Electricity strike could delay reforms

UNCLAS SECTION 01 OF 02 COLOMBO 000819

SIPDIS

STATE FOR EB AND SA/INS; MCC FOR D.NASSIRY AND E.BURKE

USDOC FOR EROL YESIN

SIPDIS, SENSITIVE

E.O 12958: N/A
TAGS: ECON ENRG CE
SUBJECT: Electricity strike could delay reforms

Ref: 05 Colombo 1901


1. (U) Summary: Unions affiliated with the Marxist-
Nationalist Janatha Vimukthi Peramuna (JVP) party have
warned of a strike and country-wide blackout on May 23 in
protest of government moves to present electricity reforms
to Parliament, which they fear would lead to privatization
of the state electrical utility. However, the strike may be
ineffective (i.e. unable to produce a blackout or force the
Government of Sri Lanka (GSL) to give in to union demands)
as technical staff, including engineers, will not be joining
the protest. Nonetheless, the government may delay the
presentation of the reform bills in Parliament to give time
for discussions which would appease technical unions, which
want more time to study the bills. This is a first, albeit
small, test of this Government's willingness to stand up for
needed reforms in the power and energy sector. End Summary.


2. (U) The government is planning to present two bills to
the parliament to implement electricity sector reforms
agreed in 2005 (reftel) after protracted discussions between
the government and the unions. The amendments to the Ceylon
Electricity Board Act and the Electricity Reform Act would
allow the state-owned power utility, Ceylon Electricity
Board (CEB),to be reconstituted as a holding company and
establish six subsidiary companies to take over the current
generation, transmission and distribution functions of the
CEB. The CEB would fully own these subsidiary companies.


3. (U) The JVP-aligned unions do not support any reforms
and did not approve the 2005 reform package. The JVP fears
these reforms will lead to the eventual privatization of the
CEB. The JVP union in the CEB has threatened to stop work
on May 23 and has warned of a countrywide power outage
unless the bills are withdrawn.


4. (SBU) The JVP trade union action is unlikely to be
effective. The powerful engineers union of the CEB will not
be joining the strike. Ananda Piyatilake, President of the
engineer's union, told EconFSN that their union has given
consent to the reforms, but is urging the government not to
rush the legislation through parliament. The engineer's
union wants time to study the legislation to see if it
complies with reforms agreed to last year. (Note: The
draft legislation was made available to the public only
recently and not in sufficient numbers - the government
publication sales office received just 15 copies which sold
out immediately. End note.) According to Piyatilake, the
JVP strike will not be effective because engineers and
technical staff would not participate. The JVP union has
membership among clerical and other non-technical staff of
the CEB. While the JVP union has threatened to bring
workers at the government-owned Ceylon Petroleum Corporation
(CPC) into the strike, several union representatives at the
CPC told EconFSN that they are not likely to join in a
strike, although they want to show their cooperation,
possibly through limited action walkout protests or the
like.


5. (U) Meanwhile, CPC unions are holding separate
discussions with the Government regarding CPC reforms. The
unions are urging the government to take action to return to
the CPC the 33 percent of total CPC shares held by the
Treasury. CPC unions also fear eventual privatization of
these shares.


6. (U) According to Mr. M.M.C. Ferdinando, Secretary,
Ministry of Power and Energy, the government is determined
to go ahead with the reforms. Speaking at a recent energy
managers meeting organized by the PUC, he suggested that the
government may refer the bills to a parliamentary
consultative committee without directly presenting them to
Parliament on May 23 as planned. According to Ferdinando,
this decision may delay the parliamentary presentation to
early June. It is not clear if this move would be taken due
to JVP protests or due to complaints of inadequate time for
consideration of the bills.


7. (SBU) Comment: Recently, the government has shown signs
of moving reforms ahead in the electricity and energy
sectors; the most important being the decision to procure a
much delayed and much needed coal power plant. Last week,

COLOMBO 00000819 002 OF 002


the President laid the foundation stone for a 300MW coal
power plant, which will be built by the Chinese under a long-
term concessionary loan. In April 2006 the government
increased fuel prices, for the first time since June 2005,
and is reportedly likely to do so again in the coming days.
This may partially reduce government subsidies of fuel
(though a recent analysis suggested that, with oil topping
USD 70 per barrel, the Government may spend close to USD 2
billion on fuel subsidies in 2006). The GSL's response to
threats by the unions and decisions made surrounding the
potential strike could be a harbinger of whether this
government will stand for reform or cave in to union
pressure on a variety of matters.

ENTWISTLE