Identifier
Created
Classification
Origin
08ASMARA365
2008-07-22 05:32:00
CONFIDENTIAL
Embassy Asmara
Cable title:
INSIGHTS ON ERTIREA'S FUEL DISTRIBUTION SYSTEM
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C O N F I D E N T I A L SECTION 01 OF 02 ASMARA 000365
SIPDIS
DEPARTMENT FOR AF/E,
LONDON AND PARIS FOR AFRICA WATCHERS
E.O. 12958: DECL: 07/17/2018
TAGS: ECON PGOV ENRG ER
SUBJECT: INSIGHTS ON ERTIREA'S FUEL DISTRIBUTION SYSTEM
REF: ASMARA 312
Classified By: Ambassador Ronald K. McMullen for Reason 1.4 (d)
C O N F I D E N T I A L SECTION 01 OF 02 ASMARA 000365
SIPDIS
DEPARTMENT FOR AF/E,
LONDON AND PARIS FOR AFRICA WATCHERS
E.O. 12958: DECL: 07/17/2018
TAGS: ECON PGOV ENRG ER
SUBJECT: INSIGHTS ON ERTIREA'S FUEL DISTRIBUTION SYSTEM
REF: ASMARA 312
Classified By: Ambassador Ronald K. McMullen for Reason 1.4 (d)
1. (C) Summary: Total's Manager in Eritrea described an
inefficient fuel distribution system being hamstrung by state
control. Desire to dominate and control all aspects of the
economy led to the rejection of mutually beneficial proposals
to relieve Eritrea's diesel shortage. Total is breaking even
on aviation fuel in Eritrea. Gasoline, which does not
require a ration card to purchase, retails for $9.50 per
gallon in the highlands, and $11.25 per gallon in the
lowlands. Diesel, which is rationed, sells at a subsidized
price of $4.00 per gallon. End Summary.
2. (C) Total's Managing Director in Eritrea Mohammed Gbepo
(strictly protect) explained to Emboff some interesting facts
regarding private fuel companies in Eritrea. Two private
fuel companies operate in Eritrea; Tamoil (Libyan-owned) and
Total (French-owned). Both companies are required to
purchase diesel fuel from the Petroleum Company of Eritrea
(PCE) at a subsidized price ($4.00 per gallon) in local
Nakfa. The PCE is owned by Eritrea's ruling party, the
People's Front for Democracy and Justice (PFDJ).
PIA MICROMANAGES FUEL DISTRIBUTION
--------------
3. (C) Gbepo believes Eritrean President Isaias must sign
off on any change in Eritrea's current fuel policies. Even
micro-level operational decisions, such as increasing a
customer's monthly allocation that deviates from past
practices must have the president's explicit approval. This
level of head-of-state involvement in operational
decision-making has shrunk Eritrea's fuel economy, likely
contributing (according to Total's analysis) to a 50%
decrease in Eritrea's fuel consumption since 1995.
SHOT DOWN ) A PLAN TO PROVIDE CONTINUOUS DIESEL
-------------- --
4. (C) Gbepo said about 60% of civilian diesel fuel was
consumed by the PFDJ-owned construction companies. According
to Gbepo, the Eritrean government's desire to subsidize the
price of diesel for these construction companies, along with
a desire to simplify the system to avoid corruption, is why
the GSE subsidizes diesel fuel sales for all customers.
Gbepo proposed to the Ministry of Energy and Mines (MOEM) a
mutually beneficial arrangement to make diesel fuel available
to customers, yet allow the Eritrean government to continue
subsidizing party-owned customers. In exchange for allowing
Total to sell diesel to customers at market prices, Total
would guarantee repayment to Eritrea's fuel suppliers and pay
the PCE the spot market price for the fuel in hard currency.
He said he would charge PFDJ-owned construction companies
whatever subsidized price the government wanted, and then
bill back the PCE for the amount under the spot price. This
arrangement would have allowed for a continuous flow of
diesel into Eritrea, availability for retail customers, and
continued subsidies for favored businesses. Gbepo's request
was turned down by the MOEM for unspecified reasons.
AVIATION FUEL ) BREAKING EVEN
--------------
5. (C) To make its business model in Eritrea work, Total
charges break-even prices to aviation fuel customers. Gbepo
said aviation fuel is the only product for which he is
allowed to accept payment in dollars. Total uses the dollar
revenue to purchase lubricants from abroad. The lubricant
purchases are not subject to the monopolistic control of the
Eritrean government. Gbepo is able to charge market prices
for lubricants, making it the only profitable product for
Total in Eritrea. Total recently took over a lubricant
contract between Tamoil and the Eritrean government because
Tamoil was unable to make delivery. According to Gbepo,
Total had originally won the tender, but direct intervention
by President Isaias caused the contract to be given to Tamoil.
