This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS HARARE 002397
SIPDIS
SENSITIVE
STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER
USDOC FOR 2037 DIEMOND
PASS USTR ROSA WHITAKER
TREASURY FOR ED BARBER AND C WILKINSON
USAID FOR MARJORIE COPSON
E. O. 12958: N/A
TAGS: ECON EPET EFIN ETRD ZI
SUBJECT: Zimbabwe May Scrap Fuel Support
Sensitive but unclassified. Protect accordingly.
1. (U) Summary: Reportedly smarting from a first-hand
encounter with dry fuel pumps, President Mugabe has
suggested parastatal NOCZIM may relinquish the job of
importing fuel to the private sector, bringing an end to
a costly and self-defeating fuel subsidy. This would
require huge price increases at the pump, and let the GoZ
scapegoat foreign multinationals since it is
inconceivable that anyone would import anything at the
current GoZ-imposed price. End Summary.
A failed model
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2. (U) Through NOCZIM, the GoZ has for years bought and
bartered for fuel abroad, then sold it to downstream
operators for a fraction of its value. Foreign and
national oil firms are allowed a modest profit to
distribute the fuel. In effect, the GoZ has been
underwriting NOCZIM's operating loss to keep fuel
artificially cheap (less than US$ .20/gallon at present).
With an accelerating Zimdollar devaluation and rampant
fuel smuggling to neighboring markets, the GoZ has run
out of foreign exchange to import fresh supplies. So
desperate is the GoZ has kept the country running of late
by cutting off commercial over retail customers,
illegally pilfering Independent Petroleum Group (IPG)
fuel stored in Zimbabwe and pondering the sale of Air
Zimbabwe's fleet to raise hard currency.
3. (U) Mugabe has now hinted at scrapping this
unsustainable model. Reportedly, he was enraged because
he was unable to find fuel for his own armored Mercedes
limousine while on a recent trip to Gweru. He announced
last Thursday:
"The fuel comes in the name of the government . . . We
call on multinational companies. They sell and make
profits. Government does not make any profit . . . [The
companies] don't suffer from the headaches and stomach
aches I suffer from . . . [Now] they must import and not
wait for the government to do it for them. They have the
foreign exchange."
Anti-profit and self-pity hyperbole aside, Mugabe is
admitting the GoZ can no longer cover NOCZIM's losses.
Although he does not address pricing, we assume - or at
least hope - the President appreciates that private
companies will not import fuel at a loss.
Comment
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4. (U) If Mugabe is serious, the GoZ is taking a
significant step forward by tacitly conceding that market
forces rather than price controls better serve the
country's future fuel needs (not to mention food and
exchange requirements). But there's a problem: The GoZ
is hard-pressed to justify steep hikes in fuel and
transport costs to an already pauperized population.
5. (SBU) A solution? Mugabe could scapegoat foreign
firms - including Mobil and Caltex. Word in the sector
is that new national companies close to the government
are anxious to gain market-share from better-established
multinationals. (With many new indigenous operators
entering the sector, the number of downstream firms has
grown from 5 to 22 since 1999.) In this worst-case
scenario, Mugabe would castigate multinationals for
higher fuel prices, just as he has blamed them for
shortages, then expropriate or force sale of their
assets. He may have been laying this groundwork when he
bemoaned in the same remarks that "government cracks to
make [foreign oil companies] rich." Mugabe has similarly
vilified and threatened to nationalize National Foods
over food shortages. (The CEO of parent Anglo American
told us last week he is looking for an indigenous partner
to insulate National Foods from expropriation.) In any
event, Mugabe may be coming to the view that expensive
fue