I live in Costa Rica, Central America. This is 4x4 country. Most of the cars and trucks here are Japanese, and diesel engines are very popular. Everyone tends to stay away from American diesels after the horrible experiences with the General Motors 350. I went against everybody's opinion and bought a Chevrolet C/K Pickup with a 6.5-liter turbodiesel, and guess what?
My new truck has an intermittent problem. All of a sudden it would act as if someone had turned the ignition off and back on again. Then the "service engine soon" light comes on, and the engine has no power and won't go over 3,000 RPM. When I shut the engine off and then restart it, the problem is gone. It can happen every ten miles or every 500 miles. This is the only truck of its kind here. The dealer can't find anything wrong and said to bring it back when the problem is happening, but I still have to make an appointment.
I understand the reluctance in buying a GM built diesel engine. I still have flashbacks of replacing head gaskets and rocker arms again and again on a number of Oldsmobile 350 diesels. The problem you're experiencing with the 6.5-liter turbodiesel has been a somewhat common complaint at Chevy and GMC service departments. However, we can understand a South American technician having trouble diagnosing the problem with no previous experience with this particular system.
The engine itself is fine. The symptoms you have described would indicate an intermittent failure of the "Optical/Fuel Temperature Sensor". This is a dual purpose sensor, and the "optical" half is where the problem lies. The Optical sensor supplies the computer with crucial information as to the speed and position of the camshaft. The PCM (Power Control Module) uses this data along with signals from several other sensors in order to send out the appropriate commands to the Electronic Injection Pump, which accurately distributes the diesel fuel to the engine.
This is what actually happened. The sensor stopped functioning for a split second. That was the key off and on sensation. Then the PCM went into what we call "fuel back-up" or "limp home" mode. This allows the system to function with minimum capabilities without a do or die input such as the optical sensor. Then, after you cycled the ignition, everything was back to normal until the optical sensor skipped a beat once again. There will be trouble codes stored in the PCM's memory, but they can be deceiving in this situation.
Note: The sensor itself is not serviceable separately at this time, but it is part of a complete injection pump replacement.