This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 COLOMBO 002000 
 
SIPDIS 
 
SENSITIVE 
 
AID/ANE/AA FOR MARK WARD, AID/ANE/SAA FOR BERNADETTE BUNDY, 
AID/DCHA/OTI FOR RACHEL WAX, AID/DCHA/GC FOR GARY WINTER, 
AND AID/ANE/JAKARTA/DIR SEAN CALLAHAN 
 
E.O. 12958: N/A 
TAGS: EAID PTER CE LTTE
SUBJECT: AID/OTI OFFICIALS AGAIN VISIT KILINOCHCHI TO 
RESOLVE LTTE "TAX" ISSUES 
 
REF: COLOMBO 01934 
 
Summary 
------- 
 
¶1.  (SBU) Per State guidance approving operational/working 
level discussions with LTTE representatives and based on 
approval from the Embassy's Front Office, on December 9 a 
USAID Sri Lanka staff member had a meeting in Kilinochchi 
with the Officer-in-Charge of the LTTE's Revenue Unit and 
the Coordinator of the LTTE's Coordinating Office for INGOs 
and UN agencies. The meeting was requested by USAID as a 
follow on to a November discussion in Kilinochchi about a 
recent problem with USAID's tax-free transport of goods 
through LTTE-controlled territory south of the Jaffna 
Peninsula ("The Vanni"). The meeting lasted for two hours, 
was cordial but frank, minimally strayed from the 
operational issues at hand, and ended with no LTTE 
concession on the tax issue. As a result, the USAID staff 
member told the LTTE representatives that USAID 
reconstruction projects in Jaffna will be stopped.  Emboff 
has raised this issue with the LTTE - linked Tamil National 
Alliance (TNA) which promised to look into it.  END SUMMARY 
 
A New LTTE "Lorry Charge" on the A9 Highway to Jaffna 
--------------------------------------------- -------- 
 
¶2.  (SBU) In line with State guidance approving 
operational/working level interactions between U.S. 
officials and LTTE representatives, in late November USAID 
sought concurrence from the Embassy's Front Office to 
arrange another operational-level meeting with the LTTE in 
Kilinochchi. The meeting, the second in as many weeks, was 
needed to resolve problems related to a November 1 LTTE move 
to impose a "lorry charge" on trucks transporting goods on 
the A9 highway through the Vanni, the LTTE-controlled area 
that links the Jaffna Peninsula with government-controlled 
areas to the South. In the wake of a late 2003 meeting 
between USAID and the LTTE that put in place a duty-free 
system along the A9, for the past one year USAID's Office of 
Transition Initiatives (USAID/OTI) has been using locally- 
rented trucks to transport project goods through the Vanni 
to Jaffna. Once the new lorry charge was put in place in 
November, the duty-free system broke down when drivers of 
the USAID-rented trucks were told by the LTTE Customs Office 
at the Omanthi checkpoint in Vavuniya to pay the charge. It 
transpires that only UN-owned trucks are not subject to this 
new levy. 
 
The First Round of "Lorry Charge" Discussions With the LTTE 
in November 
--------------------------------------------- -------------- 
 
¶3.  (SBU) On November 24 two staff from USAID/OTI met with 
¶M. Thiyagarajah, the Coordinator for the LTTE's Coordinating 
Office for INGOs and UN Agencies (Reftel). At that meeting, 
the lorry charge problem was discussed, and USAID/OTI staff 
walked away with the distinct impression that Mr. 
Thiyagarajah's office would deal with the issue in USAID's 
favor. Given that the meeting took place just a few days 
before LTTE's annual Heroes Day celebration, Thiyagarajah 
said he needed a few days to sort out the issue with the 
LTTE's Revenue Unit and that USAID staff should call him the 
following week. 
 
¶4.  (SBU) During the week starting November 29 USAID/OTI 
staff made ten phone calls to Thiyagarajah's office to get 
clarity on the lorry charge issue. Over the course of those 
conversations, it became clear that Mr. Thiyagarajah had not 
succeeded in getting the levy waived for USAID-rented trucks 
and that another meeting in Kilinochchi would be necessary. 
Given that Thiyagarajah was not able to deliver on the 
issue, USAID requested a more direct line of communication 
with the person best situated within the LTTE administrative 
structure to make a determination on the lorry charge. In 
the days leading up to the second USAID-LTTE meeting, it 
became clear that the Officer-in-Charge of the LTTE's 
Revenue Unit would be present at the meeting scheduled for 
December 9. 
 
