ERITREAN FUEL DYNAMICS

C O N F I D E N T I A L SECTION 01 OF 02 ASMARA 000312 SIPDIS DEPARTMENT FOR AF/E, LONDON AND PARIS FOR AFRICA WATCHERS E.O. 12958: DECL: 06/11/2018 TAGS: ECON PGOV ENRG PINR ER SUBJECT: ERITREAN FUEL DYNAMICS REF: ASMARA 300 Classified By: Ambassador Ronald K. McMullen for Reason 1.4 (d) ¶1. Summary: A confluence of internal and external factors has resulted in a diesel fuel shortage in Eritrea since December. The overall quantity of fuel imports, most especially diesel and gasoline, have declined over the past five years. Eritrea continues to subsidize the sale of diesel, in contrast with the market approximating price of readily available gasoline. Post concludes that diesel shortages are driven by both global economic conditions and internal problems inherent in a command-economy, rather than by a deliberate policy to restrict the movements of foreigners (other than a few notable exceptions). End Summary. POST ANALYSIS -------------- ¶2. (C) Eritrea's fuel sector is state-dominated, with the Government of the State of Eritrea (GSE) determining through the Petroleum Corporation of Eritrea (PCE) the type and quantity of fuel imported and to whom it is allocated. The GSE must, therefore, allocate its own hard currency reserves for imports. Recent IMF reports indicate Eritrea maintains at best two to four weeks of hard currency reserves, but some post sources believe current reserves may actually be less. Since the GSE has a finite amount of hard currency available, recent global increases of fuel prices must lead to either a sharp reduction in the amount of fuel imported or the reallocation of hard currency from lesser GSE priorities. IMF-published statistics obtained from the PCE (summarized in paragraph 5) show that Eritrea imported 43% less diesel in 2007 compared to 2003; 37,820,000 vs. 21,700,000 gallons. This sharp decrease in imports correlates with global market price increases over the same period. ¶3. (C) The GSE subsidizes diesel sales at below the cost of purchase and transport, despite the tripling of the retail price since 2003. Diesel is priced at $6.32/gallon for all customers, including resident diplomatic missions and international organizations. The GSE implemented rationing in conjunction with subsidies, presumably to prevent black marketeering. Despite these policies, the GSE is unable to provide diesel fuel to commmercial customers. The current price of gasoline, $9.59/gallon, accurately reflects the market price. Therefore, gasoline is more readily available commercially, despite the relatively more severe decrease in the quantity imported since 2003 (63% decline, vs. 43% for diesel). Post has yet to discover a rational explanation for the GSE's disparate handling of these two commodities. ¶4. (C) Comment: Post concludes the general lack of diesel in Eritrea is a combination of substantial increases in global prices, insufficient hard currency reserves, a government-run import monopoly, and a below-cost selling price. While some speculate the GSE rations diesel as another method to control the movement of foreign diplomatic missions and organizations, the statistics argue that movement control is a side effect of overall poor macroeconomic conditions and misguided government policies rather than a primary targeted motive. (Note: Post believes the cutoff to UNMEE in January was an exception based on a GSE political decision. Other UN organizations have not received their fuel allocation for over two months, but the extent to which the decision is politically motivated remains unclear. End Note.) For example, the U.S. Embassy is likely the GSE's least trusted diplomatic mission in Asmara, yet we still receive our full diesel allocation, whereas other diplomatic missions and international organizations have not received fuel since December. If the GSE's policy was to control the movements of foreigners by rationing diesel, it's probable that the U.S. Embassy would have been one of the first to feel the pinch rather than (potentially) one of the last. End Comment. ¶5. (U) ERITREAN FUEL IMPORT STATISTICS, 2003 TO 2007 -------------- -------------- 2003 - expressed in 1,000s of gallons -------------- 4960 - gasoline ASMARA 00000312 002 OF 002 5890 ) kerosene 2480 ) jet fuel 37820 ) diesel 13330 ) heavy fuel oil 4340 ) other 68820 - total 2007 - expressed in 1,000s of gallons -------------- 1860 - gasoline ) 63% decrease 1860 - kerosene - 58% decrease 5890 - jet fuel - 138% increase 21700 - diesel - 43% decrease 15500 - heavy fuel oil - 16% increase 1240 - other - 71% decrease 48050 - total - 30% decrease MCMULLEN