VZCZCXRO2157
RR RUEHMA RUEHPA
DE RUEHCO #0135/01 0511255
ZNR UUUUU ZZH
R 201255Z FEB 07
FM AMEMBASSY COTONOU
TO RUEHC/SECSTATE WASHDC 9268
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHFR/AMEMBASSY PARIS 1041
RUEHLO/AMEMBASSY LONDON 0284
RUEHKM/AMEMBASSY KAMPALA 0115
RUEHLMC/MILLENNIUM CHALLENGE CORP

UNCLAS SECTION 01 OF 02 COTONOU 000135 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF/W (DBANKS), AF/EPS 
PARIS FOR D'ELIA 
LONDON FOR HAHN 
KAMPALA FOR FLINTROP 
 
E.O. 12958: N/A 
TAGS: EPET ETRD ECON EINV KCOR PGOV BN
SUBJECT: NIGERIA'S SHORTAGES AID BENIN'S EFFORT TO CRACK DOWN ON 
SMUGGLED GASOLINE 
REF: A) LAGOS 92, B) ABUJA 164, C) LAGOS 54, D) 06 COTONOU 543 
 
COTONOU 00000135  001.2 OF 002 
 
 
¶1. (SBU) SUMMARY: Recent gas shortages in Nigeria are helping to 
shift gasoline consumption patterns in Benin from the black market 
to the legitimate, and taxed, retail sector.  Street vendors of 
"kpayo" were compelled to shut down in late January due to the 
sky-high price of gas smuggled in from Nigeria.  Responding to price 
and availability concerns, consumers, who previously bought 70-80 
percent of their fuel on the black market, switched in massive 
numbers to legitimate retail outlets.  At first, massive lines 
resulted, despite GoB efforts to weaken the kpayo market through 
measures to keep prices affordable and to encourage retailers to 
expand their distribution networks, retail stations were not up to 
the task, and hours-long lines formed.  After a few days, however, 
the crisis abated, as kpayo shortages eased, and as retail networks 
more efficiently met demand.  It appears the crisis has shifted a 
considerable percentage of Benin's fuel consumption into the 
legitimate retail market.  This shift will likely endure as long as 
the price differential between smuggled and legal gasoline remains 
moderate.  The government will continue its efforts to curb gas 
smuggling and improve the petroleum products distribution system. 
In a related development, Chevron and state-managed petrol 
distributor Sonacop have found a solution to their long-running 
business dispute. END SUMMARY. 
 
RUNNING ON EMPTY: THE FIGHT AGAINST SMUGGLED GAS 
-------------------------------- 
 
¶2. (U) Normally, unofficial gasoline distribution networks involving 
street-side vendors who sell smuggled gas ("kpayo") from Nigeria in 
glass bottles, meet 75 percent of Benin's demand. In a market where 
price-sensitivity is virtually the sole criteria for most buyers, 
the low prices vendors charge trump concerns over the questionable 
quality of "kpayo". This price differential is a consequence of the 
easy availability of gasoline smuggled from Nigeria, where the 
subsidized pump price is around 50 cents a liter.  Even with the 
costs involved in smuggling operations, in late 2006, kpayo prices 
hovered around 70 cents a liter (350 fCFA) while the price for legal 
gas was 83 cents a liter (415 fCFA) 
 
¶3. (U) When the Yayi government attempted, in June 2006, to crack 
down on "kpayo" (REF D), two problems immediately became apparent. 
One was the economic impact of forcing consumers to switch to more 
expensive legitimate gas supplies.  The other was the total 
inadequacy of Benin's retail gasoline distribution network. 
According to Mr. Gerard Dogbe, Chevron Country Manager for Benin and 
Togo, there are currently 35 gas stations in Cotonou and its suburbs 
serving a population of over one million, versus about 135 in Lome, 
Togo (a smaller city).  Many of these stations, particularly those 
run by state-managed distributor SONACOP, rarely had adequate 
supplies for sale. 
 
