of France said that the WIPONET Project was linked to the filing of patents and trademarks and as such had to move forward very quickly. There had been problems in implementing the Project and it was important to refocus the planning process to ensure that activities were undertaken in order to meet deadlines and avoid any further delay. In light of the further clarifications contained in document WO/PBC/2/3 Add.1 the Delegation was able to support the proposal for reappropriation.

38. The Delegation of Uganda, speaking on behalf of the African Group, reiterated the importance that the Group placed on the use of information technology as a means for development. If developing countries were to be equal partners in globalization and development, they had to be connected, and it was for this reason that the African Group had been following the WIPONET Project with keen interest. The role of WIPO in providing the requisite technical assistance for developing countries and particularly Least Developed Countries (LDCs) was crucial. In giving its support to the proposal the African Group recognized two main points: firstly, that as the funds in question were under the Special Reserve Fund the reappropriation would not impact other cooperation for development activities; and, secondly, that the unspent balance from 1998-1999 had genuinely not been used due to delays in program activities and in contract signature for the WIPONET Project. Finally, the Group hoped that the connection to the Internet of the 64 WIPO Member States that had no Internet connectivity at present could be achieved within the current biennium and within the approved budget.

39. The Delegation of Bulgaria, speaking on behalf of the Group of Central European and Baltic States, in supporting the proposal for reappropriation said that it wished to see the WIPONET Project implemented as quickly as possible.

40. The Delegation of Mexico associated itself with previous speakers who had given their support to the proposal.

41. The Delegation of Malaysia, speaking on behalf of the Asia Pacific Group, stated the importance of the WIPONET Project as it benefited developing countries, in particular the LDCs, and therefore the Group supported the reappropriation proposal. The Group was confident that the 64 recipient Member States would gain a tremendous advantage from the Project.

42. The Program and Budget Committee agreed to recommend to the General Assembly the reappropriation of the 1998-1999 elapsed budget authority for Program 12 activities funded by the Special Reserve Fund for additional premises and computerization.

Revised Plan and Budget for the Renovation, Modernization and Extension of the ex-World Meteorological Organization (WMO) Building

43. Discussions were based on document WO/PBC/2/4.

44. The Secretariat provided a summary on the issues contained in the document. It indicated that the document presented a revised plan and budget for the renovation, modernization and extension of the ex-WMO building. The document included a step-by-step presentation of the work implemented so far, a detailed budget analysis, a detailed list of main activities completed or underway, including terms of reference and costs, as well as a comparison of initial and revised project plans. It noted that, compared to the approved plan and budget, three main revisions were proposed: first, while maintaining the overall building concept, including the main building components, a number of revised specifications were introduced, in particular the use of the building for the PCT operations which was not foreseen under the initial plan; second, a revised project plan which included time delays in the project implementation was presented; it was now estimated that the building would be occupied in early 2003, rather than in the latter half of 2001, as originally planned; third, a revised budget reflecting an increase in the proposed budget from 30.4 million Swiss francs to 59 million Swiss francs was proposed. This increase of 28.6 million Swiss francs was attributed to increases in the construction costs in Geneva, changes in the building regulations, unforeseen modifications in project specifications, such as adapting the building for use by PCT operations, including in particular the required security installations, additional cabling and the accommodation of the PCT compactus, increase in working area through the redesigning of building plans and other changes. However, it was noted that the main share of the increase in the amount of 12.2 million Swiss francs was due to a shortfall in the initial budget estimate, as it became apparent following the recent conclusion of the tendering process to identify the general contractor. The Secretariat acknowledged the concerns of Member States as they were confronted with this budget increase and it indicated that the following assurances could be made: first, the project plan and budget did not include any features or specifications which could be considered excessive; second, the revised budget was considered realistic and provided an upper ceiling for the completion of the project; third, the revised budget compared to similar building projects implemented in the Geneva region, including the new WMO building and the ITU building. It reiterated the fact that the use of the renovated building by the PCT operations had not been initially planned; moreover, due to the unforeseen growth in the PCT operations and the absence of suitable alternative facilities of the required size, the completion of the renovation was a matter of urgency. In summary, it was indicated that notwithstanding the cost increase, it considered the proposed project plan as the best option for the ex-WMO building renovation to serve the needs of WIPO and its Member States.

