US embassy cable - 05COLOMBO615

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, Political Parties 
SUBJECT: SRI LANKA:  ELECTRICITY, FUEL STRIKES AVERTED 
AFTER RESTRUCTURING PLANS PUT ON HOLD 
 
REF:  COLOMBO 512 
 
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SUMMARY 
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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. 
 
 
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JVP STRIKE THREATS LEAVE RESTRUCTURING 
PLANS OUT OF GAS, OUT OF JUICE 
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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. 
 
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THE ROCKY ROAD TO REFORM 
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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. 
 
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COMMENT 
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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