US embassy cable - 05COLOMBO1026

UNCLAS COLOMBO 001026 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA/JPROSELI AND L/CID/JNICOL 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: CASC, EFIN, EINV, KIDE, PGOV, OPIC 
SUBJECT: 2005 REPORT ON INVESTMENT DISPUTES AND 
EXPROPRIATION CLAIMS 
 
REF: SECSTATE 70014 
 
1.   The following dispute is being submitted for 2005 as 
per section 527 of the Foreign Relations Authorization Act 
(FRAA) for Sri Lanka: 
 
(A)  Claimant A 
 
(B)  2004 
 
(C)  Claimant had been contracted in June 2000 to provide 
power to the national grid under a combined cycle agreement 
signed with the Ceylon Electricity Board (CEB), which 
retains the monopoly on power transmission and, together 
with its subsidiary, Lanka Electricity Company, has the 
monopoly on power distribution in the country.  Under the 
Power Purchase Agreement (PPA) the CEB was required to 
establish two Letters of Credit (LC) with an aggregate value 
of $20 million. 
 
In March 2004, due to a fire that had shut down the 
claimant's power plant, and at the request of the Government 
of Sri Lanka (GSL), a standstill agreement was signed 
between claimant, CEB and the Ministry of Finance (MOF) to 
operate the plant in open cycle mode.  In May 2004 the 
agreement was rendered invalid as the CEB did not make full 
payment for energy generated under the terms of the open 
cycle agreement.  As a result US$3million was still owed to 
the claimant. 
 
Claimant met with CEB, Secretary to the Treasury and 
Secretary to the Ministry of Power & Energy to discuss the 
 
SIPDIS 
outstanding payment. GSL officials requested a renegotiation 
and as a result, claimant offered a reduction of US$600,000 
out of the total US$3 million outstanding.  The Claimant 
received a new agreement from the Attorney General's 
Department through the CEB, which reflected the new payment 
terms.  The Claimant accepted this new agreement. 
Nonetheless, despite Cabinet approval and CEB Board 
approval, the Chairman of the CEB has refused to make the 
required payment of US$2.4 million.  Establishment of 
Letters of Credit (LC), as per the original PPA, has also 
not been implemented to date. 
 
Post has made representations on this matter to the 
Secretary to the Ministry of Finance, Minister of Power & 
 
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Energy and the Presidential Adviser on Economic Affairs. 
These officials have assured Post that the matter is being 
looked into and claimant will be remunerated for the 
outstanding payment.  However, no payment has been made nor 
LC established thus far.  Claimant provided most recent 
update on this issue on May 17, 2005. 
 
2.  Claiman A:  AES 
 
LUNSTEAD