US embassy cable - 02HARARE2544

C O N F I D E N T I A L HARARE 002544 
 
SIPDIS 
 
E.O. 12958: DECL: 11/14/2012 
TAGS: ECON, EFIN, EPET, ZI 
SUBJECT: U.S. OIL FIRMS COULD GET SQUEEZED 
 
REF: HARARE 2397 
 
 1. (C) Summary: Indigenous firms are pressing the GoZ to let 
them take over business from foreign oil firms, according to 
Mobil officials.  However, the company reps were subsequently 
encouraged by subsequent GoZ assurances on Tuesday that 
multinational investment should be protected. End Summary. 
 
Fuel Import: Transition to What? 
-------------------------------- 
2. (C) Mobil officials updated Amb Sullivan and econoff on 
developments since President Mugabe announced two weeks ago 
that the GoZ can no longer subsidize fuel imports (ref). 
Through parastatal NOCZIM, Zimbabwe currently absorbs about 
90 percent of the fuel cost, enabling operators to sell 
unleaded gas for about U.S.$.16/gallon.  Since Mugabe's 
remarks, Energy Minister Nicholus Kitikiti has hosted a 
series of meetings with the 5 multinationals and 16 
indigenous operators.  According to Mobil, these encounters 
turned progressively rancorous, with indigenous firms 
advocating fiercely for expanded market share and 
multinationals insisting that they had to operate within 
their existing framework agreement with Government. 
Indigenous operators and ZANU-PF MP Philip Chiyanguta was 
allocated major air time on state TV to argue that indigenous 
operators should receive all of NOCZIM's fuel imports and 
that multinationals should sell off their service stations to 
indigenous operators.  Multinationals -- which include Mobil 
(ExxonMobil) and Caltex (ChevronTexaco) -- walked out of a 
Nov. 8 meeting that ended in a shouting match.  Indigenous 
operators apparently accused the Energy Minister of 
undermining Mugabe's new fuel policy.  In a separate meeting 
without indigenous firms on Tuesday, the Minister apologized 
and agreed that foreign investment should be protected. 
 
3. (C) Mobil reps were pleased by the Minister's reaction, 
hoping it reflects a change-of-heart by President Mugabe 
since they had in the interim passed their analysis to him in 
a special channel.  However, they still fear the GoZ could 
decide to subsidize fuel only for indigenous operators.  That 
would mean gas stations owned by multinationals would sell 
fuel for 6-10 times as much as those owned by locals setting 
the stage for a poisonous situation.  As the lines for 
cheaper fuel grew unbearable at indigenous stations, the GoZ 
could argue that multinational stations were underutilized 
and turn them over to local companies. 
 
Comment 
------- 
4. (C) Should such a scenario come to pass, Mobil reps 
indicated they may ask the Embassy to "go to bat" for the 
company.  While expropriation is only one of many scenarios, 
an uncompensated expropriation of Mobil or Caltex assets 
would be a grave matter.  As an additional complicating 
factor, Mobil officials felt the 5 multinationals may not 
remain unified throughout a shake-down, so conceivably Mobil 
and Caltex could end up on different sides, as could Total, 
BP and Shell. 
 
5. (C) In any event, we cannot emphasize enough the 
seriousness of Zimbabwe's fuel shortage.  Companies are 
currently being allocated about 50 percent of their needs by 
NOCZIM.  Any international price increase resulting from a 
Persian Gulf war would further exacerbate the crisis. Mobil 
reps estimate that the GoZ's fuel subsidy presently costs US$ 
30 million/month.  Annualized, that's as much as 8 percent of 
Zimbabwe's rapidly shrinking GDP.  Unless the GoZ can locate 
a new source of fuel or foreign exchange, the subsidy is 
unsustainable. 
SULLIVAN