AID/OTI OFFICIALS VISIT KILINOCHCHI TO RESOLVE

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