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Cablegate: Zimbabwe May Dollarize Energy

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

UNCLAS HARARE 000489

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
STATE PASS USAID FOR MARJORIE COPSON

E. O. 12958: N/A
TAGS: ECON EINV ETRD ZI ENGR
SUBJECT: Zimbabwe May Dollarize Energy

1. (U) Summary: Another pillar of the GOZ's mind-
withering, and failed, interventionist economic policies
may crumble. Parastatal Zesa is negotiating U.S. dollar
energy tariffs with selected exporters. End summary.

Differentiated Tariffs
----------------------
2. (SBU) While recently touring Gweru and Kwekwe
(Midlands), Econchief met with representatives of Sable
Chemicals, Zimasco and Zimbabwe Alloys. They are the
country's 3 largest energy consumers, absorb 20 percent
of national output and have endured power shedding in
recent months. Reps from Zimasco and Zim Alloys, both
exporters, told us Zesa has just approached them about
paying for energy in U.S. dollars. The GOZ's recent
"National Economic Revival Program" broaches the idea of
some firms paying for energy in foreign exchange.
Managers of non-exporter Sable said Zesa has not pitched
them similar proposals. The chemical company does not
earn forex directly and could not stay in business if
paying an international market price for power.

3. (SBU) Even as forex-earners, Zimasco and Zim Alloys
told us they balked at Zesa's request that they pay US
3.8 cents per kilowatt hour. Firms in Mozambique,
Botswana, Zambia and South Africa pay under US 2.0 cents.
The Zimasco plant manager said such rates "would blow us
right out of the water." Both miners could swallow a
tariff equivalent to that in neighboring countries, a 5-
fold increase over present Zimdollar-denominated rates,
if Zesa guarantees them preferential service and a fair
exchange rate.

Comment
-------
4. (SBU) Over the long haul, energy prices that vary by 5-
fold are unsustainable. Nevertheless, both Eskom of
South Africa and Hydro Cabora Basa of Mozambique have
threatened to cut off energy exports, a potentially
devastating blow to an ailing economy heavily dependent
on imported power. More importantly, it is mildly
encouraging that the GOZ is finally thinking about fuel
and energy in dollarized rather than self-delusive --
i.e., converted into Zimdollars at an unsupported
official rate -- terms.

Sullivan

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