US embassy cable - 03HARARE1710

UNCLAS HARARE 001710 
 
SIPDIS 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
TREASURY FOR OREN WYCHE-SHAW 
PASS USTR FLORIZELLE LISER 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EPET, EINV, ZI 
SUBJECT: GOZ triples fuel price - again 
 
1. Summary: The GOZ has raised the controlled price of 
leaded fuel from Z$ 450 to 1,170/liter.  Not enough to 
reawaken Zimbabwe's somnolent gas stations, but it does 
partly formalize GOZ recognition of the falling 
Zimdollar.  End Summary. 
 
A 17-fold increase since February 
--------------------------------- 
2. In nominal terms, the fuel price has risen from Z$69 
to 1,170/liter since February.  However, the former price 
reflected a large subsidy and a Zimdollar 4-times more 
valuable.  Fuel at Z$69/liter was also a relic of Libya's 
discontinued oil donations.  Since the new price converts 
at US$.21/liter, well shy of a US$.40/liter international 
price, it is too low to meaningfully reactivate the 
retail fuel market.  (The GOZ also hiked the controlled 
diesel price from Z$250 to 1,060/liter.) 
 
3. Multinational oil companies are pleased the GOZ is 
again moving in the right direction.   Firms are 
crunching numbers to find a creative way to sell some 
fuel at new prices, but it won't be easy.  The Zimdollar 
would have to appreciate from a current Z$5600 to perhaps 
Z$4000/US$1, or be offered at the official rate of 
Z$824:US$1.  Alternatively, gas stations might be able to 
restrict customers to cash sales.  (Due to a shortage, 
Zimdollar banknotes are worth at least 25 percent above 
face value.) 
 
4. At the same time, the GOZ remains opposed to market- 
driven pump prices.  On August 26, police shut down 
indigenous player Comoil for selling fuel at 
Z$1,700/liter.  Comoil belongs to ZANU-PF insider and 
Politburo-member Savior Kaukuwere.  Speculation is rife 
that competing ZANU-PF fuel interests triggered the 
clampdown, fodder for flashy front-page coverage in the 
GOZ's Herald.  During the fuel crisis, various indigenous 
groups have taken over business from multinational oil 
companies.  Now they vie against one another. 
 
Comment 
------- 
5. Any time the GOZ owns up to a weaker Zimdollar (the 
official rate is one-sixth of today's exchange), we are 
encouraged.  For a government that denies any part in the 
economy's steep economic decline, the freefalling 
currency is sensitive territory.  On the other hand, the 
GOZ forever chases, but never catches, real-world prices 
for its currency and many controlled products.  Because 
producers want to make money - not lose less - on each 
sale, the GOZ expends political capital but leaves 
problems unresolved.  The only sensible answer is market- 
determined pricing. 
 
Sullivan