45. The Delegation of Mexico indicated that it took careful note of the information provided by the Secretariat. It expressed its understanding of the fact that the use of the ex-WMO building for PCT operations was the best option for the building renovation due to the PCT growth and its support for the proposed renovation plan and budget of the ex-WMO building, and hoped a consensus was reached on this proposal.

46. The Delegation of the United Kingdom noted that the proposed budget increase was almost double of the initial estimate. It expressed concern that the original budget was unrealistic and that the bulk of the increase was due to underestimation. It felt that this supplementary request was damaging to the credibility of the International Bureau and undermined Member States' confidence in particular in relation to the estimates for the new premises.

47. The Delegation of Uganda, speaking on behalf of the African Group, expressed its appreciation for the document and the revised plan and budget for the renovation of the ex-WMO building, noting the increase in the revised budget as compared to the original budget. It also noted that the increase was partly due to unforeseen modifications to the original project specifications and the adaptation of the building for use by PCT operations, including additional security measures. While regretting the cost increase, the Delegation expressed its satisfaction for the transparency observed by the International Bureau in dealing with this issue. It noted that no negative impact could be expected on cooperation for development programs, as the financing would be drawn from the Special Reserve Fund for Additional Premises and Computerization.

48. The Delegation of Japan associated itself with the statement made by the Delegation of the United Kingdom. It also noted that the proposed budget increase should be studied, that the reasons for the initial budget underestimation should be explained, and that changes to project specifications should be examined.

49. The Delegation of the Russian Federation, while expressing its regret for the considerable increase to the initial budget, supported the allocation of requested resources in light of the importance of the project and its advanced stage of renovation. It also thanked the International Bureau for their assurances that the revised budget constituted a maximum budget ceiling for the project. In this respect, it noted that an allocation of insufficient resources at this stage could adversely affect the operational capacity and effectiveness of the building. It also stressed the need for the International Bureau to prepare and plan in greater detail future projects.

50. The Delegation of France shared the concern expressed by the Delegation of the United Kingdom. It inquired about the factors that might have led to the underestimation of the original budget. It also inquired as to whether the costs per square meter were compared with the building costs of other international organizations.

51. The Delegation of the Netherlands associated with the statements made by the Delegations of the United Kingdom and France. It expressed its concern about possible impacts on future construction projects to be carried out by the International Bureau.

52. The Delegation of Malaysia, speaking on behalf of the Asia Pacific Group, expressed the Group's concern about the increases in the proposed budget for the renovation of the ex-WMO building. It acknowledged that some of the factors leading to such increases were unforeseen and beyond the control of the International Bureau, as it was the case for increases in construction costs in Geneva and changes in building regulations. The Delegation also noted that there were no luxury or excessive items in the project and that the building provided only for basic facilities. On the other hand, it said that reasons for budget underestimation should be explained, and that cost savings should be actively explored.

53. The Delegation of Canada associated with the concerns raised by some Delegations and noted the explanations provided by the International Bureau. It noted that strategies used for costing and managing major projects were not clarified in the document. Without further clarification, the credibility of the process may be further affected.

54. The Delegation of the United States of America expressed its concern for the underestimation in the cost for the renovation of the ex-WMO building. It noted that it shared the interests expressed by other Delegations to understand clearly the reasons that led to the original underestimation and looked forward to seeing measures put in place to prevent any further project lapses. However, due to the nature and need for the project it stated that it could support the revised plan and budget for the renovation of the ex-WMO building.

