SARG OPTS FOR CASH PAYMENTS OVER SUBSIDIZING

C O N F I D E N T I A L DAMASCUS 000821 SIPDIS DEPT FOR NEA/ELA, NEA/FO, EEB/EX; NSC FOR SHAPIRO/MCDERMOTT PARIS FOR NOBLES LONDON FOR LORD E.O. 12958: DECL: 11/25/2019 TAGS: ENRG EPET ETRD PGOV SY SUBJECT: SARG OPTS FOR CASH PAYMENTS OVER SUBSIDIZING DIESEL PRICES FOR HOME HEATING REF: 08 DAMASCUS 240 Classified By: Charge d'Affaires Chuck Hunter for reasons 1.4(b,d) -------------- Summary -------------- ¶1. (C) In response to the widespread public criticism of a 2008 decision to lift government subsidies for mazout (diesel/heating oil),the SARG recently authorized cash payments to lower-income Syrians. The new Diesel Subsidy Law provides for the distribution of two checks of 5,000 SYP ($110) each to some Syrians who meet a series of economic criteria. The program will cost an estimated $650 million. Syrians continue to grumble about higher mazout prices but are somewhat mollified by being able to heat their homes for less cost with heaters that use government-subsidized electricity, at least until rolling power outages are due to begin in December. End summary. -------------- Background -------------- ¶2. (U) President Asad signed Law 29 of 2009, the Diesel Subsidy Law, on November 19. The law directs the Ministry of Finance to allocate funds for implementation and directs the Central Bank to issue the checks. Law 29 provides for the distribution of two checks which can be cashed at any public or private bank. Families will receive the payments in two equal installments of 5,000 SYP ($110): the first payment upon submission of the application, starting in mid-December, and the second payment in early February. ¶3. (U) The Diesel Subsidy Law references implementation guidelines that have yet to be published by the Prime Minister's office. The implementation guidelines are expected to list seven conditions for eligibility. The person requesting the subsidy must be a Syrian citizen or a permanent resident. The total annual income of all family members living in the same house may not exceed 400,000 SYP ($8,800) and there can be no additional income for any of the family members. Persons requesting the subsidy cannot own a private passenger car with an engine larger than 1,600 cc or own any real estate (for commercial or housing purposes) except the house in which they currently reside. The requesters cannot possess a commercial, industrial, agricultural or tourism registration. Lastly, the average monthly total expenditures on utilities (electricity, water and telephone, including cell phones) by all family members may not exceed 5,000 SP. Applicants must sign a "pledge" that they meet all seven conditions. The Diesel Subsidy Law stipulates a penalty of 300 per cent of the subsidy received for anyone providing a false certification. ¶4. (U) The Syrian Minister of Finance, Mohammed al-Hussein, claimed that 98 per cent of civil servants and pensioners would be eligible for the subsidies. The Minister of Local Administration, Tamer al-Hijjeh, said the number of families expected to benefit from this scheme was about three million, of which two million were government employees. Palestinians residing in Syria are eligible for the subsidies, but Iraqis residing here are not. -------------- PM and Parliament Disagree on Subsidy Plan -------------- ¶5. (SBU) Political debate over the new law remains heated, reflecting continuing differences over the government's 2008 decision to end subsidies for mazout. To compensate for rising mazout prices, the government issued diesel ration cards to all Syrian households in April of that year, entitling each family to purchase 1000 liters of diesel at a discounted price. The program led to widespread corruption, however, as most Syrians sold their coupons. ¶6. (U) Criticism of the coupon program led to calls to develop a new scheme. Last March, Hussein confirmed that the mazout (diesel/heating oil) coupons issued for the winter of 2009 (reftel) would be replaced by a monetary compensation for the winter of 2010. In August, the SARG said the distribution of mazout subsidies would begin at the end of that month. Although the amount was not fixed at that time, it was estimated to be 10,000-15,000 SYP, distributed by two to three checks. At the end of August, the seven conditions for eligibility were established, although slightly different from the final version - most notably, the threshold for total family income eligibility was originally 300,000 SYP ($6,600). In September, debate erupted when PM Otri appeared in Parliament to present his proposal for a 10,000 SYP cash payout. A large group of parliamentarians criticized Otri for the decision to abolish diesel subsidies and abandon low-income Syrians to fend for themselves. They also denounced Deputy PM Dardari, the government's point person for this decision, for refusing to attend the parliamentary session. Parliament argued in favor of scrapping the SARG's plan and instead reducing the price of diesel fuel to 15 SYP/liter from the current price of 20 SYP/liter. Otri was opposed to the Parliament's price decrease because the SARG's goal remains to move away from subsidizing diesel. ¶7. (U) The dispute between the PM and Parliament continued through September and October into early November. As colder weather approached, the lack of a program drew media attention. Al-Baath newspaper, the Baath Party mouthpiece, weighed in "The method of diesel subsidy of last year was a complete failure for the SARG. This year, the SARG seems to be not transparent, not decisive and hesitant in adopting a scheme. Poor Syrian citizens!!! They have too many things to worry about: diesel prices, electricity rationing, water rationing, lack of job opportunities, low salaries and income, etc." ¶8. (SBU) Otri officially announced on November 8 that the first diesel subsidy payment would be distributed in December. President Asad issued a statement stressing the importance of government intervention to improve the welfare of the citizens. The media spun the President's statement as a clear message to PM Otri, who had refrained from issuing the long-awaited decision despite a cold wave that had lasted for about one week. After a final debate in the People's Assembly on November 18, Otri's program was accepted by the Assembly and became law on November 19. -------------- Comment -------------- ¶9. (C) In 2007-2008, when oil prices were at an all-time high, the SARG spent an estimated $5 billion on fuel oil subsidies. Last year, after the SARG abolished subsidies, that number decreased significantly, freeing up financial resources for other budgetary priorities. Though the end of mazout subsidies produced substantial economic benefits, the political fallout has been costly. PM Otri, who ironically opposed the lifting of subsidies in the first place, has been blamed for the SARG's inability to put together a coherent safety net program for Syria's lower-income citizens, including many government employees. Many government insiders, however, fault Dardari for ignoring the need for a safety net and increasing the SARG's exposure. At the end of the day, most Syrians are buying less mazout because electricity remains highly subsidized and provides a cheaper alternative for heating homes. That, however, could change quickly, after the SARG's recent announcement that rolling power outages - normally a summertime phenomenon - will begin after the November 28-30 Eid holiday. HUNTER