C O N F I D E N T I A L HAVANA 000752

SIPDIS

DEPT FOR WHA/CCA

E.O. 12958: DECL: 09/11/2018
TAGS: ECON PGOV PINR PREL CU
SUBJECT: IN THE MIDST OF DESPAIR, A HIKE IN GAS PRICES

REF: HAVANA 739

Classified By: COM Jonathan Farrar for reasons 1.4 (b) and (d)


1. (U) As eastern Cuba battled hurricane Ike and the western
part of the island prepared for its second major hurricane in
eight days, the Government of Cuba announced on September 8 a
significant increase in prices for gasoline and diesel,
effective immediately. The GOC raised the price of regular
gasoline (used by most Cubans) 69 percent to the equivalent
of USD 5.60 per gallon and the price of diesel (used by
trucks delivering goods to market) 87 percent to USD 5.80 per
gallon. Although few Cubans have cars, the increase in gas
prices will affect the operation of private taxis (legal and
illegal), increase the price of agricultural goods in the
local farmers' markets, and limit the ability of private
Cubans to visit and assist family members recovering from the
hurricanes.


2. (U) Noting that the international price of oil has
multiplied since the last price hike in 2005, the GOC
announcement claimed that at current gas prices and 2007
consumption rates the government would lose close to USD 420
million in 2008. The government further announced that the
prices will now be updated every three months according to
the hydrocarbon market fluctuations. The last price increase
was in January 2005 for diesel only, following a May 2004
increase in diesel and regular prices.

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COMMENT
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3. (C) A gas price hike was long overdue and we had heard
rumors that the GOC was contemplating an increase in the
middle of the steady climb of oil prices back in June. The
magnitude of this week's announcement was much greater than
expected, considering the 2004 and 2005 increases were
between 6 and 36 percent. The timing of the announcement is
also curious, as hurricane Ike crossed (and crushed) Cuba and
international oil prices dropped close to USD 100 per barrel.
The GOC may have wished to hide this difficult decision,
after years of official news reports highlighting rising
prices in other countries. Such a large increase will not go
unnoticed, but will move even more consumers to the black
market and further frustrate a populace searching for food
and other supplies desperately needed to rebuild their lives.
FARRAR