UNCLAS COLOMBO 001002

SIPDIS

SENSITIVE

SIPDIS

STATE FOR SCA/INS AND EEB/IFD/ODF
STATE PASS TO USTR
COMMERCE FOR EROL YESIN AND JONATHAN STONE
MCC FOR D NASSIRY AND E BURKE

E.O 12958: N/A
TAGS: EINV ENRG PREL CE
SUBJECT: SRI LANKA: CHARGE PRESSES MINISTER OF POWER AND ENERGY ON
MISSING LETTERS OF CREDIT FOR AES POWER PLANT

REF: A. COLOMBO 622 B. COLOMBO 848


1. (SBU) Summary: Charge met Power and Energy Minister Seneviratne
to continue pressing for the Ceylon Electricity Board to deliver
contractually-required letters of credit to U.S. independent power
producer AES. The minister said that he hoped to resolve the issue
by getting the cabinet to officially raise the Electricity Board's
borrowing limits. He expected a cabinet sub-committee to consider
the matter soon and explained that higher borrowing limits would
enable the Electricity Board's bank, the state-owned People's Bank,
to issue the letters of credit. We think this approach could work,
but will require continued pressure from us, which we intend to keep
up. End summary.


2. (SBU) Charge d'Affaires called on Power and Energy Minister
Seneviratne July 11 to continue Embassy advocacy on behalf of U.S.
independent power producer AES Kelanitissa (Private) Limited (ref
A). AES has been operating a $104 million 163 megawatt power plant
in Sri Lanka since 2003, but has never received
contractually-required letters of credit from the state-owned Ceylon
Electricity Board. Without the letters of credit, AES's lenders
have been unwilling to allow investors to take profits from the
project.


3. (SBU) The Charge told Minister Seneviratne that, as indicated by
the Ambassador's April meeting with him and subsequent letter and
phone calls, the Embassy believed it was important for the
government of Sri Lanka to resolve the letters of credit issue. The
Charge explained that the issue had become an irritant in the
bilateral relationship, as indicated by the fact that a senior U.S.
Commerce Department official had raised it with Sri Lankan Trade
Minister Peiris recently in Washington. The Charge also emphasized
that instances such as this of failure to honor contracts had made
it increasingly hard for the Embassy to encourage investment in Sri
Lanka.


4. (SBU) Minister Seneviratne acknowledged that the Ceylon
Electricity Board was contractually obligated to post the letters of
credit. He said he hoped to resolve the issue by increasing the
Electricity Board's government-set borrowing limit. This would
enable the People's Bank to provide the letters of credit as the
covered amount would remain within the higher borrowing limit. The
ministry had put the matter before a cabinet sub-committee chaired
by the Prime Minister. This committee had the authority to raise
the borrowing limit and was likely to agree to do so, the Minister
thought. He expected the issue to be taken up the week of July 16.
If approved, the People's Bank might take only an additional two
weeks to issue the letters of credit. The Charge welcomed the
prospect of a resolution, and told the minister that the Embassy
would continue to pursue the matter until it was in fact resolved.



5. (SBU) Comment: If indeed the cabinet takes up the borrowing limit
issue, it will represent the first actual effort, beyond talk, to do
anything about AES's long overdue letters of credit. Even an
approval of a higher borrowing limit, however, would not necessarily
lead to the People's Bank quickly issuing the letters of credit. We
expect to have to continue to push the government on this. Looking
down the road, there also remains the outstanding payment of $3
million that the Ceylon Electricity Board owes to AES, which we have
described in our investment disputes report (ref B). AES prefers to
put this issue aside for now, but we plan to resume efforts on this
front once we resolve the letters of credit issue.
MOORE