Cablegate: Exxonmobil Tells Goz to Cut Fuel Subsidy
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS HARARE 000152
STATE FOR AF/S AND AF/EX
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: EPET EFIN ECON ZI
SUBJECT: ExxonMobil tells GOZ to cut fuel subsidy
Sensitive but unclassified.
1. (SBU) Summary: A visiting ExxonMobil delegation
recently urged the GOZ to stop subsidizing fuel
consumption, which has completely overburdened the
country's foreign exchange assets. The delegation
suggested a more targeted support mechanism for public
transport and critical services that would soften the
blow of a 5-6 fold increase in the fuel price. End
2. (U) ExxonMobil Africa and Middle East Marketing
Director John Bell led a group of company executives to
Zimbabwe in the week of Jan. 13 for talks with the GOZ.
A steep slide in the Zimdollar has meant the GOZ now
subsidizes more than 90 percent of the cost of commercial
and retail fuel (about US$ 1 million/day), a burden it
can no longer meet. The country has suffered severe
shortages over the past 5 weeks. Mobil is one of 5
foreign oil companies that share the distribution
business with 17 local operators.
3. (SBU) In a Jan. 15 meeting with Finance Minister
Herbert Murerwa, the ExxonMobil team argued that the
parastatal National Oil Company of Zimbabwe (NOCZIM)
should stop subsidizing the fuel it imports, which would
trigger a 5-6 fold rise in the pump price. Multinational
and other oil companies would pay the Zimdollar parallel
rate equivalent to NOCZIM and charge a slightly higher
amount at the pump. (The Confederation of Zimbabwe
Industries had earlier backed away from a proposal for a
two-tier fuel-pricing scheme over fear of leakages.)
Instead, the GOZ could underwrite part of the cost of
public transport and other services. Zimbabwe's
artificially low fuel price -- about US$ .20/gallon --
promotes waste, profiteering and overconsumption.
Frustratingly, Murerwa was noncommittal in the absence of
agreement from President Mugabe.
4. (SBU) While ExxonMobil's arguments make sense, the GOZ
is concerned with broader implications. Such a dramatic
rise in the fuel price would be unpopular and fan the
country's high inflation rate, already 198 percent
officially and 300-400 percent unofficially. It would
lock in fuel at an exchange rate of around Z$ 1,500/US$
1, a market devaluation the GOZ refuses to recognize.
And it would make mincemeat of the GOZ's extensive price
controls, the main tenant of its "macroeconomic policy."