6. (C) Commment. Eritrea's refusal to consider a plan to
provide diesel is indicative of the regime's policy of
maintaining full control over all aspects of the economy,
ASMARA 00000365 002 OF 002
even to the detriment of meeting its own needs. Continued
presidential intervention and the lack of innovative
government management seem likely to hamper fuel supplies
indefinitely. End Comment.
MCMULLEN
SIPDIS
DEPARTMENT FOR AF/E,
LONDON AND PARIS FOR AFRICA WATCHERS
E.O. 12958: DECL: 07/17/2018
TAGS: ECON PGOV ENRG ER
SUBJECT: INSIGHTS ON ERTIREA'S FUEL DISTRIBUTION SYSTEM
REF: ASMARA 312
Classified By: Ambassador Ronald K. McMullen for Reason 1.4 (d)
1. (C) Summary: Total's Manager in Eritrea described an
inefficient fuel distribution system being hamstrung by state
control. Desire to dominate and control all aspects of the
economy led to the rejection of mutually beneficial proposals
to relieve Eritrea's diesel shortage. Total is breaking even
on aviation fuel in Eritrea. Gasoline, which does not
require a ration card to purchase, retails for $9.50 per
gallon in the highlands, and $11.25 per gallon in the
lowlands. Diesel, which is rationed, sells at a subsidized
price of $4.00 per gallon. End Summary.
2. (C) Total's Managing Director in Eritrea Mohammed Gbepo
(strictly protect) explained to Emboff some interesting facts
regarding private fuel companies in Eritrea. Two private
fuel companies operate in Eritrea; Tamoil (Libyan-owned) and
Total (French-owned). Both companies are required to
purchase diesel fuel from the Petroleum Company of Eritrea
(PCE) at a subsidized price ($4.00 per gallon) in local
Nakfa. The PCE is owned by Eritrea's ruling party, the
People's Front for Democracy and Justice (PFDJ).
PIA MICROMANAGES FUEL DISTRIBUTION
--------------
3. (C) Gbepo believes Eritrean President Isaias must sign
off on any change in Eritrea's current fuel policies. Even
micro-level operational decisions, such as increasing a
customer's monthly allocation that deviates from past
practices must have the president's explicit approval. This
level of head-of-state involvement in operational
decision-making has shrunk Eritrea's fuel economy, likely
contributing (according to Total's analysis) to a 50%
decrease in Eritrea's fuel consumption since 1995.
SHOT DOWN ) A PLAN TO PROVIDE CONTINUOUS DIESEL
-------------- --
4. (C) Gbepo said about 60% of civilian diesel fuel was
consumed by the PFDJ-owned construction companies. According
to Gbepo, the Eritrean government's desire to subsidize the
price of diesel for these construction companies, along with
a desire to simplify the system to avoid corruption, is why
the GSE subsidizes diesel fuel sales for all customers.
Gbepo proposed to the Ministry of Energy and Mines (MOEM) a
mutually beneficial arrangement to make diesel fuel available
to customers, yet allow the Eritrean government to continue
subsidizing party-owned customers. In exchange for allowing
Total to sell diesel to customers at market prices, Total
would guarantee repayment to Eritrea's fuel suppliers and pay
the PCE the spot market price for the fuel in hard currency.
He said he would charge PFDJ-owned construction companies
whatever subsidized price the government wanted, and then
bill back the PCE for the amount under the spot price. This
arrangement would have allowed for a continuous flow of
diesel into Eritrea, availability for retail customers, and
continued subsidies for favored businesses. Gbepo's request
was turned down by the MOEM for unspecified reasons.
AVIATION FUEL ) BREAKING EVEN
--------------
5. (C) To make its business model in Eritrea work, Total
charges break-even prices to aviation fuel customers. Gbepo
said aviation fuel is the only product for which he is
allowed to accept payment in dollars. Total uses the dollar
revenue to purchase lubricants from abroad. The lubricant
purchases are not subject to the monopolistic control of the
Eritrean government. Gbepo is able to charge market prices
for lubricants, making it the only profitable product for
Total in Eritrea. Total recently took over a lubricant
contract between Tamoil and the Eritrean government because
Tamoil was unable to make delivery. According to Gbepo,
Total had originally won the tender, but direct intervention
by President Isaias caused the contract to be given to Tamoil.
6. (C) Commment. Eritrea's refusal to consider a plan to
provide diesel is indicative of the regime's policy of
maintaining full control over all aspects of the economy,
ASMARA 00000365 002 OF 002
even to the detriment of meeting its own needs. Continued
presidential intervention and the lack of innovative
government management seem likely to hamper fuel supplies
indefinitely. End Comment.
MCMULLEN