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Cablegate: The Investment Climate in Sri Lanka -

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 COLOMBO 001717

SIPDIS

DEPT FOR EB/CBA DWINSTEAD, SA/INS
COMMERCE FOR ITA:ASTERN

SENSITIVE

E.O 12958: N/A
TAGS: ETRD ECON EINV CE ECONOMICS
SUBJECT: THE INVESTMENT CLIMATE IN SRI LANKA -
PROBLEM AREAS AND SUCCESS STORIES

1. (U) The agenda for the bilateral Trade and
Investment Framework (TIFA) meeting includes an
opportunity for the USG to discuss the current
investment climate with the GSL. This message
describes Post's experiences over the past year.

2. (U) Sri Lanka continues to offer both promise
and peril for US investors. Numerous companies
with products or services in traditional sectors,
such as manufacturing, in Board of Investment export
processing zones are successful, with little help.
Other firms have needed significant Embassy advocacy
to receive fair treatment (see para 5). Inefficient
bureaucracies, inconsistent policies, no delegation
of decision-making authority and political pressure
have prevented some American companies from
implementing their business plans.

3. (SBU) In the energy sector especially, US companies
face bureaucratic and, it appears, politically motivated
delays and non-payment. AES Power, Alstom Power Rentals
and Lionvert Refineries have each experienced serious
delays in project implementation and been victims of
reneging on contractually agreed payment terms.
Currently, the Embassy advises extreme caution for US
investors in the power sector, with the primary culprit
being the ineffective and, reportedly, highly corrupt,
Ceylon Electricity Board. Despite repeated interventions
by the Ambassador at the Minister level and to the
President's Office, Post has not been able to resolve the
payment disputes, though there may be some recent movement
in the protracted approval process for Lionvert.

4. (SBU) Cabinet approval is required for virtually all
decisions related to government spending initiatives.
Several US companies have experienced project implementation
delays because government Ministers simply don't present
their cases to the cabinet for approval. ESP, a US company
with an approved vehicle emissions testing program, is one
example. Despite no cost to the GSL, and the support of
numerous high-level figures in the Government (including,
reportedly, the President), the Transport Minister has
refused to raise the issue at Cabinet, citing worries about
"political fallout." Unless Sri Lanka takes steps to develop
a transparent government procurement and investment framework
that can proceed with approvals far below cabinet level, it
will continue to see less than optimal FDI inflows.

5. (SBU) Despite many obstacles, Post has been able to assist
firms to achieve their goals. Below is a list of cases that
have been supported by Post.

Success Stories
---------------
-- GTech, an online lottery service, experienced numerous
difficulties, ranging from specious court cases by competitors
to unfounded allegations of bidding improprieties. Embassy
advocacy over the past nine months contributed to resolution,
and the planned launch in December. This $12 million investment
is expected to produce revenues of $10 million per year starting
the second year.

-- Fiserv and IBM requested Embassy assistance when they felt
they were not being treated fairly during a government-owned
banking tender. Embassy pressure to make the choice on
qualifications, rather than for political reasons, helped these
firms win the $10 million deal.

-- Commercial Lynks is the largest supplier of soybeans to Sri
Lanka. This firm had numerous problems with a government tender
and tariff issues, which the Embassy addressed with the GSL.
They now are supplying to the market and the government without any
hitches.

-- Intervention by the Embassy, including a letter from Ambassador,
was credited with encouraging the resolution of a labor dispute at
Energizer, which threatened to shut the factory for good. Energizer
went ahead with a new $2 million investment in the plant which
supplies the local battery market.

-- Colombo Copper, a US firm successfully utilizing the Indo-Lanka
Free Trade Agreement to export to India, had problems when
competitors sidestepped the value-added requirements to undercut
prices and swamp the market. Embassy advocacy with the Ministry of
Commerce assisted in closing down these non-compliant competitors.

-- Working with the Department of Commerce's Advocacy Center, the
Embassy protested against the choice of a non-competitive foreign
firm for an ADB-funded port software project. Post's efforts, along
with others, led to this decision being overturned, and allowed the
favored US firms to compete fairly.
6. (U) USG officials could cite the first three cases during TIFA
discussions for examples of successful US business endeavors, but
should also note with concern the fact that US companies continue to
suffer frustrating setbacks, particularly in important infrastructure
sectors like energy.

Lunstead

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