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Cablegate: Public Fears Over Diesel, Gasoline Shortages

VZCZCXYZ0001
RR RUEHWEB

DE RUEHEG #0486/01 0711224
ZNR UUUUU ZZH
R 111224Z MAR 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 8492
INFO RHEBAAA/DEPT OF ENERGY WASHINGTON DC

UNCLAS CAIRO 000486

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/ELA

E.O. 12958: N/A
TAGS: ECON EPET PGOV EG
SUBJECT: PUBLIC FEARS OVER DIESEL, GASOLINE SHORTAGES

REF: 06 CAIRO 4596

Sensitive but unclassified. Please protect accordingly.

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Summary
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1. (SBU) Recent reported shortages of diesel fuel and
low-grade gasoline throughout Egypt are prompting press and
public speculation over a looming fuel crisis, although the
GOE has assured the public that no such emergency is
impending. Shortages of low-grade gasoline are likely a
function of the GOE-strategy to wean consumers off of the
most-highly-subsidized 80 octane fuel and onto more
expensive, higher grades, whereas the pressures on the supply
of diesel to the market could stem from multiple factors,
including delayed imports and hoarding caused by rumors of
imminent price increases. End summary.

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Worries over Supply
-------------------

2. (SBU) Stories of price hikes and shortages of gasoline and
diesel fuel are reverberating in the Egyptian press and
public; however, the GOE has issued assurances that no fuel
crisis is looming. Press reports say shortages of certain
grades of Egypt's highly-subsidized gasoline and diesel fuel
are widespread in the governorates of Fayoum, Beni Suef, and
Assiut (south of Cairo), and have been compounded by worries
over imminent price increases at the pumps. Some analysts
worry that supply shortages of diesel, coupled with increased
prices on the black market, could evoke a highly-negative
public reaction. They argue that given the large number of
lower-income Egyptians who rely on diesel-powered minibus
taxis for their daily transportation, and the primacy of road
haulage for cargo transport in Egypt, a fuel shortage will
only exacerbate the growing general public discontent over
rising food prices.

3. (SBU) Although Egypt's retail gasoline and diesel prices
are officially fixed, some trucking company operators have
told us that shortages have pushed the black market cost of
diesel, which normally sells for LE .75/liter (USD .14), to
between LE 1/liter and LE 1.25/liter (USD .18 - .23) in a
number of areas outside of the capital. An official from the
parastatal Egyptian General Petroleum Company (EGPC)
countered that the GOE has not set a date for any potential
future price increases and that any diesel supply issues are
a function of hoarding fueled by rumors. However, Egypt's
publicly-acknowledged plan to reduce the fiscal burden of
fuel subsidies, which gained steam in 2006, is ongoing, and
speculation is rife on when and how the GOE will make its
next move.

4. (SBU) Aside from doubling of the price of low-grade fuel
oil (known as "mazut") in early 2007, Egypt last increased
fuel prices in July 2006, when it boosted the prices of 90
octane gasoline, diesel, fuel oil, and kerosene (reftel). 80
octane gasoline, which is used mainly in poorer areas, was
unaffected. At the time, the increases took a LE 3.5 billion
(USD 642 million) chunk out of Egypt's overall fuel subsidy
bill, which analysts estimated in 2007 as LE 40 billion (USD
7.3 billion) but have increased to around the LE 60 billion
(USD 11 billion) mark this year.

------------------
Why the Shortages?
------------------

5. (SBU) Private sector industry officials tell us that the
shortages of low-grade 80 octane gasoline are part of the
GOE's strategy to reduce its fuel subsidy burden without
explicitly raising gas prices by forcing consumers to move to
the more expensive 90, 92, and 95 octane grades. Contacts in
Alexandria tell us that 80 octane gasoline has been nearly
non-existent there for months, and gas station owners in
Fayoum report not having received shipments of 80 octane for
several weeks.

6. (SBU) Shortages of diesel fuel have the greater potential
impact on economy and the consumer, and some retailers report
that shipments of diesel from EGPC have reduced in recent
months and are falling well below demand. One station owner
reported that his average turnover had been 25,000
liters/day; however, in the last four weeks EGPC only
supplied him with 11,000 liters every two days. Similar
stories are being reported throughout Egypt. Rumors
regarding imminent GOE price increases, which are not
supported by GOE statements, appear to be prompting hoarding
and boosting black market prices. Some spill-over effects
are already being seen in the trucking and transport
businesses, with some company owners increasing haulage and
passenger rates.

7. (SBU) A former EGPC official told us that Egypt is now
more reliant on imports of refined products than previously,
and that any delays in fuel shipment arrivals could pinch the
supply. We are not aware of any specific shipment delays,
nor have we heard reports of any extraordinary circumstances
at Egypt's refineries in recent weeks. The press has quoted
some academic commentators as saying that the GOE is
deliberately squeezing supply in the short term to test
potential public reactions to a new round of official price
increases. Several contacts suggest that global diesel
prices have increased the scale of the historical smuggling
of Egyptian diesel by Greek and Cypriot bunker ships at the
ports of Alexandria, Damietta, and Port Said, thereby
restricting supply to the local market. Egyptian diesel can
apparently fetch up to four times its domestic retail price
at the ports.

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Comment
-------

8. (SBU) While rumors of an imminent increase in the price of
diesel might have a measurable impact on stocks due to panic
buying, the extent of the reduced supply to retailers as
reported by gas station owners would indicate a more
complicated situation. It is unclear at present what is
impinging the supply, and how long it will last, but the
likely price hikes (and gouging) by minibus taxi drivers and
other road transport companies will add to the souring public
mood over increasing costs of living.
RICCIARDONE

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