US embassy cable - 05HARARE1126

C O N F I D E N T I A L SECTION 01 OF 02 HARARE 001126 
 
SIPDIS 
 
AF/S FOR L. MUNCY 
NSC FOR SENIOR AFRICA DIRECTOR C. COURVILLE 
 
E.O. 12958: DECL: 12/31/2010 
TAGS: ENRG, ECON, PGOV, EFIN, EINV, ELTN, ZI, Economic Policy, Economic Situation 
SUBJECT: CALTEX HEAD ON FUEL SHORTAGES; GOZ POLICIES 
 
Classified By: Charge d'Affaires Eric T. Schultz under Section 1.4 b/d 
 
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Summary 
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1. (C) In an August 4 meeting with the CDA, Caltex Zimbabwe 
Chairman Simba Kambarami told the CDA that the Reserve Bank 
of Zimbabwe (RBZ) had asked the major oil companies present 
in Zimbabwe to provide lines of credit for fuel imports to 
help with fuel shortages.  He said the RBZ was also 
advocating increased dollarization of the sector as another 
partial solution.  In that regard, he noted that the GOZ was 
in the process of changing the laws to allow the use of 
dollars for purchases inside Zimbabwe.  Caltex and the other 
majors planned to concentrate their business on hard currency 
stations, an approach Karambani acknowledged would result in 
a two-tier system.  Regular stations would sell fuel to the 
general public at the subsidized price but would have no 
supplies.  The hard currency stations would have petrol that 
those who had access to hard currency could purchase.  End 
Summary. 
 
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Fuel Credit Lines 
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2. (C) Kambarami told the CDA that the Reserve Bank of 
Zimbabwe (RBZ) had approached the major oil companies for 
fuel credits.  The RBZ had asked the companies to take a 
&long-term8 view of their operations in Zimbabwe.  The oil 
companies were considering the request, which would establish 
credit lines of $7-8 million from each of the four &majors8 
in country: Caltex, Total, BP, and Shell.  Kambarami said 
Caltex, for its part, was committed to the Zimbabwean market 
for the long-term and was likely to agree to the credit line. 
 He added that the companies would insist that they be 
allowed to pass on the cost of the credit as a price 
increase. 
 
3. (C) Kambarami estimated Zimbabwe,s current fuel needs at 
$50 million a month.  In that regard, he said neither the 
requested credit nor the proposed South African loan, of 
which a portion might go to finance fuel imports, would have 
a long-term effect on the fuel shortages.  Kambarami added 
that he had heard the loan would have strict economic 
conditions attached. 
 
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A Partial Market Solution 
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4. (C) Kambarami agreed with CDA that the GOZ could solve its 
fuel woes by lifting price controls.  However, the GOZ was 
committed to using price controls as a way to control 
inflation instead of reducing the money supply.  That said, 
Kambarami said he had begun to detect a shift in GOZ thinking 
about market solutions, especially at the RBZ.  The most 
notable change was the decision to authorize hard currency 
service stations.  A year and a half ago, when Gideon Gono 
had become RBZ Governor, the central bank was totally opposed 
to &dollarization.8  Now it was embracing it, at least as a 
partial solution to fuel shortages. 
 
5. (C) Kambarami said only one hard currency station had 
opened thus far, owned by the national gas company Noczim. 
Caltex was prepared to open such stations provided they could 
reach an acceptable agreement with the GOZ on a split of the 
US$1/liter revenue.  The RBZ had proposed a Caltex/RBZ split 
of 60/40; Caltex,s counter-offer was 85/15.  Kambarani said 
the other issue that needed to be resolved was assuring the 
public that it would be legal to use U.S. dollars to purchase 
fuel and other items.  The RBZ had agreed to change the law 
to allow such purchases.  Interestingly, they had been unable 
to find a post-independence law that expressly forbid the use 
of hard currency within Zimbabwe and were instead changing a 
Rhodesian-era law. 
 
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Two-Tier Fuel Distribution 
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6. (C) Kambarani said Caltex was currently breaking even in 
Zimbabwe despite the fuel shortages thanks to its direct 
imports on behalf of clients like the Embassy and especially 
the mining industry, and its 12 stations throughout Zimbabwe 
that accept coupons purchased with hard currency.  Like its 
sister companies, Caltex intended to expand the number of 
such stations in addition to establishing the proposed hard 
currency stations.  He noted tat it was an internal company 
decision whether to direct fuel imports to the hard currency 
stations or to the regular stations that accepted Zimbabwe 
dollars. 
 
7. (C) Kambarani acknowledged that the practical effect of 
such an approach would be to create two-tier system.  The 
hard currency stations would sell petrol at roughly $1 a 
liter.  The price in the regular stations would be Z$ 17,500 
a liter, $1 at the official exchange rate but less than half 
that at the parallel rate.  The result, Kambarani agreed, 
would be fuel supplies would flow to the hard currency 
stations rather than to the regular stations.  People unable 
to get access to hard currency would continue to experience 
difficulties in getting petrol without resorting to the black 
market.  In that regard, he noted that there was already a 
large and growing secondary market in Caltex coupons. 
 
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Comment 
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8. (C) Fuel policy is a case study in how the GOZ has 
mismanaged Zimbabwe,s economy.  The GOZ has long subsidized 
the price of petrol, largely for ideological reasons.  It is 
suspicious of the market and committed to a command and 
control economy that ostensibly &protects8 the average 
person from the ravages of the market place.  In the process 
the ruling ZANU-PF party also curried favor with voters by 
providing cheap petrol.  In better economic days, the GOZ was 
able to afford the luxury of this policy.  It no longer can 
and the result is widespread fuel shortages and accompanying 
price increases that are actually undercutting the government 
and the ruling party,s popularity. 
 
9. (C) However, at this point in time, the obstacles to 
changing course are no longer, or even principally, 
ideological.  The policy has instead, predictably, turned 
into a gigantic rent-seeking exercise on the part of 
government insiders, the only people who have access to 
petrol at the subsidized price, which they then resell on the 
black market or even in neighboring countries.  The RBZ,s 
proposed solution, dollarization, like all of its 
market-friendly ideas, is a half-measure that will solve 
neither the fuel crisis nor the government corruption it 
engenders.  What it will do is further exacerbate the growing 
divide between government insiders and other privileged 
Zimbabweans, who can access hard currency, and everyone else. 
 
SCHULTZ