US embassy cable - 02HARARE2397

UNCLAS HARARE 002397 
 
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 
USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EPET, EFIN, ETRD, ZI 
SUBJECT: Zimbabwe May Scrap Fuel Support 
 
 
Sensitive but unclassified.  Protect accordingly. 
 
1. (U) Summary: Reportedly smarting from a first-hand 
encounter with dry fuel pumps, President Mugabe has 
suggested parastatal NOCZIM may relinquish the job of 
importing fuel to the private sector, bringing an end to 
a costly and self-defeating fuel subsidy.   This would 
require huge price increases at the pump, and let the GoZ 
scapegoat foreign multinationals since it is 
inconceivable that anyone would import anything at the 
current GoZ-imposed price.  End Summary. 
 
A failed model 
----------------- 
2.  (U) Through NOCZIM, the GoZ has for years bought and 
bartered for fuel abroad, then sold it to downstream 
operators for a fraction of its value.  Foreign and 
national oil firms are allowed a modest profit to 
distribute the fuel.  In effect, the GoZ has been 
underwriting NOCZIM's operating loss to keep fuel 
artificially cheap (less than US$ .20/gallon at present). 
With an accelerating Zimdollar devaluation and rampant 
fuel smuggling to neighboring markets, the GoZ has run 
out of foreign exchange to import fresh supplies.  So 
desperate is the GoZ has kept the country running of late 
by cutting off commercial over retail customers, 
illegally pilfering Independent Petroleum Group (IPG) 
fuel stored in Zimbabwe and pondering the sale of Air 
Zimbabwe's fleet to raise hard currency. 
 
3. (U)  Mugabe has now hinted at scrapping this 
unsustainable model.  Reportedly, he was enraged because 
he was unable to find fuel for his own armored Mercedes 
limousine while on a recent trip to Gweru.  He announced 
last Thursday: 
 
"The fuel comes in the name of the government . . . We 
call on multinational companies.  They sell and make 
profits.  Government does not make any profit . . . [The 
companies] don't suffer from the headaches and stomach 
aches I suffer from . . . [Now] they must import and not 
wait for the government to do it for them.  They have the 
foreign exchange." 
 
Anti-profit and self-pity hyperbole aside, Mugabe is 
admitting the GoZ can no longer cover NOCZIM's losses. 
Although he does not address pricing, we assume - or at 
least hope - the President appreciates that private 
companies will not import fuel at a loss. 
 
Comment 
----------- 
4. (U) If Mugabe is serious, the GoZ is taking a 
significant step forward by tacitly conceding that market 
forces rather than price controls better serve the 
country's future fuel needs (not to mention food and 
exchange requirements).   But there's a problem:  The GoZ 
is hard-pressed to justify steep hikes in fuel and 
transport costs to an already pauperized population. 
 
5. (SBU) A solution?  Mugabe could scapegoat foreign 
firms - including Mobil and Caltex.  Word in the sector 
is that new national companies close to the government 
are anxious to gain market-share from better-established 
multinationals.  (With many new indigenous operators 
entering the sector, the number of downstream firms has 
grown from 5 to 22 since 1999.)   In this worst-case 
scenario, Mugabe would castigate multinationals for 
higher fuel prices, just as he has blamed them for 
shortages, then expropriate or force sale of their 
assets.   He may have been laying this groundwork when he 
bemoaned in the same remarks that "government cracks to 
make [foreign oil companies] rich."  Mugabe has similarly 
vilified and threatened to nationalize National Foods 
over food shortages.  (The CEO of parent Anglo American 
told us last week he is looking for an indigenous partner 
to insulate National Foods from expropriation.)   In any 
event, Mugabe may be coming to the view that expensive 
fue