VZCZCXRO1249
OO RUEHBI RUEHLMC
DE RUEHLM #0637/01 1201422
ZNR UUUUU ZZH
O 301422Z APR 07
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5957
INFO RHHMUNA/HQ USPACOM HONOLULU HI PRIORITY
RUCPDOC/USDOC WASHDC
RUEHKA/AMEMBASSY DHAKA 0073
RUEHIL/AMEMBASSY ISLAMABAD 7054
RUEHKT/AMEMBASSY KATHMANDU 5141
RUEHLO/AMEMBASSY LONDON 3715
RUEHNE/AMEMBASSY NEW DELHI 0921
RUEHNY/AMEMBASSY OSLO 3787
RUEHOT/AMEMBASSY OTTAWA 1070
RUEHKO/AMEMBASSY TOKYO 2868
RUEHCG/AMCONSUL CHENNAI 7639
RUEHBI/AMCONSUL MUMBAI 5322
RUEHON/AMCONSUL TORONTO 0194
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION
RHEFDIA/DIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 COLOMBO 000637 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
STATE FOR SCA/INS AND SCA/RA 
MCC FOR F REID, D NASSIRY AND E BURKE 
TREASURY FOR LESLIE HULL 
 
E.O 12958: N/A 
TAGS: ECON EINV ETRD EAIR PREL PTER CE
SUBJECT: SRI LANKA: LTTE AIR ATTACKS HITTING THE ECONOMY 
 
REF: A) COLOMBO 630  B) COLOMBO 491 
C) 2006 COLOMBO 2104 
 
¶1. (SBU) Summary: The Liberation Tigers of Tamil Eelam (LTTE) attack 
early Sunday morning on oil storage facilities outside Colombo 
(septel) was the terrorist organization's first aerial strike aimed 
at an economic target.  Whether by directly hitting economic 
infrastructure or by indirectly raising fears that Sri Lanka's skies 
are not safe, a continued LTTE air campaign is likely to hurt Sri 
Lanka's ability to attract investment, tourists, and trade 
contracts.  This is probably the LTTE's goal -- to make the 
government feel economic pain that equals or exceeds the military 
pain that the LTTE can inflict.  End summary. 
 
AIR ATTACK ON OIL STORAGE FACILITIES 
IS FIRST ON ECONOMIC TARGET 
------------------------------------ 
 
¶2. (SBU) The April 29 air attack on oil storage tank facilities 
outside of Colombo marked the first time the ethnic separatist 
Liberation Tigers of Tamil Eelam (LTTE) have used their newly 
deployed aerial bombing capacity against an economic target.  The 
facilities are primarily owned by the government, but the attack 
also hit structures owned by private firms Shell and Indian Oil 
Company.  With impressively accurate bomb placement, the LTTE nearly 
imposed major damage to the country's largest cluster of oil and 
fuel storage facilities. 
 
AIR ATTACKS DISRUPTING CIVIL AVIATION 
------------------------------------- 
 
¶3. (SBU) The LTTE air attacks against military and economic targets 
are also disrupting civil aviation.  Sunday's attack caused Sri 
Lankan authorities to briefly close Colombo's international airport, 
reroute inbound flights and delay outbound flights.  The airport was 
also closed briefly April 26 when the military began firing 
antiaircraft guns from Katunayake Air Force Base, adjacent to 
Colombo's Bandaranaike International Airport, in response to a 
possible air attack (ref A). 
 
¶4. (SBU) Following the latest attack, two international airlines 
announced they were suspending flights to Sri Lanka.  One, Cathay 
Pacific, had only just resumed flights on April 22, after having 
cancelled them following the initial LTTE air attack March 26 (ref 
B).  The other, Emirates, is one of the largest carriers to and from 
Sri Lanka.  In an April 30 briefing for the diplomatic community 
regarding the weekend air attacks, Sri Lankan Minister of Foreign 
Affairs Bogollagama said the government had started discussions with 
Emirates to convince the airline to resume flying to Sri Lanka using 
daytime flights.  (Note: the Emirates cancellation is a particularly 
sharp blow to the government, because Emirates operates and owns 43 
percent of the national carrier Sri Lankan Airlines.) 
 
TOURISM, ALREADY WAY DOWN, SURE TO DECLINE FURTHER 
--------------------------------------------- ----- 
 
¶5. (SBU) The air attacks are putting further strain on Sri Lanka's 
already sagging tourism industry (ref C).  Tourism, Sri Lanka's 
fourth largest foreign exchange earner, is already down by 15 
percent for the first three months of 2007, compared to the same 
period in 2006.  The air attacks are causing authorities to take 
steps, aside from the diverted flights, that are likely to further 
deter tourists.  When reacting to nighttime air raids around 
Colombo, the government now shuts off the city's electricity to 
improve air defense visibility and reduce the LTTE's ability to 
identify targets on the ground.  The Defense Ministry has instructed 
hotels not to use their backup generators during these power cuts. 
Local and international media reporting have described fearful 
tourists at the international airport being instructed by airport 
security to take cover as the military fired antiaircraft weapons 
 
COLOMBO 00000637  002 OF 002 
 
 
nearby.  BBC online coverage of the attack should images of tracer 
fire arcing above the capital. 
 
INTERNATIONAL CREDIT RATER FITCH SAYS CONFLICT KEEPS 
SRI LANKA'S SOVEREIGN RATING OUTLOOK NEGATIVE 
--------------------------------------------- ------- 
 
¶6. (SBU) On April 23, international credit rating agency Fitch 
Ratings announced it was maintaining its BB- rating for Sri Lanka. 
The rating translates to "speculative," or sub-investment grade, 
with a negative outlook.  Fitch first imposed the negative outlook a 
year ago as the conflict heated up.  Sri Lankan Central Bank and 
Treasury officials had hoped to convince Fitch that the Sri Lankan 
economy's resilience to the conflict justified removal of the 
negative outlook or even an upgrade in the rating.  Fitch stated in 
its ratings release that "the domestic security situation continues 
to pose risks to economic stability and growth." 
 
COMMENT: LTTE ATTACKS ON ECONOMIC TARGETS RAISE 
THE COST OF WAR FOR THE GOVERNMENT 
--------------------------------------------- -- 
 
¶7. (SBU) While many of Sri Lanka's critical private and public 
infrastructure facilities are well guarded against attack by land or 
sea, they are more vulnerable to the new air attack threat.  The 
LTTE, in directing its latest air attack at an economic target, is 
surely aware that it can impose both a direct and an indirect 
economic cost on the government.  Actually taking out a major 
infrastructure installation would of course impose major costs.  But 
even without scoring such a blow, the LTTE inflicts damage on the 
Sri Lankan economy by deterring tourists, scaring potential 
investors, increasing insurance rates, and raising the cost of 
borrowing for the government.  If the LTTE is unable to push back 
against the Sri Lankan armed forces on the battlefield, it is likely 
to resort increasingly to attacks on economic targets to raise the 
cost of the war for the government. 
MOORE