GOVERNMENT CONTINUES STOPGAP FUEL ACQUISITION

C O N F I D E N T I A L HARARE 005350

SIPDIS

USDOC FOR 2037/ERIC HENDERSON

TREASURY FOR ED BARBER AND GRACE SONE

NSC FOR SENIOR AFRICA DIRECTOR GAYLE SMITH

LONDON FOR GURNEY

CONFIDENTIAL

PAGE 02 HARARE 05350 221023Z
PARIS FOR BISA WILLIAMS

PASS USTR FOR ROSA WHITAKER

E.O. 12958: DECL: 09/22/10
TAGS: EPET ENRG EIND PGOV AMGT ZI
SUBJECT: GOVERNMENT CONTINUES STOPGAP FUEL ACQUISITION
IN ANTICIPATION OF POSSIBLE CABINET CONSIDERATION OF OIL
INDUSTRY RESTRUCTURING

CLASSIFIED BY DCM EARL M. IRVING FOR REASONS 1.5 B/D.


1. (SBU) ACCORDING TO PRESS REPORTING, THE GOVERNMENT OF
ZIMBABWE SIGNED A ZIM$2.5 BILLION (APPROXIMATELY USD 50
MILLION) LINE OF CREDIT WITH PRETRONAS, THE MALAYSIAN
OIL COMPANY. MOTOR FUELS WILL BE SUPPLIED TO THE
COUNTRY OVERLAND, BY RAIL AND ROAD, BY ENGEN. THE
MALAYSIAN COMPANY, WHICH HAS AN 80 PERCENT STAKE IN
ENGEN, WILL ACCEPT PAYMENT FOR THE PETROLEUM PRODUCTS IN
LOCAL CURRENCY. THE AGREEMENT WITH PETRONAS INVOLVES A
SPLIT OF USD 25 MILLION FOR A 90-DAY REPAYMENT PERIOD
AND ANOTHER USD 25 MILLION FOR 360 DAYS, ACCORDING TO
THE PRESS. ALTHOUGH THE MEDIA HERE BILLS THE DEAL AS "A
LONG TERM SOLUTION TO THE PRESENT FUEL CRISIS," INDUSTRY
SOURCES DESCRIBE THE ARRANGEMENT AS A STOPGAP THAT WILL
KEEP THE COUNTRY IN PETROLEUM PRODUCTS FOR ANOTHER
COUPLE OF MONTHS.


2. (C) A DELEGATION FROM THE IPG KUWAITI OIL COMPANY,
WHICH HAS BEEN ZIMBABWE'S SOLE FUEL SUPPLIER FOR THE
LAST SIX MONTHS, MET WITH PRESIDENT MUGABE SEPTEMBER 20,
CONFIDENTIAL

PAGE 03 HARARE 05350 221023Z
AFTER WHICH THE COMPANY'S CHAIRMAN TOLD THE PRESS, "WE
WILL CONTINUE TO SUPPLY FUEL TO ZIMBABWE AND THE
CONTRACT SHOULD BE EXTENDED. SHORTAGES OF FUEL WERE
BECAUSE OF OUR FINANCIAL EXPOSURE." MOHAMMAD F. AL-
MOHAMMAD, THE KUWAITI EMBASSY'S ACTING DCM (PROTECT),
TOLD US THAT THE TERMS FOR THE IPG CONTRACT WERE TOUGH:
U.S. DOLLAR CASH PAYMENTS IN 30 DAYS WITH STEEP INTEREST
AND PENALTY REQUIREMENTS. IN RESPONSE TO OUR QUESTION
OF WHERE THE MONEY TO PAY FOR THIS WOULD COME FROM OUR
INTERLOCUTOR UNHESITATINGLY SAID, "QADHAFI, OF COURSE."
ACCORDING TO THE PRESS, IPG IS "FINANCIALLY EXPOSED TO
THE TUNE OF USD 80 MILLION." OIL INDUSTRY SOURCES WAVE
AWAY AS EMPTY IPG PROMISES TO INVEST IN THE PIPELINE
FROM MOZAMBIQUE (OF WHICH IT HAS EXCLUSIVE USE) AND
STORAGE FACILITIES AS PART OF ITS LONG TERM COMMITMENT
TO ZIMBABWE.


3. (U) MEANWHILE, RETAIL FUEL SUPPLIES AROUND THE
COUNTRY CONTINUE TO BE INADEQUATE. GASOLINE
AVAILABILITY AT SERVICE STATIONS IS SPOTTY, WHILE DIESEL
IS EXTREMELY SCARCE, EVEN AT THE CENTRAL MECHANICAL
EQUIPMENT DEPARTMENT GARAGES, WHICH FURNISH FUEL FOR
ZIMBABWEAN GOVERNMENT VEHICLES AND THE DIPLOMATIC CORPS.
EMBASSY OPERATIONS CONTINUE LARGELY UNAFFECTED THANKS TO
OUR CONTRACT WITH CALTEX TO KEEP OUR FUEL STORAGE TANKS
TOPPED OFF.


4. (C) MOBIL OIL'S AMCIT GENERAL MANAGER, THOMAS WALTER
(PROTECT),TOLD US THAT HE AND OTHER PRIVATELY OWNED OIL
COMPANY EXECUTIVES HAVE ENJOYED A GOOD WORKING
RELATIONSHIP WITH NEW MINISTER OF MINES AND ENERGY,
CONFIDENTIAL

PAGE 04 HARARE 05350 221023Z
SYDNEY SEKEREMAYI. SEKEREMAYI'S POINT MAN ON THE FUEL
CRISIS IS HIS PERMANENT SECRETARY, NICHOLAS KITIKITI,
WHOM WALTER DESCRIBED AS BRIGHT AND ACTION-ORIENTED.
KITIKITI HAS HELD CONSTRUCTIVE DISCUSSIONS WITH THE
PRIVATE PETROLEUM PRODUCT RETAILERS, FROM WHICH HAS
EMERGED A PLAN FOR POSSIBLE PRESENTATION TO CABINET
SEPTEMBER 26 TO RESTRUCTURE THE OIL INDUSTRY IN
ZIMBABWE. ALTHOUGH WALTER DID NOT ENTER INTO SPECIFICS,
WE IMAGINE IT WILL REMOVE THE NATIONAL OIL COMPANY OF
ZIMBABWE'S MONOPOLY ON OIL PROCUREMENT. THE MOBIL OIL
EXECUTIVE SAID THAT, THE PRIVATE OIL COMPANIES WOULD BE
WILLING TO TAKE A CHANCE AND BOOST SUPPLIES. HE NOTED
THAT THE LONG TERM GOAL WOULD BE TO MAKE THE NEW
ARRANGEMENT "FINANCEABLE." "WE ARE POSED FOR A
BREAKTHROUGH," WALTER CONCLUDED.

MCDONALD

CONFIDENTIAL

>