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Cablegate: Top Coal Exec Throws in Towel

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS HARARE 000079

SIPDIS

SENSITIVE

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: ECON EMIN ZI ENGR
SUBJECT: Top Coal Exec Throws in Towel


Sensitive but unclassified.

1. (SBU) Summary: Dominant coal producer Wankie suffers
from an acute lack of foreign exchange that could
ultimately hamper Zimbabwe's energy output. Top-of-the-
line Caterpillar haulers and Bucyrus-Erie Draglines sit
idle due to the costliness of imported parts. Meanwhile,
the GOZ insists that Wankie sell coal at a loss to the
country's largest power station. Outgoing Managing
Director Kudzai Bwerinofa told us the GOZ's unworkable
policies have prompted him to take early retirement. End
Summary.

A 100-year old firm struggles
-----------------------------
2. (U) Even outside the context of Zimbabwe's modest US$
4 billion (and shrinking) economy, Wankie passes as a
serious enterprise. The mining firm is the supplier of
coal to Hwange Power Station, which generates 60 percent
of Zimbabwe's energy, as well as smaller thermal stations
in Harare, Bulawayo and Munyati. It trades on
Johannesburg, London and Harare equity exchanges. After
independence, the GOZ believed so strongly in Wankie's
role that it acquired a 39 percent stake.

3. (SBU) Given the GOZ's minority ownership, it is ironic
that public policy is running Wanke into the ground.
Managing Director Bwerinofa, a 20-year company veteran,
told us he cannot bear to administer a firm that has
become a hopeless case. He is retiring 3-4 years ahead
of schedule. The GOZ began to cap the price Wanke may
charge domestic customers for coal about a year ago -- at
a level below cost. So the company has been losing money
domestically but managed to stay afloat through export
profits. For Bwerinofa, the 2003 budget, which forces
Wanke to surrender up to 100 percent of export earnings
for exchange at the official rate (nearly 1/30 of the
market rate), was the final blow. Wanke no longer has
foreign exchange to buy parts for expensive machinery.
Only 3 of 10 haulers, 4 of 12 dump trucks, 2 of 4 rope
shovels, 1 of 3 front-end loaders and 61 of 84 vehicles
were operational when we visited. Admirably, opencast
operations are still running at 80 percent of capacity.
Without backup support, however, Bwerinofa says
production will continue to drop.

Logistics hurdles
-----------------
4. (SBU) But Wanke's headaches do not stop there. As one
of Zimbabwe's largest fuel consumers, Wanke has been hit
hard by the shortage. Due to the National Railway of
Zimbabwe's (NRZ) deterioration, however, Wanke must now
transport most coal by road. NRZ is providing only one-
third the daily wagons that Wanke requires. Road rather
than rail transport to Harare doubles the cost of coal.

Comment
-------
5. (SBU) Like many companies in Zimbabwe, Wanke is now
operating within government-imposed constraints that
guarantee it will lose money. The best management can
accomplish is slow the depletion of shareholder assets
and hope Wanke is still viable when policies change. The
consequences of Wanke's potential demise are more
damaging than a run-of-the-mill business, since it
supplies the critical input for most of Zimbabwe's energy
(and stockpiles a mere 2-day reserve). If there is a
shortage of coal, parastatal ZESA will have to import
electricity or limit services.

Sullivan

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