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Cablegate: Sri Lanka: Electricity, Fuel Strikes Averted

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

291039Z Mar 05

UNCLAS SECTION 01 OF 02 COLOMBO 000615

SIPDIS

SENSITIVE

DEPARTMENT FOR SA/INS

E.O 12958: N/A
TAGS: ECON ETRD ELAB ENRG PGOV CE
SUBJECT: SRI LANKA: ELECTRICITY, FUEL STRIKES AVERTED
AFTER RESTRUCTURING PLANS PUT ON HOLD

REF: COLOMBO 512

--------
SUMMARY
--------

1. (SBU) Strikes threatened by unions at the state-
owned Ceylon Petroleum Corporation (CPC) and Ceylon
Electricity Board (CEB) were averted late March 28 after
a Cabinet vote on restructuring the two state-owned
enterprises (SOEs) was postponed. Cities across the
island reported crippling traffic jams on March 28 as
panicked motorists, fearing a gasoline shortage, formed
massive lines at "petrol sheds" throughout the country.
Labor unions dominated by the Janatha Vimukthi Peramuna
(JVP), the Government's pro-Marxist coalition partner,
had threatened island-wide shutdowns in both industries
to protest the proposed restructuring moves. With the
postponement of the crucial Cabinet vote, the JVP has
clearly demonstrated its ability to influence-and
perhaps derail-reforms. End Summary.


---------------------------------------
JVP STRIKE THREATS LEAVE RESTRUCTURING
PLANS OUT OF GAS, OUT OF JUICE
----------------------------------------

2. (U) Nationwide strikes threatened by JVP-dominated
unions at the state-owned Ceylon Electricity Board (CEB)
and Ceylon Petroleum Corporation (CPC) have forced the
Government of Sri Lanka (GSL) to postpone a vital
Cabinet vote, scheduled for March 28, on restructuring
both enterprises. The unions called off the impending
strikes late March 28 after the GSL announced the
decision to defer the vote, pending the outcome of
further "study" of the proposed measures. The fear of
gasoline shortages posed by the threatened strike had
sparked a surge of panic buying among motorists across
the country, who queued for hours at "petrol sheds" and
gas stations to fuel up before the impending strike.

3. (U) JVP union leaders had threatened the strikes to
protest GSL restructuring plans. Among the measures
under consideration was the GSL decision to sell one-
third of its original shares in CPC. (Note: The GSL
has already sold a third of its shares to the Indian Oil
Company. End note.) The restructuring plans for CEB
involve the unbundling of the unwieldy SOE to nine
companies, including two generation companies, one
transmission company and several distribution companies.
Implementation of the two plans, aimed at reducing debts
at the loss-making SOEs, are linked to Asian Development
Bank (ADB) and JBIC program loans for the power sector.
The plans had been under consideration for several years
but were delayed due to the 2004 change in governments,
as well as union and JVP resistance.

4. (U) The JVP political and union leadership, which
have been spearheading the protest, misrepresent the
proposed restructuring at CEB as an attempt at
privatization--a concept that is anathema to the pro-
Marxist party. This argument has obviously resonated
with the membership of CEB's labor unions, about 65
percent of which are controlled by the JVP. Ranjan
Jayalal, the JVP union leader at CEB, told us that his
union is committed to opposing the measures, which he
described as a carryover from the previous United
National Party government.

-------------------------
THE ROCKY ROAD TO REFORM
-------------------------

5. (U) The CEB Engineers' Union (CEBU), which is
apolitical, also supports the current JVP actions. The
CEBU sees no benefit to the proposed restructuring
process, suggesting instead that the GSL proceed with
proposed coal and hydro plants to reduce costs. The
Secretary of the CEBU union, Athula Wanniarachchi, told

SIPDIS
the Embassy that even if the Government takes over the
Rs 30 billion short-term debt at CEB, it would not solve
CEB's problems as the utility runs significant
operational losses. The CEB's unit cost is Rs 11.00 (11
US Cents) per unit, and the selling price is Rs 7.50
(7.5 US cents). According to the CEBU, although a 50
percent tariff hike is needed to break even, the GSL has
instead has resorted to high-cost thermal power plants,
leaving the CEB to run in constant high-cost mode and
without sufficient baseload power for optimal capacity
usage. Some senior managers contacted by the Embassy
said the GSL's failure to have a "proper" dialogue about
job security and ways of bringing the current power cost
down have left room for the JVP to make political
capital.

----------
COMMENT
--------

6. (SBU) In addition to agitation at CEB and CPC, the
JVP is orchestrating or threatening to orchestrate
strikes in five other vital sectors, including the
postal system, education, and the medical technologists'
union. In many ways, the GSL's own coalition partner
continues to mount a better organized and more energetic
(if not fact-based) opposition to Government policies
than the actual Opposition, the United National Party.
The "reasons" for the strike seem to have little to do
with the substance of the proposed reforms, and more
with the JVP's interest in not seeing its near-
monolithic political control over the unions dissipated
by the proposed "unbundling." This latest
demonstration of JVP brinkmanship-and the GSL's decision
to "blink"-shows more clearly than ever that this
fractious junior partner retains its impressive ability
to highjack the GSL agenda.

LUNSTEAD

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