REFORM EFFORTS MAKE SOME HEADWAY 
-------------------------------- 
 
¶4. (U) Since then, the GoB has undertaken a number of measures to 
improve gasoline distribution.  It extended state-management of 
previously-privatized SONACOP, which was originally imposed in March 
2006, in large part to ensure that adequate distribution of gasoline 
across the nation can be maintained.  It has also exonerated gas 
station equipment from import duties and simplified the permitting 
process to encourage the construction of new gas stations.  Several 
distributors, particularly Oryx, a Swiss company that has its own 
fuel depot at the Port of Cotonou, have taken advantage of these 
measures, and opened small "sidewalk" gas stations (each with a 
maximum capacity of 5000 liters) at various roadside locations in 
Cotonou.  These mini-stations have helped relieve the pressure on 
major stations to some extent, but have also created a traffic 
hazard when they are located on heavily used roads. The GoB also 
took steps to reduce the pump price differential between pumped gas 
and "kpayo", by reducing the taxes imposed.  This led, in January 
2007, to the government-regulated price, set monthly, to drop to 80 
cents (400 fCFA) per liter. 
 
¶5. (SBU) Dogbe said Chevron would not build small roadside gas 
stations as they do not meet Chevron's corporate standards, but said 
Chevron would like to extend its retail network if it could purchase 
land at a reasonable price.  According to Dogbe, the cost of 
building new full-size stations remains prohibitive, with a 2,000 
meter plot of land in Benin costing $400,000 - $600,000 (200 - 300 
million fCFA) compared to $36,000 (fCFA 18 million) for a recent 
purchase in Togo. 
 
 
COTONOU 00000135  002.2 OF 002 
 
 
NIGERIA'S GAS CRISIS TIPS THE BALANCE 
------------------------------------- 
 
¶6. (SBU) Then, in late January, Nigeria's gasoline supply crisis 
(REFS A-C) meant that supplies of "kpayo" in Benin were sharply 
reduced.  "Kpayo" became very hard to find, and the price for 
available stocks soared to 1000 fCFA ($2) per liter, more than 
double Benin's pump price.  While caught off guard by the rapidity 
at which events unfolded, the GoB was as ready as it would ever be, 
with the price reduction just coming into effect, and several of the 
sidewalk gas stations having just opened the same week. 
Nonetheless, retailers struggled to deal with an unprecedented run 
on their supplies (made worse since Benin, unlike Togo, has no 
national strategic reserves of gasoline), and hours-long lines 
snaked out of every gas station in the country. 
 
¶7. (U) In recent weeks, the situation has stabilized somewhat. 
"Kpayo" is once again widely available, but at a higher price (390 
fCFA) than before the recent crisis.  Combined with the reduction of 
the pump price to just 400 fCFA, "kpayo" now enjoys a much-reduced 
competitive advantage.  To judge by the steady trade at the 
newly-established service stations, a significant shift in 
consumption has occurred toward the legitimate market.  Making such 
a shift permanent, however, will depend on continued reliability of 
supplies at service stations.  During a trip in northern Benin Feb. 
13-15, the DCM discovered that supplies outside of coastal urban 
areas are still spotty, with several stations reporting that they 
had run out of gas to sell. 
 
PROGRESS ON RESOLVING CHEVRON DISPUTE WITH SONACOP 
--------------------------------------------- 
 
¶8. (SBU) Mr. Dogbe also provided an update on the status of the 
Chevron-Texaco dispute with SONACOP, Benin's former parastatal and 
largest distributor of petroleum products. SONACOP, under 
provisional state management since March 2006, has agreed to 
compensate Chevron for the 22 million liters of Chevron's gas (worth 
$6.7 million) that it stole in early 2005, when it was being run as 
a privatized company.  The compensation is given by waiving 
throughput charges for gasoline Chevron stores in SONACOP 
facilities, and this fee waiver will be continued until the amount 
is repaid. To date, SONACOP has waived approximately $1.2 million in 
throughput fees. The former owner-operator of the company, Mr. Sefou 
Fagbohoun, remains in prison awaiting trial on charges that include 
the Chevron affair. 
 
BROWN