GOZ triples fuel price - again

UNCLAS HARARE 001710 SIPDIS STATE FOR AF/S NSC FOR SENIOR AFRICA DIRECTOR JFRAZER USDOC FOR 2037 DIEMOND TREASURY FOR OREN WYCHE-SHAW PASS USTR FLORIZELLE LISER STATE PASS USAID FOR MARJORIE COPSON ¶E. O. 12958: N/A TAGS: ECON EPET EINV ZI SUBJECT: GOZ triples fuel price - again ¶1. Summary: The GOZ has raised the controlled price of leaded fuel from Z$ 450 to 1,170/liter. Not enough to reawaken Zimbabwe's somnolent gas stations, but it does partly formalize GOZ recognition of the falling Zimdollar. End Summary. A 17-fold increase since February -------------- ¶2. In nominal terms, the fuel price has risen from Z$69 to 1,170/liter since February. However, the former price reflected a large subsidy and a Zimdollar 4-times more valuable. Fuel at Z$69/liter was also a relic of Libya's discontinued oil donations. Since the new price converts at US$.21/liter, well shy of a US$.40/liter international price, it is too low to meaningfully reactivate the retail fuel market. (The GOZ also hiked the controlled diesel price from Z$250 to 1,060/liter.) ¶3. Multinational oil companies are pleased the GOZ is again moving in the right direction. Firms are crunching numbers to find a creative way to sell some fuel at new prices, but it won't be easy. The Zimdollar would have to appreciate from a current Z$5600 to perhaps Z$4000/US$1, or be offered at the official rate of Z$824:US$1. Alternatively, gas stations might be able to restrict customers to cash sales. (Due to a shortage, Zimdollar banknotes are worth at least 25 percent above face value.) ¶4. At the same time, the GOZ remains opposed to market- driven pump prices. On August 26, police shut down indigenous player Comoil for selling fuel at Z$1,700/liter. Comoil belongs to ZANU-PF insider and Politburo-member Savior Kaukuwere. Speculation is rife that competing ZANU-PF fuel interests triggered the clampdown, fodder for flashy front-page coverage in the GOZ's Herald. During the fuel crisis, various indigenous groups have taken over business from multinational oil companies. Now they vie against one another. Comment -------------- ¶5. Any time the GOZ owns up to a weaker Zimdollar (the official rate is one-sixth of today's exchange),we are encouraged. For a government that denies any part in the economy's steep economic decline, the freefalling currency is sensitive territory. On the other hand, the GOZ forever chases, but never catches, real-world prices for its currency and many controlled products. Because producers want to make money - not lose less - on each sale, the GOZ expends political capital but leaves problems unresolved. The only sensible answer is market- determined pricing. Sullivan