VZCZCXRO6012
RR RUEHLMC
DE RUEHLM #0431/01 0800342
ZNR UUUUU ZZH
R 210342Z MAR 06
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 2863
RUCPDOC/USDOC WASHDC
INFO RUEHNE/AMEMBASSY NEW DELHI 9398
RUEHKA/AMEMBASSY DHAKA 9029
RUEHIL/AMEMBASSY ISLAMABAD 5918
RUEHKT/AMEMBASSY KATHMANDU 3954
RUEHKP/AMCONSUL KARACHI 1993
RUEHCG/AMCONSUL CHENNAI 6462
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP

UNCLAS SECTION 01 OF 02 COLOMBO 000431 
 
SIPDIS 
 
STATE FOR SA/INS; MCC FOR D NASSIRY AND E BURKE 
 
STATE PLEASE PASS TO OPIC AND TDA 
 
SENSITIVE, SIPDIS 
 
E.O 12958: N/A 
TAGS: EPET ENRG ETRD BEXP CE
SUBJECT:  SRI LANKA MAY HAVE OIL AND GAS FIELDS, BUT LACKS 
EXPERTISE FOR EXPLOITING THEM 
 
¶1.  (U) Summary:  Sri Lanka is preparing to call for 
expressions of interest from international companies for 
oil and gas exploration as studies conducted by an 
international company have revealed possible petroleum 
resources in the seabed off the northern and western 
coasts.  While Sri Lanka appears to possess significant 
untapped energy resources, it lacks the expertise to 
develop a plan for establishing the appropriate policy and 
market frameworks and transparent tender processes 
necessary to attract international exploration companies. 
Post has asked USTDA to look at possibly funding a 
consultancy to assist the Government in pursuing this 
potential opportunity.  End Summary. 
 
There's Oil in That There Basin 
-------------------------------- 
¶2.  (U) In response to increasingly frequent media accounts 
of Government of Sri Lanka (GSL) intentions to open 
possible offshore oil and gas sites for exploration, 
EconOff met with Mr. A.P.A. Gunasekara, Secretary to the 
Ministry of Petroleum Development, on February 8 to discuss 
GSL plans for exploitation of these resources.  According 
to Gunasekara, who also heads the Petroleum Resources 
Development Council (PRDC), seismic surveys and airborne 
gravity surveys have confirmed the existence of petroleum 
resources in Sri Lanka?s territorial waters.  The seismic 
surveys were conducted by the Australian subsidiary of 
Norwegian firm T.G.S. Nopec in 2003 and 2005.  The surveys 
revealed the possible existence of petroleum resources in 
two offshore locations near Sri Lanka, in the Cauvery basin 
in the Palk Straits (between Sri Lanka and India) and in 
Mannar basin along the western coastal belt of Sri Lanka. 
 
What's Available? 
----------------- 
¶3.  (U) The government is currently in the process of 
preparing for the bidding process, which officials state 
will begin in the summer.  Sri Lanka will likely sell 
exploration rights to approximately nine ?blocks.? 
However, there is no indication how the GSL will structure 
this tender, as it appears that they have appointed no one 
who understands oil exploration, nor have they to date 
selected foreign advisors with sufficient experience. 
 
The Politics of Oil 
------------------- 
¶4.  (SBU) Petroleum resources were a popular campaign theme 
in last November?s Presidential Election.  President 
Rajapakse promised to transform the country, and the lives 
of its people, through oil.  According to Gunasekara, 
several countries have approached the government seeking 
exploration rights.  Recently, Foreign Minister Mangala 
Samaraweera told Ambassador that China had asked for 
exploration rights and that India has claimed that former 
President Chandrika Kumaratunga had promised that India 
would be given the franchise for exploration.  Samaraweera 
suggested that, since as many as 15 blocks are potentially 
available, India and China might each be given one via 
bilateral agreement, with their firms obviously allowed to 
bid through an open tendering process for the other 13 
(Note: there is little clarity on the number of blocks 
actually available; contacts cite figures that range 
between 9 and 15. End Note).  The President has promised 
that exploration licenses will be issued through a 
competitive bidding process. 
 
Interest Already Shown 
---------------------- 
¶5.  (SBU) According torecent press reports, Indian 
industrial giant Reliance Corporation is the latest firm to 
approach the GSL seeking exploration rights. 
Representatives from the London office of the US law firm 
Hogan and Hartson (HH) were recently in Sri Lanka to 
persuade the government to hire their firm to develop the 
tender process, review and propose appropriate legislation, 
assist the GSL in developing ?road shows,? develop the 
tender documents and assist in the final selection process. 
According to HH?s representative, it would cost the GSL 
approximately USD 1 million to hire a firm like HH and get 
 
COLOMBO 00000431  002 OF 002 
 
 
the full range of support they offer. The representative 
said that his ?rough guess? was that the exploration rights 
should be worth between USD 40 to 50 million (Note: 
Econchief has facilitated an introduction between HH and 
USTDA and we are hopeful that some form of assistance might 
become available to help finance a US-led effort to assist 
the GSL in this endeavor. End Note). 
 
New Government Bodies... 
---------------------- 
¶6.  (U) The importance attached to the new seismic and 
airborne gravity surveys is evidenced by the creation 
several months ago under the former Government of the new 
Ministry of Petroleum and Petroleum Development (MOPD) as 
well as two related institutes.  The Petroleum Resources 
Development Secretariat (PRDS) has the mandate to manage 
exploration activity.  The Secretariat is not fully 
functional yet as it awaits the appointment of a Director 
General.  The Petroleum Resources Development Council 
(PRDC), a high level committee of policy advisors, is 
tasked to form policy and advise the PRDS.  Several key 
ministry secretaries and the Board of Investment Chairman 
are members of the PRDC.  A Petroleum Resources Development 
Act was also passed under the former Government. 
 
...But Little Expertise to Run Them 
--------------------------------- 
¶7.  (SBU) One of the key challenges facing the GSL is a 
lack of anyone with experience in the international oil and 
gas arena.  Former-BOI Chair and current Chief Operating 
Officer of the Reconstruction and Development Agency, 
Saliya Wickramasuriya, spent 20 years with the oil-rig 
services firm Schlaumberger, and he appears interested in 
pursuing this opportunity.  He is rumored to have been 
offered a high-level position in the new Petroleum Ministry 
under former President Kumaratunga, but was dropped 
following the November election.  Current Petroleum 
Resources Minister H.M. Fowzie is an energetic and smart 
politician, but he seems unfamiliar with the issues 
involved in this undertaking.  Fowzie recently told the 
Ambassador he was looking to Cuba to provide ?expertise? in 
the oil arena (Fowzie has also suggested linking with 
Venezuela and Iran for support in this endeavor).  Foreign 
Ministry contacts have assured us the Cuba and Venezuela 
initiatives are unlikely to go forward. 
 
Comment 
------- 
¶8.  (SBU) Sri Lanka could benefit substantially from the 
exploration and tapping of these petroleum and natural gas 
resources.  But due to virtually nonexistent, relevant 
professional expertise, the GSL risks implementing a less 
than optimal plan.  Post is developing a strategy to 
support interest by US companies in this opportunity and 
seeks USTDA assistance to focus the GSL?s thinking and 
steer them toward an open, transparent process that 
promotes an efficient and profitable opportunity for the 
exploration company as well as the people of Sri Lanka. 
 
ENTWISTLE