US embassy cable - 03HARARE1321

UNCLAS SECTION 01 OF 02 HARARE 001321 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR AF/S 
NSC FOR SENIOR AFRICA DIRECTOR JFRAZER 
 
E. O. 12958: N/A 
TAGS: ECON, ETRD, EPET, ZI 
SUBJECT: Fuel Strategies Amidst The Downward Spiral 
 
REF: Harare 01156 
 
SENSITIVE BUT UNCLASSIFIED -- NOT FOR INTERNET POSTING 
 
1. (SBU)  Summary:  As noted reftel, multinational oil 
companies remain in limbo as to whether they will be allowed 
to sell fuel imported with forex at a viable pump price. 
Industry sources report that the National Oil Company of 
Zimbabwe (NOCZIM) will continue to bring in heavily 
subsidized fuel for "strategic" users -- police, army, 
health units, etc. -- while private motorists are left to 
their own devices in a flourishing black market.  President 
Mugabe is currently in Libya on an official visit, which 
comes after months of crippling shortages and amid 
widespread speculation that a Libyan fuel deal will solve 
the fuel crisis.  End summary. 
 
------------------------------------ 
Multinationals Search for Strategies 
------------------------------------ 
 
2. (SBU)  Several sources within the multinationals cite a 
recent meeting with the Ministry of Energy, in which an 
agreement on financing fuel at a parallel market exchange 
rate was "minuted" (but not implemented).  According to that 
agreement, approved by the Deputy Minister of Energy on 
behalf of NOCZIM, forex will be made available to the 
multinationals at a parallel market rate, and the fuel thus 
purchased may be sold at a floating Zim dollar rate based on 
purchase cost.  None of this has materialized.  One 
ChevronTexaco rep reports that his company awaits a "comfort 
letter" from the Reserve Bank authorizing a purchase of 
forex at the parallel rate (currently 2350:1) rather than 
the official rate (55:1, or 824:1 for exporters and 
preferred businesses).  Due to the constraints of corporate 
oversight, reftel, multinationals cannot act without such 
formal GOZ authorization. 
 
3. (SBU)  Some reps from British Petroleum seemed upbeat 
about their eventual ability to import under this scenario. 
ChevronTexaco reps, on the other hand, cited the continuing 
impasse as evidence that there is no political will to 
address the situation -- at least while the GOZ holds out 
hopes for a rumored Libyan intervention.  A NOCZIM source 
recently reported through the DAO that the GOZ is reluctant 
to enter into a two-tiered, subsidized/unsubsidized pricing 
system, fearing that the inevitable leakage would make the 
black market "uncontrollable."  While the sentiment is 
noble, the black market is already the only source of fuel 
for many private motorists. 
 
4. (SBU)  Local press reports trumpeted a recent 
breakthrough when they announced that private businesses 
could henceforth obtain import licenses to purchase bulk 
fuel with forex through multinationals.  In reality, this is 
merely a form of official repackaging.  Private companies -- 
including the US Embassy and other forex-paying customers -- 
have long had the ability to import fuel through a 
multinational broker.  One multinational rep noted that the 
only revenue which has passed through his company for the 
past month has been for fuel purchased by forex customers. 
 
5. (SBU)  This same rep indicated that they may convert 
several of his company's established retail outlets to 
"forex-based" outlets.  Most of the retail stations have 
been dry for over a month. The only fuel coming in through 
NOCZIM has been minimal allocations for official uses such 
as police, army, public transport, etc., yet the empty 
retail stations continue to bear all the costs of business: 
salaries, rent, utilities, maintenance, security. Switching 
even a few of the empty stations to members-only, forex- 
based stations would at least recover some of the costs of 
operation.  Given the prevailing black-market rate for fuel 
-- anywhere between Z $1,500 and Z $3,000 (US $.64 / $1.27) 
per liter -- many motorists would welcome a realistic 
"market-based" price.  The legality of such a move would be 
questionable; however, at least one ChevronTexaco forex- 
based station has operated locally for several years.  If 
such a station operates strictly via coupons, and restricts 
access only to its members, it may be able to bypass the 
official price controls and prove a viable strategy for the 
short term. 
 
--------------------------------------------- - 
Even the Indigenous Operators Playing the Game 
--------------------------------------------- - 
 
6. (SBU)  One report which originated from an Embassy- 
employed driver concerns Exor, an indigenous oil company 
reportedly owned by Zanu-PF MP Webster Shamu.  The driver 
noticed a fuel tanker unloading, and attempted to join a 
growing queue.  The station's attendants began handing out 
small slips of paper, instructing the motorists to go buy 
fuel coupons -- for forex -- at a stipulated address, after 
which they could return and try to obtain the fuel.  The 
frustrated crowd became upset, then angry, yelling that the 
(Zimbabwean) station owner should "take his fuel and go back 
to Britain."  A squad of riot police was finally called in 
to disperse the crowd.  Another Embassy employee reported 
that a different indigenous station is already in the 
business of selling fuel only through coupons -- but at 
least this one accepts the local currency.  This employee 
stated that "it's not even a secret, you go buy the coupons 
-- 20 liters for Z$30,000 -- and you can get the fuel.  How 
else do you think so many cars remain on the roads?" 
------- 
Comment 
------- 
 
7. (SBU)  All of the oil companies are facing severe 
pressures from the continuing shortages, but the 
multinationals are constrained even more by their corporate 
accountabilities, which prevent them from taking actions 
which clearly violate Zimbabwean law.  At least one -- BP -- 
has been through a downsizing exercise to shed one-third of 
its workforce, including senior managers.  Indigenous 
companies -- which reportedly benefit from preferences in 
obtaining supplies from NOCZIM -- have an additional moral 
flexibility, in that they need not answer to international 
codes of conduct.  Ultimately, those companies which can 
hold out longest will do so, while those which see no 
improvement in the future may well dump the local retail 
assets and abandon the local market. 
 
8. (SBU)  Suffering even more than the suppliers, however, 
are those at the end of the supply chain.  Commuters now 
spend hours trying to secure transport to and from work. 
Farmers -- any who continue to use tractors, fuel-driven 
drying sheds, or other mechanized equipment -- have been 
ground to a halt.  Businesses dependent upon diesel 
machinery, transport or delivery services face spiraling 
costs in doing business.  Some relief will be generated for 
businesses who have access to forex and who can import their 
own fuel through the multinationals.  However, this will 
drive consumer costs even higher, and will widen the growing 
gap between those businesses that can ride out the storm and 
those that cannot. 
 
Sullivan