The Second Meeting in Kilinochchi 
--------------------------------- 
 
¶5.  (SBU) The USAID/OTI Sri Lanka Country Representative, 
accompanied by a local staff member who handles OTI's 
procurement for Jaffna, arrived in Kilinochchi at 11 AM on 
December 9 in a clearly marked diplomatic vehicle. After 
waiting approximately half an hour, the meeting started with 
the participation of the two USAID/OTI staff, two LTTE 
translators, two officials from the LTTE's Revenue Unit 
(including the Officer-in-Charge who did not give his name), 
and Mr. Thiyagarajah. While earlier meetings with 
Thiyagarajah had been all smiles, the presence of the 
Revenue Unit's Officer-in-Charge created a different, more 
sober dynamic, particularly because he was clearly the most 
senior level LTTE person in the room, and he maintained a 
fairly severe demeanor throughout the two-hour discussion. 
While he was always polite, he did not smile much and he 
struck the USAID/OTI Country Representative as one of the 
classic LTTE staff who as former cadres have been promoted 
without much training or education into a quasi-governmental 
bureaucracy. 
 
¶6.  (SBU) The USAID/OTI Country Representative started the 
meeting with a basic description of work in Jaffna, a brief 
history of the USAID-LTTE duty-free agreement, and a 
statement about the problem created by the LTTE's new lorry 
charge. He finished by saying that regardless of the reasons 
for the levy it was absolutely impossible for USAID to pay 
the charge and that USAID had not come to bargain over the 
issue. Either the charge would be dropped for USAID-rented 
trucks or USAID would stop transporting goods up the A9, in 
effect ending much of the USAID/OTI effort in Jaffna. 
 
¶7.  (SBU) The Officer-in-Charge replied with an explanation 
about why the charge was implemented, giving a lengthy 
explanation about the need to collect money to maintain the 
A9 in LTTE-controlled areas and provide security along it. 
He also described the charge system in a bit more detail, 
stating that Sinhalese-owned trucks traveling north to 
Jaffna are charged 6,000 Rupees per vehicle while Tamil- 
owned trucks traveling south from Jaffna are charged only 
3,000 Rupees per vehicle. Later in the conversation and as 
the air became slightly more charged he talked about the 
large administrative structure maintained by the LTTE and 
the need to finance it through various means including the 
lorry charge. He also kept repeating that the charge was 
being levied on the transport company and not directly on 
USAID, emphasizing the point that in fact the USAID supplies 
continue to get duty-free privileges. The USAID/OTI Country 
Representative expressed some incredulousness at this line 
of reasoning and essentially responded by saying that of 
course it would be USAID money going to the LTTE and no 
company was going to absorb this cost of doing business on 
its own. He made it clear that no money directly or 
indirectly can go to the LTTE and that what the Officer-in- 
Charge was suggesting is that USAID turn a blind eye to what 
is actually happening (confirmed by a rare smile from the 
man). 
 
¶8.  (SBU) The meeting went back and forth in this vein for 
close to two hours and after some time it became clear that 
the Officer-in-Charge was not willing to give any ground. 
The only alternative suggested was that USAID buy its own 
trucks, in which case the charge would be dropped in the 
same way that it is waived for UN-owned vehicles. There was 
some discussion about the option of using trucks leased over 
the long-term by USAID but the Officer-in-Charge said the 
fee would only be waived if the vehicle registration was in 
USAID's name. When it was completely obvious that the LTTE 
position on the lorry charge was not going to change, the 
USAID/OTI Country Representative expressed his 
disappointment over the situation. He ended the meeting by 
stating categorically that since the USAID/OTI program is 
not in a position to transport goods on the A9 any longer 
the program will not be funding anymore reconstruction work 
in Jaffna. He received a "so-be-it" look from the group and 
left Kilinochchi. 
 