55. The Secretariat stated that the ex-WMO building had not been initially planned for the use of the PCT. However, the continuous success of the PCT forced the Secretariat to reconsider its initial plans. It recalled that the number of international applications had grown significantly in recent years. In 1999, the Secretariat experienced over 10 per cent growth in the number of international applications under the PCT. During the first eight months of this year, growth amounted to some 20 to 25 per cent, as compared to the same period in 1999. Moreover, the adequate functioning of the PCT operations made it advisable to locate staff within the same building complex. Difficulties in securing additional rented office space suitable for PCT operations made even more attractive the option of using the ex-WMO building, particularly as it was planned to connect it to the G. Bodenhausen building. On the issue raised as to whether it was possible to further reduce costs for the revised renovation plans, the Secretariat indicated that all efforts had been made to reduce costs to the maximum possible level, on the acknowledgement of the mistake contained in the initial cost estimate and the large budget increase requested. It also noted that some cost savings such as using open office spaces would lead to reductions in productivity and higher operational costs. Concerning the purchase price of 34.3 million Swiss francs paid by WIPO to WMO, the Secretariat recalled that such price had been negotiated between these two United Nations organizations and approved by the General Assembly of WIPO. Concerning the budget for the renovation, the Secretariat reiterated that the budget could be considered realistic as it was based on the ultimate market test, namely the conclusion of a tendering process for the selection of a general contractor. Concerning the possible reasons for the initial budget underestimation, the Secretariat said that with hindsight the data available at the time the initial cost estimates were submitted for consideration were insufficient and the proposal was overly optimistic. Furthermore, no contingency margins to absorb potential increases had been introduced. The Secretariat stated that it learned from the experience. Future projects would be based on more rigorous pre-studies to arrive at reliable budget estimates. The introduction of a phased project approach was also envisaged, whereby budget estimates were developed and updated along through a number of project phases prior to presenting final budget estimates to Member States. Another possible reason for the underestimation was the initial plan to manage the project by coordinating a number of sub-contractors engaged by WIPO for specific tasks. The new approach of employing a general contractor would provide additional assurances that project implementation would be on time and within the budget. Moreover, in the future, the Secretariat intended to introduce adequate contingency margins in the budget proposals, in particular during the early stage of the project. Finally, and most importantly, it was argued that Member States should be closely involved at every implementation stage of major projects to provide adequate transparency and establish confidence in budget estimates. The Secretariat indicated that the renovation costs of the ex-WMO building in the range of 3,000 Swiss francs per square meter were comparable to those of the new WMO building and the ITU building at Montbrillant, in spite that renovation of an existing building facility could be more expensive than the construction of a new building.

56. The Delegation of Slovakia associated itself with the concerns expressed by other Delegations. However, it said that the explanations and justifications provided by the Secretariat were satisfactory, thereby expressing its support for the revised plan and budget for the renovation of the ex-WMO building.

57. The Delegation of Japan thanked the Secretariat for the preparation of the document and the detailed explanations provided at this session of the Program and Budget Committee. The Delegation of Japan inquired as to whether it could be assured if studies carried out to justify the proposed revised budget were accurate and if assurances could be provided that the revised budget would not be exceeded in the future.

58. The Secretariat expressed its confidence in completing the project within the proposed revised budget. It said that the selection of a general contractor had been finalized, including an agreement with that general contractor for the total amount of the project. The general contractor would be bound by the contract that would be signed after the proposed revised budget was approved by the Member States.

59. The Delegation of the Netherlands said that lessons learned should prevent WIPO from making similar mistakes in the future. It was noted that the total increase of 28,600,000 Swiss francs represented a substantial amount equivalent to the budget of some United Nations organizations. The Delegation expressed regret that Member States had no option other than to agree to the proposed budget increase and emphasized its frustration at being confronted which such a situation. Concern was also expressed over the consistent underestimation of the level of growth for PCT operations, including budget, office space as well as staffing and the Delegation inquired as to its possible reasons.

60. To this effect, the Secretariat noted that recognizing the need for a substantial budget increase had been a painful and frustrating process for the Organization. The unexpected growth in the number of international applications was recalled. Unexpected substantial increases in the number of filings was also experienced by national offices and by the European Patent Office. Furthermore, growth was not only occurring in the area of patents, but also in the area of trademarks, again not only by WIPO under the Madrid System but also by national offices and the Community Trademark Office. It also recalled the large volumes of dispute resolution requests now received in the WIPO Arbitration and Mediation Center in the field of Internet domain names. This kind of growth made forecasting quite difficult, particularly since it had to be made three years in advance for the purposes of the program and budget. However, the Secretariat would continue to work on the identification of proper forecasting tools to better estimate growth trends for international applications.

