Modest Hike in Fuel Prices

UNCLAS HARARE 000409

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
STATE PASS USAID FOR MARJORIE COPSON


E. O. 12958: N/A
TAGS: ECON EPET ETRD ZI
SUBJECT: Modest Hike in Fuel Prices

Ref: Harare 338


1. (U) Summary: The GOZ has nearly doubled the price of
fuel, the first increase since June 2001. The higher
pump price still reflects a heavy and unsustainable
subsidy, meaning the country's fuel shortage will
continue. Nonetheless, this is a small step toward market-
determined pricing. End Summary.


2. (U) Blend fuel now costs US$.46/gallon and diesel
.37/gallon, increases of 95 and 80 percent. (Zimbabwean
motorists rarely use unleaded.) The official press
reports that the GOZ is controlling diesel at a lower
rate to soften the blow on public transit users, who
mostly rely on diesel-operated vans.


3. (U) We briefly discussed the price increase with reps
from BP/Shell and Caltex this morning. Each considers it
a welcome step, but too little to affect Zimbabwe's acute
fuel shortage. Both downstream operators are partly
offsetting losses on infrequent retail and commercial
supplies from the national oil agency NOCZIM by signing
up new customers for direct-import service. Companies
and organizations (like the U.S. Embassy) may engage oil
firms to import fuel for their operations and staff if
they pay in U.S. dollars. The Caltex rep said virtually
every serious business in Zimbabwe is now either already
direct-importing, or exploring the possibility. However,
a 3-4 fold increase in fuel cost is obviously a burden
for companies whose goods and services are price-
controlled.

Comment
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4. (SBU) Everyone in the oil business knows where
Zimbabwe's fuel market is heading. Motorists will one
day buy unsubsidized fuel, imported by fuel companies and
overseen by a NOCZIM that will have evolved into a
regulatory agency. However, the GOZ has a vested
interest in postponing that day of reckoning and
maintaining the economic distortion. Confused by large
Zimdollar salaries and low controlled prices, most
Zimbabweans do not appreciate how little their US$ 5-
40/month salaries buy in the world market (ref). As
distortions are stripped away, Zimbabweans will have to
come to terms with their acute impoverishment -- and how
they got there.

Sullivan