Government pondered selling Air Zimbabwe fleet to raise money

The government was so desperate for fuel towards the end of 2002 that it illegally pilfered Independent Petroleum Group fuel stored in Zimbabwe and pondered the selling the Air Zimbabwe fleet to raise hard currency.

The National Oil Company of Zimbabwe which procured fuel for the country was selling the product at a loss with the government underwriting the loss.

President Robert Mugabe decided to end the fuel subsidy reportedly because he was enraged after failing to get fuel for his own armoured Mercedes Benz.

Full cable:

Viewing cable 02HARARE2397, Zimbabwe May Scrap Fuel Support

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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 002397

SIPDIS

SENSITIVE

STATE FOR AF/S

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: ECON EPET EFIN ETRD ZI

SUBJECT: Zimbabwe May Scrap Fuel Support

Sensitive but unclassified. Protect accordingly.

¶1. (U) Summary: Reportedly smarting from a first-hand

encounter with dry fuel pumps, President Mugabe has

suggested parastatal NOCZIM may relinquish the job of

importing fuel to the private sector, bringing an end to

a costly and self-defeating fuel subsidy.   This would

require huge price increases at the pump, and let the GoZ

scapegoat foreign multinationals since it is

inconceivable that anyone would import anything at the

current GoZ-imposed price. End Summary.

A failed model

—————–

¶2. (U) Through NOCZIM, the GoZ has for years bought and

bartered for fuel abroad, then sold it to downstream

operators for a fraction of its value. Foreign and

national oil firms are allowed a modest profit to

distribute the fuel. In effect, the GoZ has been

underwriting NOCZIM’s operating loss to keep fuel

artificially cheap (less than US$ .20/gallon at present).

With an accelerating Zimdollar devaluation and rampant

fuel smuggling to neighboring markets, the GoZ has run

out of foreign exchange to import fresh supplies. So

desperate is the GoZ has kept the country running of late

by cutting off commercial over retail customers,

illegally pilfering Independent Petroleum Group (IPG)

fuel stored in Zimbabwe and pondering the sale of Air

Zimbabwe’s fleet to raise hard currency.

¶3. (U) Mugabe has now hinted at scrapping this

unsustainable model. Reportedly, he was enraged because

he was unable to find fuel for his own armored Mercedes

limousine while on a recent trip to Gweru. He announced

last Thursday:

“The fuel comes in the name of the government . . . We

call on multinational companies. They sell and make

profits. Government does not make any profit . . . [The

companies] don’t suffer from the headaches and stomach

aches I suffer from . . . [Now] they must import and not

wait for the government to do it for them. They have the

foreign exchange.”

Anti-profit and self-pity hyperbole aside, Mugabe is

admitting the GoZ can no longer cover NOCZIM’s losses.

Although he does not address pricing, we assume – or at

least hope – the President appreciates that private

companies will not import fuel at a loss.

Comment

———–

¶4. (U) If Mugabe is serious, the GoZ is taking a

significant step forward by tacitly conceding that market

forces rather than price controls better serve the

country’s future fuel needs (not to mention food and

exchange requirements).   But there’s a problem: The GoZ

is hard-pressed to justify steep hikes in fuel and

transport costs to an already pauperized population.

¶5. (SBU) A solution? Mugabe could scapegoat foreign

firms – including Mobil and Caltex. Word in the sector

is that new national companies close to the government

are anxious to gain market-share from better-established

multinationals. (With many new indigenous operators

entering the sector, the number of downstream firms has

grown from 5 to 22 since 1999.)   In this worst-case

scenario, Mugabe would castigate multinationals for

higher fuel prices, just as he has blamed them for

shortages, then expropriate or force sale of their

assets.   He may have been laying this groundwork when he

bemoaned in the same remarks that “government cracks to

make [foreign oil companies] rich.” Mugabe has similarly

vilified and threatened to nationalize National Foods

over food shortages. (The CEO of parent Anglo American

told us last week he is looking for an indigenous partner

to insulate National Foods from expropriation.)   In any

event, Mugabe may be coming to the view that expensive

fue

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