SRI LANKAN POST-TSUNAMI RECONSTRUCTION UPDATE

UNCLAS SECTION 01 OF 02 COLOMBO 000712

SIPDIS

DEPT FOR EB A/S ANTHONY WAYNE; SA/INS FOR J. BRENNIG, N.
DEAN; PLEASE PASS TO TSUNAMI RECONSTRUCTION TASK FORCE;
TREASURY FOR C. CARNES

SENSITIVE

E.O. 12958: N/A
TAGS: EAID ECON PGOV CE MV
SUBJECT: SRI LANKAN POST-TSUNAMI RECONSTRUCTION UPDATE
(APRIL 12, 2005)

REF: A. COLOMBO 557 D. COLOMBO 696


B. COLOMBO 558 E. COLOMBO 697

C. COLOMBO 583 F. COLOMBO 704


1. This contains an action request (Par 6).


2. We are sending this update early since Post will be
closed on Wednesday and Thursday for Sri Lankan holidays.


3. The Ambassador and poloff visited the Maldives last week
to discuss possible mechanisms for providing assistance, and
visited several islands severely damaged by the tsunami.
(Refs E and F). After conversations with Maldivian
government officials, the Embassy is convinced that USG
supplemental tsunami assistance can be effectively channeled
through the GORM's National Fund. The government is willing
to work with donors on particular needs or conditionalities
they may have.


4. VAT: While the GSL agrees that our bilateral agreement
allows assistance provided by USAID through local partners
to be exempt from VAT, the GSL now interprets our long
standing system, the VAT-exempt notification letters, to be
"illegal". GSL suggests that contractors pay VAT, and that
an arrangement be worked out for GSL review and reimburse
funds paid for VAT. This approach most likely would require
substantial USG and NGO efforts to follow up with GSL for
reimbursement, and is far from ideal. Further, we went
through this entire issue a year ago, which led to creation
of the exemption letters. This has tremendous implications
for our tsunami programs. The Ambassador and AID Director
will raise this issue with the Finance Secretary on Friday.


5. At a recent donor meeting, it was agreed that bi-weekly
meetings will be held between donors and the GSL tsunami
"big three:" Mano Tittawella of TAFREN, Tilak Ranaviraja of
TAFOR, and Finance Ministry Secretary P.B. Jayasundera.
Many pressing tsunami issues require coordination among the
three. Having regular sessions with all three present
should be an effective way to break logjams and move things
along quickly.


6. Post requests that organizers for the Private Sector
Summit be contacted to assure that representatives from the
Maldives are invited. We assume that this will be a
networking event in large part, but look forward to
receiving more concrete details regarding the purposes of
the meeting.


7. USAID has sent teams out to Galle and Matara in the
south and Ampara and Batticaloa in the east to assess
progress on the relief and rehabilitation front. Take home
message is that on-the-ground aid is progressing mostly as
expected. (Ref D).


8. The Ambassador and AID Director will meet with the
Finance Secretary on Friday to present a copy of the draft
Strategic Objective Grant Agreement, so that we may move
ahead quickly after Congress passes and the President signs
the Supplemental Aid package.


9. Two upcoming AID teams will visit soon to assist in
preparing proposals for coastal zone management, and for
vocational technical education.


10. GSL's Ministry of Finance and Planning has sent us the
official announcement of the Development Forum to be held in
Kandy on May 16 and 17, "to focus on the post-tsunami
recovery and reconstruction process and the overall medium
term development strategies of Sri Lanka." The Ambassador
plans to attend. We will ask septel to be advised which USG
officials will attend this conference.


11. Army Corps: USAID is developing a new agreement with
Army Corps to more clearly define the scope of its work.


12. A/S Cristina Rocca visit: Preparations are underway
for A/S Rocca's visit on April 19 and 20. We want to make
use of this visit to demonstrate the efforts underway,
progress accomplished, and to articulate the importance of
GSL helping the USG and its other aid providers help Sri
Lanka.

LUNSTEAD