61. The Delegation of the United Kingdom thanked the Secretariat for the assurances provided to Member States regarding the timely implementation of project plans within the budget limits. It also expressed gratitude to the Secretariat for the acknowledgement of past mistakes and lessons learned. It wondered whether those lessons were learned in time to be reflected in the project plans and cost estimates for the new construction.

62. The Delegation of France thanked the Secretariat for its explanations and comments. It indicated that it was very important for the Secretariat to provide information that was as accurate as possible to enable Member States to make correct evaluations of project proposals.

63. The Delegation of Canada thanked the Secretariat for its explanations which focused on the lessons learned and on corresponding modifications of present and future projects. The Delegation indicated that it could support the proposed revised budget for the renovation of the ex-WMO building. It also stressed the importance of rigorous revenue forecasting as part of a comprehensive strategic and business planning that would reflect such aspects as operational costs, IT, capitalization and human resources management.

64. The Chairman thanked the Secretariat and the Delegations for their comments. He indicated that, in light of the support expressed for the proposed revised plan and budget for the renovation of the ex-WMO building, the Committee, while noting the comments made and the concerns expressed, recommended that the General Assembly of WIPO take the decisions proposed in paragraph 29 of document WO/PBC/2/4.

Premises Plan 2000-2007, Progress Report on New Construction and Study on Energy Station

65. Discussions were based on document WO/PBC/2/5.

66. The Secretariat noted that the premises plan contained in the document was an update of a similar presentation made available to Member States in March 1998. The plan provided additional background information for the assessment of major building projects carried out by the International Bureau. The document also presented a progress report on the new construction, which covered the results of the international architectural competition and an update of the project plan. The Secretariat stated that the new construction was anticipated to be occupied in late 2004, rather than in 2003 as outlined in the initial project plans. The document also provided information on a study to establish a central energy station, to serve the new construction as well as other WIPO-owned facilities such as the A. Bogsch, the G. Bodenhausen I and II and the ex-WMO buildings. It said that preliminary estimates had indicated that this solution to energy needs of the Organization may result in substantial savings, and invited Member States to take note of the Secretariat's intention to conduct further studies on such energy station and to cover the cost of these studies under the approved budget for the new office building. The Secretariat also said that a progress report on the new construction, including an update of budgetary estimates, would be submitted to Member States in 2001.

67. The Delegation of Japan, while indicating concern about the delay in the completion of the new construction, expressed its hope that the International Bureau would make every effort to complete the project within the approved budget and as early as possible. On the issue of the energy station, it expressed its support for the strategy of cost reduction. It stated that factors such as depreciation of existing facilities and maintenance costs of new facilities should be taken into consideration when estimating the total cost of the new facility.

68. The Delegation of the United States of America said that it found the document informative and useful, although it warned the Secretariat about the vulnerability of the premises plan as constant underestimation by the International Bureau of future activity levels might render the plan outdated. It called upon the Secretariat to attempt to build its personnel planning around a more flexible staffing approach that might be more consistent with the needs of the Organization as time passed. Finally, it noted that it would look forward to reviewing further developments and the detailed study on the energy center at the General Assembly in 2001.

69. The Delegation of the United Kingdom inquired as to whether the proposed funding of the initial study on the energy center in the amount of one million Swiss francs from the approved budget of 51.0 million Swiss francs for the construction of the new office building would affect in any way the project plans for the new office building.

70. The Secretariat indicated that should the energy center project be approved, its total cost, including relevant studies, would be covered under a budget of the energy center and not included in the budget of the new construction. It was therefore not considered necessary at this point to revise the approved budget for the new construction.

71. The Delegation of France indicated that it could not give its definitive opinion on the issue of the energy center since it had not had sufficient time to analyze the proposal. Therefore, it reserved its right to comment on that issue at the General Assembly.

72. The Committee noted the contents of and the comments made on document WO/PBC/2/5.

73. In conclusion, the Chairman summarized the discussions and expressed the view that very important recommendations had been adopted. Recommendations approved by the Committee would improve transparency in the process of drafting the Program and Budget of WIPO, in the handling of information technology projects and in the planning for additional premises.

[Annex follows [In PDF format]]