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Cablegate: Aid/Oti Officials Visit Kilinochchi to Resolve

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

UNCLAS SECTION 01 OF 03 COLOMBO 001934

SIPDIS

SENSITIVE

AID/ANE/AA FOR MARK WARD, AID/ANE/SAA FOR BERNADETTE BUNDY,
AID/DCHA/OTI FOR RACHEL WAX, AID/DCHA/GC FOR GARY WINTER,
AND AID/ANE/JAKARTA/DIR SEAN CALLAHAN

E.O. 12958: N/A
TAGS: EAID PTER CE LTTE
SUBJECT: AID/OTI OFFICIALS VISIT KILINOCHCHI TO RESOLVE
LTTE "TAX" ISSUES

Summary
-------

1. (SBU) Per State guidance approving operational/working
level discussions with counterpart LTTE representatives and
based on approval from the Embassy's Front Office, on
November 24 two USAID staff held a meeting in Kilinochchi
with the Coordinator of the LTTE's Coordinating Office for
INGOs and UN agencies. The meeting was requested on short
notice by USAID to discuss specific issues related to a
recent problem with USAID's tax-free transport of goods
through LTTE-controlled territory south of the Jaffna
Peninsula ("the Vanni"). The meeting lasted for
approximately one hour, was extremely cordial, did not
stray from the operational issues at hand, and ended with
clear action points to ensure USAID's Office of Transition
Initiatives (OTI) can continue to implement grants in
Jaffna. Unfortunately, follow-up phone conversations on
November 30 revealed that while the "long tax" issue was
resolved, a new issue had arisen of payments for the
unloading and reloading of lorries at LTTE checkpoints.
AID/OTI officials are working to resolve this. END SUMMARY

Tax-Free System Breaks Down
---------------------------

2. (SBU) In line with State Department guidance (State
256563) that approved operational/working level
interactions between U.S. officials and LTTE
representatives, on November 17 USAID sought concurrence
from the Embassy's Front Office to arrange an operational-
level meeting with the LTTE. The meeting was deemed
crucial to resolve problems related to recent LTTE attempts
to tax goods being transported on the A9 highway through
the Vanni, the LTTE-controlled area that links the Jaffna
Peninsula with government-controlled areas to the South.
While this issue had been resolved approximately one year
ago when a similar meeting was held in Kilinochchi, in mid-
November the agreed upon tax-free system broke down when
the LTTE Customs Office at the Omanthi checkpoint in
Vavuniya district insisted that 14 trucks transporting
USAID-procured goods pay a newly established "Lorry Tax"
that was put in place on November 1, 2004. The Customs
Office maintained that while the goods were being allowed
to pass the checkpoint duty-free as stipulated in the
customs documentation arranged by USAID prior to the
transport of the goods, the trucks were subject to the
lorry tax that had to be paid by the vendor. After a
negotiation process that included the truck drivers, the
LTTE's Administrative Wing and the LTTE Customs office, ten
vehicles were allowed to travel to Jaffna while the
remaining four trucks decided to return to Colombo without
delivering their loads to the USAID grantee in Jaffna.

Meeting with Relevant LTTE Office Easily Arranged
--------------------------------------------- ----

3. (SBU) In light of this checkpoint problem and the fact
that it had been one year since there had been any contact
between USAID and LTTE administrative officials, two staff
from USAID's Office of Transition Initiatives (USAID/OTI)
received Embassy Front Office approval for the needed
meeting. It was ascertained that USAID staff should speak
with Mr. M. Thiyagarajah, the Coordinator for the LTTE's
Coordinating Office for INGOs and UN Agencies and the same
person with whom USAID staff had met a year ago. USAID was
able to call Mr. Thiyagarajah's office in Kilinochchi
directly and arranged for a meeting on the morning of
November 24. The meeting was scheduled easily, despite the
fact that it requested on short notice and just a few days
before the LTTE's annual Heroes Day celebration, and the
USAID staff involved had the impression that Mr.
Thiyagarajah wanted to accommodate them.

4. (SBU) The USAID/OTI Sri Lanka Country Representative
and the USAID/OTI Media and Information Program Manager,
accompanied by a local staff member who handles OTI's
procurement for Jaffna, arrived in Kilinochchi at 10:15 AM
on November 24 in a clearly marked diplomatic vehicle.
Despite being 15 minutes early for the scheduled meeting,
Mr. Thiyagarajah was all smiles and the meeting started
immediately. The USAID staff first gave Mr. Thiyagarajah a
very brief overview of USAID/OTI projects in Jaffna and
then thanked him for his help last year in facilitating a
tax-free system that up until this month had been working
well. At that point, the USAID staff spoke directly about
the "Lorry Tax" problem, stated that it is impossible for
this tax to be paid by the vendor, and suggested that much
of USAID's work in Jaffna would have to stop if the LTTE
insisted on levying this tax.

5. (SBU) Mr. Thiyagarajah was aware of the lorry tax
problem and stated that it has been an issue for other
donors such as the German aid organization GTZ. He said
that his office was meeting with other concerned parties
within a few days after Heroes Day on November 27 to find a
solution to the problem and he implied clearly that the
LTTE Customs Office would be party to whatever agreement
was made. Responding to USAID's statement that the
situation needed to be righted as soon as possible given
the need for the goods in question to get to Jaffna
immediately, he said that USAID should call him on November
30 to confirm that the situation had been resolved and at
that point it would be possible for USAID to resume
transporting goods to Jaffna. At no point in this part of
the conversation did he suggest that he was not in a
position to sort out the lorry tax issue or that his office
had any desire to do anything but facilitate USAID's work
in Jaffna.

