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