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Cablegate: Fuel Strategies Amidst the Downward Spiral

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

UNCLAS SECTION 01 OF 02 HARARE 001321

SIPDIS

SENSITIVE

STATE FOR AF/S
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER

E. O. 12958: N/A
TAGS: ECON ETRD EPET ZI
SUBJECT: Fuel Strategies Amidst The Downward Spiral

REF: Harare 01156

SENSITIVE BUT UNCLASSIFIED -- NOT FOR INTERNET POSTING

1. (SBU) Summary: As noted reftel, multinational oil
companies remain in limbo as to whether they will be allowed
to sell fuel imported with forex at a viable pump price.
Industry sources report that the National Oil Company of
Zimbabwe (NOCZIM) will continue to bring in heavily
subsidized fuel for "strategic" users -- police, army,
health units, etc. -- while private motorists are left to
their own devices in a flourishing black market. President
Mugabe is currently in Libya on an official visit, which
comes after months of crippling shortages and amid
widespread speculation that a Libyan fuel deal will solve
the fuel crisis. End summary.

------------------------------------
Multinationals Search for Strategies
------------------------------------

2. (SBU) Several sources within the multinationals cite a
recent meeting with the Ministry of Energy, in which an
agreement on financing fuel at a parallel market exchange
rate was "minuted" (but not implemented). According to that
agreement, approved by the Deputy Minister of Energy on
behalf of NOCZIM, forex will be made available to the
multinationals at a parallel market rate, and the fuel thus
purchased may be sold at a floating Zim dollar rate based on
purchase cost. None of this has materialized. One
ChevronTexaco rep reports that his company awaits a "comfort
letter" from the Reserve Bank authorizing a purchase of
forex at the parallel rate (currently 2350:1) rather than
the official rate (55:1, or 824:1 for exporters and
preferred businesses). Due to the constraints of corporate
oversight, reftel, multinationals cannot act without such
formal GOZ authorization.

3. (SBU) Some reps from British Petroleum seemed upbeat
about their eventual ability to import under this scenario.
ChevronTexaco reps, on the other hand, cited the continuing
impasse as evidence that there is no political will to
address the situation -- at least while the GOZ holds out
hopes for a rumored Libyan intervention. A NOCZIM source
recently reported through the DAO that the GOZ is reluctant
to enter into a two-tiered, subsidized/unsubsidized pricing
system, fearing that the inevitable leakage would make the
black market "uncontrollable." While the sentiment is
noble, the black market is already the only source of fuel
for many private motorists.

4. (SBU) Local press reports trumpeted a recent
breakthrough when they announced that private businesses
could henceforth obtain import licenses to purchase bulk
fuel with forex through multinationals. In reality, this is
merely a form of official repackaging. Private companies --
including the US Embassy and other forex-paying customers --
have long had the ability to import fuel through a
multinational broker. One multinational rep noted that the
only revenue which has passed through his company for the
past month has been for fuel purchased by forex customers.

5. (SBU) This same rep indicated that they may convert
several of his company's established retail outlets to
"forex-based" outlets. Most of the retail stations have
been dry for over a month. The only fuel coming in through
NOCZIM has been minimal allocations for official uses such
as police, army, public transport, etc., yet the empty
retail stations continue to bear all the costs of business:
salaries, rent, utilities, maintenance, security. Switching
even a few of the empty stations to members-only, forex-
based stations would at least recover some of the costs of
operation. Given the prevailing black-market rate for fuel
-- anywhere between Z $1,500 and Z $3,000 (US $.64 / $1.27)
per liter -- many motorists would welcome a realistic
"market-based" price. The legality of such a move would be
questionable; however, at least one ChevronTexaco forex-
based station has operated locally for several years. If
such a station operates strictly via coupons, and restricts
access only to its members, it may be able to bypass the
official price controls and prove a viable strategy for the
short term.

--------------------------------------------- -
Even the Indigenous Operators Playing the Game
--------------------------------------------- -

6. (SBU) One report which originated from an Embassy-
employed driver concerns Exor, an indigenous oil company
reportedly owned by Zanu-PF MP Webster Shamu. The driver
noticed a fuel tanker unloading, and attempted to join a
growing queue. The station's attendants began handing out
small slips of paper, instructing the motorists to go buy
fuel coupons -- for forex -- at a stipulated address, after
which they could return and try to obtain the fuel. The
frustrated crowd became upset, then angry, yelling that the
(Zimbabwean) station owner should "take his fuel and go back
to Britain." A squad of riot police was finally called in
to disperse the crowd. Another Embassy employee reported
that a different indigenous station is already in the
business of selling fuel only through coupons -- but at
least this one accepts the local currency. This employee
stated that "it's not even a secret, you go buy the coupons
-- 20 liters for Z$30,000 -- and you can get the fuel. How
else do you think so many cars remain on the roads?"
-------
Comment
-------

7. (SBU) All of the oil companies are facing severe
pressures from the continuing shortages, but the
multinationals are constrained even more by their corporate
accountabilities, which prevent them from taking actions
which clearly violate Zimbabwean law. At least one -- BP --
has been through a downsizing exercise to shed one-third of
its workforce, including senior managers. Indigenous
companies -- which reportedly benefit from preferences in
obtaining supplies from NOCZIM -- have an additional moral
flexibility, in that they need not answer to international
codes of conduct. Ultimately, those companies which can
hold out longest will do so, while those which see no
improvement in the future may well dump the local retail
assets and abandon the local market.

8. (SBU) Suffering even more than the suppliers, however,
are those at the end of the supply chain. Commuters now
spend hours trying to secure transport to and from work.
Farmers -- any who continue to use tractors, fuel-driven
drying sheds, or other mechanized equipment -- have been
ground to a halt. Businesses dependent upon diesel
machinery, transport or delivery services face spiraling
costs in doing business. Some relief will be generated for
businesses who have access to forex and who can import their
own fuel through the multinationals. However, this will
drive consumer costs even higher, and will widen the growing
gap between those businesses that can ride out the storm and
those that cannot.

Sullivan

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