Why the Problem
---------------

6. (SBU) It should be noted that in the aftermath of the
meeting USAID staff's assessment is that the LTTE was not
deliberately creating problems but rather the tax-free
system broke down due to a lack of communication between
the LTTE and USAID and because of internal LTTE
administrative bureaucracy and tax policy changes. For
example, initially after a tax-free system was negotiated
last year USAID local staff went to Kilinochchi to process
the needed paperwork prior to moving goods up the A9 to
Jaffna. Over time this responsibility was shifted to people
working for USAID grantees, thus removing USAID's very
visible link to the goods being transported through LTTE-
controlled areas. Also, initially vendors displayed USAID
banners on their trucks but as the movement of goods became
more routine the banner system fell by the wayside so again
there was no obvious link between USAID and the goods being
sent to Jaffna. Lastly, as Mr. Thiyagarajah pointed out,
his office had made a mistake in recent months of
inadvertently removing USAID's name from a list of
accredited agencies that his office gives to the Customs
Office on a regular basis. Mr. Thiyagarajah promised that
USAID would be put back on the list, plus in the future he
would add to the list any international organizations that
are being funded by USAID for work in Jaffna.

Action Points to Move Forward
-----------------------------

7. (SBU) Having agreed that the "Lorry Tax' issue will be
resolved in USAID's favor as soon as possible, Mr.
Thiyagarajah and the USAID staff agreed on a few other
action points to ensure the smooth transport of goods
through the Vanni. USAID suggested, and Mr. Thiyagarajah
concurred, that it would be useful to use banners again so
the link between the goods and USAID would be extremely
clear. USAID suggested, and Mr. Thiyagarajah concurred,
that it would be useful for the USAID/OTI Country
Representative to sign a cover letter to accompany tax-free
requests to the LTTE Customs Office. Responding to a
question from USAID, Mr. Thiyagarajah stated that he should
be USAID's primary contact for any operational problems and
that USAID should not hesitate to contact him as necessary.
Lastly, the two sides agreed that it would be useful to
meet on a more regular basis to review the tax-free system
in an effort to head off any possible misunderstandings
related to the transport of goods to Jaffna.

Comments
--------

8. (SBU) Beyond noting the obvious preparations for
Heroes Day in Kilinochchi and the mass of yellow and red
flags everywhere in the LTTE-controlled area, the most
lasting impression from the meeting was that Mr.
Thiyagarajah was extremely willing to meet with the USAID
staff and to tackle problems raised by them. Beyond being
engaging and cordial, he made himself available on the day
and time specified by USAID, was candid about his office's
oversight in regards to fully informing the LTTE's Customs
Office about USAID's status, did not question the need for
USAID's tax exemption, did not attempt to steer the
conversation towards political questions that USAID staff
have no authority to discuss, and expressed a willingness
in the future to resolve any operational problems related
to the transport of USAID goods through LTTE-controlled
areas. It should be noted that the meeting was made much
more relaxed and friendly by the presence on the USAID side
of an American staff who is a Tamil speaker and has long
years of experience in different parts of Sri Lanka. As
with the meeting a year ago, this dynamic made the whole
process much easier and ensured accurate, direct
translations for everyone in the meeting.

9. (SBU) At the end of the meeting, Mr. Thiyagarajah asked
when USAID will be working in the Vanni. USAID staff
briefly responded that it is not possible right now and did
not further elaborate. Mr. Thiyagarajah also asked if
USAID would be willing to procure certain items such as
sand and cement in Jaffna if the price were the same as the
duty-free price paid south of the Vanni. Since this was a
problematic request given the opaque LTTE tax system in
Jaffna, USAID staff responded by saying USAID has to follow
very clear rules and regulations that make it impossible to
do this procurement in Jaffna. Mr. Thiyagarajah accepted
both of these answers and did not press either of the
points. The meeting ended with a request by USAID that
these discussions be kept low profile, with the clear
insinuation that USAID would be unhappy with any publicity
in LTTE-friendly media regarding the contact. Mr.
Thiyagarajah was very understanding on this point and said
there was no need for concern over this issue. To date no
such publicity has come to the attention of USAID.

10. (SBU) As referenced above, there was a phone
conversation on November 30 between Mr. Thiyagarajah and
USAID/OTI staff. While the Lorry Tax has been shelved as
anticipated, a separate issue has arisen involving needed
payments related to the loading and unloading of lorries on
the LTTE side of the Omanthi checkpoint. The LTTE has
stated that this loading and unloading is mandatory for all
trucks and only UN-owned vehicles can be exempted from a
related service charge levied by the LTTE's Transport Unit.
The loading and unloading is linked to LTTE security
protocols and a similar system is standard practice at the
two Sri Lankan Army checkpoints at the north and south ends
of the Vanni. Due to this unforeseen hurdle, there were
several follow up phone conversations between USAID and Mr.
Thiyagarajah later on November 30 and on December 1 that
for the moment have failed to resolve this transport
problem. In the short-term USAID/OTI has asked UNHCR for
help in moving some goods to Jaffna and as a longer term
solution USAID continues to negotiate for a workable
system. It has become abundantly clear that while Mr.
Thiyagarajah was the right person to handle the Lorry Tax
problem, the loading and unloading charge is an issue that
involves a number of LTTE offices and can not be settled as
easily. Once a framework for an agreement emerges, the
USAID/OTI Country Representative plans to return to
Kilinochchi to cement that deal. It is anticipated that
this trip will take place by December 10. If no framework
for an agreement is reached, USAID/OTI will have little
choice but to curtail its work in Jaffna. This point has
been reiterated to the LTTE over the course of the past two
days.

LUNSTEAD

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