ExxonMobil tells GOZ to cut fuel subsidy

UNCLAS HARARE 000152

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
USAID FOR MARJORIE COPSON


E. O. 12958: N/A
TAGS: EPET EFIN ECON ZI
SUBJECT: ExxonMobil tells GOZ to cut fuel subsidy


Sensitive but unclassified.


1. (SBU) Summary: A visiting ExxonMobil delegation
recently urged the GOZ to stop subsidizing fuel
consumption, which has completely overburdened the
country's foreign exchange assets. The delegation
suggested a more targeted support mechanism for public
transport and critical services that would soften the
blow of a 5-6 fold increase in the fuel price. End
Summary.


2. (U) ExxonMobil Africa and Middle East Marketing
Director John Bell led a group of company executives to
Zimbabwe in the week of Jan. 13 for talks with the GOZ.
A steep slide in the Zimdollar has meant the GOZ now
subsidizes more than 90 percent of the cost of commercial
and retail fuel (about US$ 1 million/day),a burden it
can no longer meet. The country has suffered severe
shortages over the past 5 weeks. Mobil is one of 5
foreign oil companies that share the distribution
business with 17 local operators.


3. (SBU) In a Jan. 15 meeting with Finance Minister
Herbert Murerwa, the ExxonMobil team argued that the
parastatal National Oil Company of Zimbabwe (NOCZIM)
should stop subsidizing the fuel it imports, which would
trigger a 5-6 fold rise in the pump price. Multinational
and other oil companies would pay the Zimdollar parallel
rate equivalent to NOCZIM and charge a slightly higher
amount at the pump. (The Confederation of Zimbabwe
Industries had earlier backed away from a proposal for a
two-tier fuel-pricing scheme over fear of leakages.)
Instead, the GOZ could underwrite part of the cost of
public transport and other services. Zimbabwe's
artificially low fuel price -- about US$ .20/gallon --
promotes waste, profiteering and overconsumption.
Frustratingly, Murerwa was noncommittal in the absence of
agreement from President Mugabe.

Comment
--------------

4. (SBU) While ExxonMobil's arguments make sense, the GOZ
is concerned with broader implications. Such a dramatic
rise in the fuel price would be unpopular and fan the
country's high inflation rate, already 198 percent
officially and 300-400 percent unofficially. It would
lock in fuel at an exchange rate of around Z$ 1,500/US$
1, a market devaluation the GOZ refuses to recognize.
And it would make mincemeat of the GOZ's extensive price
controls, the main tenant of its "macroeconomic policy."

Sullivan