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Cablegate: Suriname's Service-Station Owners Demand Higher

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

UNCLAS PARAMARIBO 000044

SIPDIS


SENSITIVE

DEPT FOR WHA/CAR MSEIBEL

E.O. 12958: N/A
TAGS: ECON EPET PBTS FR NS
SUBJECT: SURINAME'S SERVICE-STATION OWNERS DEMAND HIGHER
PROFIT MARGINS AFTER FOUR YEARS OF HIGH INFLATION


SENSITIVE BUT UNCLASSIFIED -- PLEASE TREAT ACCORDINGLY

-------
SUMMARY
-------

1. (U) On January 6, Suriname's service-station owners
threatened to resume a December 2003 strike to protest
the government's refusal to negotiate an increase in
profit margins, which had remained stagnant since a 1999
agreement. Since that agreement, service-station owners
have suffered a steady decline in profits, while the
average inflation for the period was over 50 percent. In
response to the December 2003 strike by service-station
owners, the GOS granted the local subsidiaries of
international oil companies Shell, Texaco, and Esso,
which import and distribute gasoline in Suriname, a $0.01
USD per liter increase in their commercial margin, which
they in turn passed on to service stations in a hefty 50
percent increase, but far shy of the 200 percent increase
service-station owners had demanded. With the GOS wary
of the political ramifications of another gasoline price
hike, it is unlikely to pass along the increased cost,
leaving it to absorb increased fuel costs in terms of
lower tax revenues. Still, Suriname's bargain-basement
gasoline provides a booming business to fuel smugglers
who service French Guiana where consumers pay nearly
twice as much for gasoline as their "subsidized"
neighbor. End Summary.

--------------------------------------------- --------
Service-station Owners Demand Profit-Margin Increases
after Four Years of Inflation and Rising Costs
--------------------------------------------- --------

2. (U) On January 5, Suriname's service-station owners
threatened to resume a December 2003 strike to protest
the government's refusal to increase service-station
profit margins. Service-station owners demanded a 10
percent per liter profit margin versus the previous
margin of 2.9 percent per liter. The government
steadfastly refused to negotiate with service-station
owners, insisting that the owners negotiate instead with
the local subsidiaries of international oil companies
Shell, Esso, and Texaco, which import and distribute
gasoline in Suriname.

---------------------------------------
Price Controls and Profit Margin Limits
---------------------------------------

3. (U) The center of the service-station owners' dispute
is the GOS's intricate system of price controls through
controlling profit margins. In 1985 during Suriname's
period of military rule, the GOS established price
controls on a basket of goods (which included among other
things onions, brown beans, bread, and cooking oil) to
ensure that basic needs were met. In 2003, the GOS began
to eliminate those controls, reducing that basket to baby
formula, flour, milk, and gasoline.

4. (SBU) The price control on gasoline provided for the
cost of gasoline on the world market, a margin of profit
for the oil company and the service station, and taxes to
the government. In 1999, with local inflation running
112 percent, the GOS established a fixed price for
gasoline at 1.10 Surinamese dollars (SRD) and reached an
agreement with the service-station owners to grant them a
$0.0172 USD per liter profit margin. In a country where
hard currency is not always available on the commercial
market, the 1999 agreement ensured that the GOS would
provide oil companies and service-station owners US
dollars to pay for gasoline imports. (Although in
October 2003, one Exxon representative reported to the
Embassy that Exxon was frustrated because it was unable
to get the GOS to allow for repatriation of profits.)
With the sometimes wide gap between the official rate and
the parallel market rate, the 1999 agreement also


provided for a formula to give service-station owners
compensation for the gap. Under this complicated price-
control formula, as the world price of oil fluctuated and
the gap between the parallel market and official exchange
rates grew, the GOS's absorbed the difference in terms of
lower tax revenues on gasoline.

--------------------------
March 2003 GOS Vows to
End Gas Price Controls...
--------------------------

5. (U) By March 2003, the GOS revenues on gasoline
disappeared as gasoline prices rose, leaving the GOS
essentially subsidizing gasoline. The GOS made the
politically tough decision to fix a new price for
gasoline, shifting the price from SRD 1.10 ($0.41 USD) to
SRD 1.60 ($0.60 USD) per liter of gasoline, a hefty 45
percent increase. At the time, Minister of Finance
Humphrey Hildenberg announced that the GOS would stop
controlling the price of gasoline and allow the market to
set the price. This, however, has so far not
materialized.

-----------------------------
...But Fails to Keep its Word
-----------------------------

6. (U) Despite the hefty gasoline price hike, none of
that increase was passed on to either the service-station
owners or to the oil companies. And with five years of
high inflation (which averaged over 50 percent over that
period), service-station owners have been hard pressed to
make ends meet on the fixed profit margin. On December
16-17, 2003, service-station owners held a strike to
demand that the GOS honor the 1999 agreement and
renegotiate the profit margin. The GOS responded that it
was not responsible for setting profit margins but rather
the oil companies, Shell, Texaco, and Esso, were.
Chairman of the Suriname Service-station Exploration
Union (SSEB) Robert van Dijk told the Embassy that the
union called an end to the strike after agreeing to
resume negotiations with the oil companies.

--------------------------------------------- ---
GOS Usurps Oil Companies' Role in Profit Margins
--------------------------------------------- ---

7. (SBU) Suriname's Esso director Abraham Brandon
explained to the Embassy that the GOS's 1999 agreement
usurped the role of oil distribution companies. The
service-station owners don't have a contract with the
government, Brandon said, but rather with the oil
companies and, therefore, negotiations should be between
oil companies and service-station owners. Brandon told
the Embassy that in late December the GOS agreed to give
the local oil companies a $0.01 USD per liter increase
(from $0.0725 USD to $0.0825 USD per liter) in their
commercial margin and that the oil companies would
negotiate the service-station owners' profit margins
directly. On January 5, oil companies and service-
station owners agreed to a 4.27 percent per liter profit
margin (a 50 percent increase) versus the 10 percent per
liter margin they sought. SSEB was very unhappy with the
agreement and in a January 6 press briefing announced
that it was still considering resuming the strike.
Brandon called the service-station owners' 10 percent
demand "ludicrous" and said that it amounted to a 200
percent increase.

8. (SBU) Brandon told the Embassy that he did not expect
the GOS to raise gasoline prices to pass on the increased
profit margin to consumers. The government should have
planned for the profit margin increase when it raised
gasoline prices in March 2003, Brandon told the Embassy.
Now the government will have to absorb the profit margin
increase in the way of lower revenues, he concluded.

--------


Comment:
--------

9. (U) The GOS is very slowly weaning the Surinamese
consumer away from price controls, subsidies, and price
supports, but it seems that this one will have to wait
until after the next elections. With an estimated
200,000 cars on the road, Surinamers like their cars and
have come to expect cheap gas, which makes increasing the
price of gasoline a politically high-risk move. It is
unlikely that the GOS will pass on the higher cost of
gasoline to consumers or that it will abandon profit
margin limits on gasoline anytime soon. In the meantime,
the GOS will continue to be a generous neighbor to French
Guiana where fuel smugglers have reaped handsome profits
ferrying Suriname's bargain-basement gasoline unfettered
across the Marowijne River -- and all at Surinamese
taxpayers' expense. End Comment.

BARNES


NNNN

2004PARAMA00044 - Classification: UNCLASSIFIED

v1.6.3

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