US embassy cable - 03HARARE409

UNCLAS HARARE 000409 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S AND AF/EX 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
USDOC FOR 2037 DIEMOND 
PASS USTR ROSA WHITAKER 
TREASURY FOR ED BARBER AND C WILKINSON 
STATE PASS USAID FOR MARJORIE COPSON 
 
E. O. 12958: N/A 
TAGS: ECON, EPET, ETRD, ZI 
SUBJECT: Modest Hike in Fuel Prices 
 
Ref: Harare 338 
 
1. (U) Summary:  The GOZ has nearly doubled the price of 
fuel, the first increase since June 2001.  The higher 
pump price still reflects a heavy and unsustainable 
subsidy, meaning the country's fuel shortage will 
continue. Nonetheless, this is a small step toward market- 
determined pricing.  End Summary. 
 
2. (U) Blend fuel now costs US$.46/gallon and diesel 
.37/gallon, increases of 95 and 80 percent.  (Zimbabwean 
motorists rarely use unleaded.)  The official press 
reports that the GOZ is controlling diesel at a lower 
rate to soften the blow on public transit users, who 
mostly rely on diesel-operated vans. 
 
3. (U) We briefly discussed the price increase with reps 
from BP/Shell and Caltex this morning.  Each considers it 
a welcome step, but too little to affect Zimbabwe's acute 
fuel shortage.  Both downstream operators are partly 
offsetting losses on infrequent retail and commercial 
supplies from the national oil agency NOCZIM by signing 
up new customers for direct-import service.  Companies 
and organizations (like the U.S. Embassy) may engage oil 
firms to import fuel for their operations and staff if 
they pay in U.S. dollars.  The Caltex rep said virtually 
every serious business in Zimbabwe is now either already 
direct-importing, or exploring the possibility.  However, 
a 3-4 fold increase in fuel cost is obviously a burden 
for companies whose goods and services are price- 
controlled. 
 
Comment 
------- 
4. (SBU) Everyone in the oil business knows where 
Zimbabwe's fuel market is heading.  Motorists will one 
day buy unsubsidized fuel, imported by fuel companies and 
overseen by a NOCZIM that will have evolved into a 
regulatory agency.  However, the GOZ has a vested 
interest in postponing that day of reckoning and 
maintaining the economic distortion.  Confused by large 
Zimdollar salaries and low controlled prices, most 
Zimbabweans do not appreciate how little their US$ 5- 
40/month salaries buy in the world market (ref).  As 
distortions are stripped away, Zimbabweans will have to 
come to terms with their acute impoverishment -- and how 
they got there. 
 
Sullivan