ExxonMobil urged government to cut fuel subsidy way back in 2003

ExxonMobil, one of the largest oil companies in the world, urged Finance Minister Herbert Murerwa at the beginning of 2003 to ask the National Oil Company of Zimbabwe to stop subsidising fuel imports.

The subsidy was reportedly costing the taxpayer US$1 million a day but lifting it would have seen the price of fuel rise five to six fold.

Because of the skewed exchange rate Zimbabwe’s fuel cost about 20 US cents, instead of at least $1.

This promoted waste, profiteering and overconsumption.

Full cable:

Viewing cable 03HARARE152, ExxonMobil tells GOZ to cut fuel subsidy

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This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS HARARE 000152

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

USAID FOR MARJORIE COPSON

¶E. O. 12958: N/A

TAGS: EPET EFIN ECON ZI

SUBJECT: ExxonMobil tells GOZ to cut fuel subsidy

Sensitive but unclassified.

¶1. (SBU) Summary: A visiting ExxonMobil delegation

recently urged the GOZ to stop subsidizing fuel

consumption, which has completely overburdened the

country’s foreign exchange assets. The delegation

suggested a more targeted support mechanism for public

transport and critical services that would soften the

blow of a 5-6 fold increase in the fuel price. End

Summary.

¶2. (U) ExxonMobil Africa and Middle East Marketing

Director John Bell led a group of company executives to

Zimbabwe in the week of Jan. 13 for talks with the GOZ.

A steep slide in the Zimdollar has meant the GOZ now

subsidizes more than 90 percent of the cost of commercial

and retail fuel (about US$ 1 million/day), a burden it

can no longer meet. The country has suffered severe

shortages over the past 5 weeks. Mobil is one of 5

foreign oil companies that share the distribution

business with 17 local operators.

¶3. (SBU) In a Jan. 15 meeting with Finance Minister

Herbert Murerwa, the ExxonMobil team argued that the

parastatal National Oil Company of Zimbabwe (NOCZIM)

should stop subsidizing the fuel it imports, which would

trigger a 5-6 fold rise in the pump price. Multinational

and other oil companies would pay the Zimdollar parallel

rate equivalent to NOCZIM and charge a slightly higher

amount at the pump. (The Confederation of Zimbabwe

Industries had earlier backed away from a proposal for a

two-tier fuel-pricing scheme over fear of leakages.)

Instead, the GOZ could underwrite part of the cost of

public transport and other services. Zimbabwe’s

artificially low fuel price — about US$ .20/gallon —

promotes waste, profiteering and overconsumption.

Frustratingly, Murerwa was noncommittal in the absence of

agreement from President Mugabe.

Comment

——-

¶4. (SBU) While ExxonMobil’s arguments make sense, the GOZ

is concerned with broader implications. Such a dramatic

rise in the fuel price would be unpopular and fan the

country’s high inflation rate, already 198 percent

officially and 300-400 percent unofficially. It would

lock in fuel at an exchange rate of around Z$ 1,500/US$

1, a market devaluation the GOZ refuses to recognize.

And it would make mincemeat of the GOZ’s extensive price

controls, the main tenant of its “macroeconomic policy.”

Sullivan

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