The Real Issues at Play 
----------------------- 
 
¶9.  (SBU) In the opinion of the USAID/OTI Country 
Representative, there are a number of issues responsible for 
the LTTE's Revenue Unit's intransigence with USAID. First 
and most obviously, the LTTE controls a long stretch of the 
A9 and has decided that it is going to squeeze every rupee 
out of that control. It is unclear why the organization has 
waited so long to impose this lorry charge on top of the 
regular taxes it has been levying on almost all cargo since 
the A9 was re-opened in 2002, but it is clear that they are 
making a lot of money from the new charge. One LTTE 
realization is that Sri Lankan transport companies 
(dominated by non-Tamils) are making a tremendous amount of 
money servicing Jaffna and the LTTE sees it as their right 
to take a bigger slice of this pie. The point was made very 
openly by the Officer-in-Charge more than once. 
 
¶10. (SBU) Secondly, the USAID position is weakened by the 
fact that as far as is known, with the exception of the 
German government aid organization GTZ, companies and 
organizations are going along with the lorry charge and 
paying it. This has to include non-profit international aid 
agencies and in some cases the UN.  For example, in recent 
weeks the UNHCR rented a certain number of trucks to move 
supplies into The Vanni and these vehicles had to pay the 
lorry charge. Evidently UNHCR is unhappy about that 
particular incident but it appears to have made the payment. 
As noted by the Officer-in-Charge, the LTTE does not 
understand why USAID is pushing for an exemption when 
everyone else is paying the charge. This issue leads to the 
next point - no doubt the LTTE is extremely reluctant to 
make any exceptions to its new policy since it is nicely 
enforceable as it stands now and making an exception for any 
organization simply opens the door for other groups to argue 
for a special status. 
 
¶11.  Last, and in some ways most troubling, the Officer-in- 
Charge was at times dismissive of the USAID statement about 
its inability to directly or indirectly let money flow to 
the LTTE. On more than one occasion he mockingly talked 
about all the money the LTTE raises in the United States, 
presumably "taxes" on the Tamil diaspora community there 
that flows back into LTTE coffers in Sri Lanka. He seemed to 
be wondering why USAID is so worried about the material 
benefit issue if the U.S. government has not taken stronger 
steps to stop money flows from the United States. The 
USAID/OTI Country Representative made no comment on these 
statements and when the point was made two or three times in 
the course of the conversation each time he steered the 
dialogue back to the specifics of the lorry charge problem. 
 
Next Steps 
---------- 
 
¶12.  (SBU) While the USAID/OTI Country Representative 
suspects that the LTTE people at the meeting think that 
USAID is bluffing on this issue and will eventually pay the 
charge, this notion is going to be dispelled quickly. At the 
moment USAID/OTI has four projects in Jaffna that need 
materials, and various options are being explored to get the 
supplies there. UNHCR has been helpful in transporting some 
of the items in their trucks but it is clear UNHCR is not in 
a position to transport all of the supplies. Shipping 
options will be explored and it has been suggested that 
possibly the Sri Lankan Navy might be able to help. A 
USAID/OTI grantee in Jaffna is talking to local government 
people to see if commercial shipping might be available. If 
it does not prove possible to get the remaining items to 
Jaffna, USAID/OTI will have no choice but to close the 
projects without completing them. For at least the time 
being, no new USAID/OTI grants will be signed for any kind 
of initiative in Jaffna.  Unless the LTTE requests a meeting 
about the lorry charge USAID/OTI does not plan to speak to 
their representatives again about the issue. 
 
¶13.  (SBU) On December 13 emboff raised the taxation issue 
with G.G. Ponnambalam, a pro-LTTE Tamil National Alliance 
(TNA) MP from Jaffna.  She reiterated to Ponnambalam that 
USAID/OTI will not pay the tax and warned that continued 
LTTE intransigence on this issue would mean the end of 
USAID/OTI assistance in Jaffna-a point that the U.S. Mission 
would not hesitate to make clear in its press statements 
announcing the unfortunate and premature closure of these 
projects.  Ponnambalam undertook to convey the message to 
Kilinochchi. 
LUNSTEAD